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The income statement as a tool for profit
planning.
Two pertinent questions:
How will you or your companymake more money thisyear than last year?
Can we focus on how to make more money?
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KNOW the Income Statement$ REVENUE
- Cost of goods sold
- Sell, Gen &Admin
Operating Income
-Interest Expense
-Taxes
$ Net Income
Net Income = Profit Profits go back into a business or to a dividend to owner(s)
The Income Statement is a tool to focus you as a business owner to measure and plan to make money.
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KNOW key drivers
$ REVENUE
Revenue = $Price * #Quantity What will client’s pay? How many clients do you have?
Revenue is more than a number. It measures client behavior in $.
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Cash Waterfall
COSTS
Equity
Revenue
Dividend
Revenue pays for costs.
What’s left over is equity.
Equity stays in the business
to grow it. Or is distributed
to owners as dividend.
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ACTIONABLE IDEA$www.moneynative.com
Use well prepared financial statements
as tool to think of money making opportunities.
Two Basic Stories
↑ Revenue
of the income statement
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The Top Line Story*
Company increases revenues
to increase profit.
How can revenue grow?
↑ QUANTITY * ↑ PRICE
↑growth either organic or acquired
The top line refers to the revenue line of the income statement. It is considered the most important line item of the income statement.
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The Margin Story*
Company lowers its costs
to increase profit.
labor, materials, supplies
sales force, office, information systems
How low can costs go and still provide quality?
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Margin = costs / revenue; there are 3 types gross margin, operating margin and net profit margin
Assets (balance sheet) Generate Revenues and Profits
What assets can you use or buy or create that will increase revenues?
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If you own a restaurant what type of assets will you need to buy in order to generate sales? Hint: What does your client want?
Hope is not a good story
Common hope stories:• I will compete by lowering my price.• I will give my product away for free to
get exposure.• If I build it they will come.
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A Profit Plan is good story
Buy assets that have a direct effect on ↑ revenues. Don’t just HOPE. PLAN to be a profitable business.
A profit plan helps:• Keep the business on track.• Attract a lender or investor to your
business. • Attract a buyer of your business.
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How do you do better than competitors?
• Focus on your clients needs and goals. Can you increase your client’s sales or decrease their costs?
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