Forecasting Income and Expenditure
Most start-up businesses will have some form of profit measure in their statement of objectives. During the planning stages of a new venture, forecasting might be employed to demonstrate when the stated goals is likely to be achieved.
Levels of Income and Expenditure for a Start-up Business
Typically, such forecasts will depict a start-up business as having an excess of expenditure over its income in the early periods of trading. This is especially apparent in situations where a substantial capital investment is required to purchase stock, plant, carry out research or engage in large advertising campaigns.
Over time, as sales are made and their volume starts to grow, the levels of income vs. expenditure begin to reach equilibrium. Once this state is reached, earnings and revenues then begins to outpace outflows by an ever increasing amount.
At this stage, each sale achieved makes a contribution towards the fixed costs of the business and once volumes are sufficient, amounts earned then convert to the profits of the business.
Profit and Loss Forecasts
Profit and loss forecasts should depict at which initial periods will be loss making, the estimated breakeven point and the levels of profitability which are achieved at the various stages of business activity.