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1. Shard Calculation

Query:

Response:

Calculated Shard: 17 (from laksa107)

2. Crawled Status Check

Query:

curl -X POST \
  'http://laksa017.int.ahrefs:8124/' \
  -H 'Content-Type: text/plain' \
  -H 'X-ClickHouse-Database: crawler3' \
  -H 'Authorization: Basic YXBpOg==' \
  -d 'SELECT getAhrefsURLFromUnparsed(src_unparsed) AS found_url, ifNull(toUnixTimestamp(download_stamp), 0) AS crawl_time, ifNull(toUnixTimestamp(props_url_first_seen), 0) AS first_indexed_time, download_http_code AS http_code, src_unparsed AS src_unparsed, src_root_hash AS src_root_hash, history_drop_reason AS history_drop_reason, meta_title AS meta_title, meta_descriptions AS meta_descriptions, attrs_boilerpipe_text AS attrs_boilerpipe_text, attrs_markdown AS attrs_markdown, attrs_readable_markdown AS attrs_readable_markdown, meta_canonical AS meta_canonical, ml_categories_json AS ml_categories_json, ml_types_json AS ml_types_json, ml_intent_types_json AS ml_intent_types_json, meta_language AS meta_language, attrs_author AS attrs_author, ifNull(toUnixTimestamp(attrs_publish_time), 0) AS attrs_publish_time, ifNull(toUnixTimestamp(attrs_original_publish_time), 0) AS attrs_original_publish_time, ifNull(attrs_is_republished, 0) AS attrs_is_republished, ifNull(attrs_nr_words, 0) AS attrs_nr_words, ifNull(attrs_boilerpipe_nr_words, 0) AS attrs_boilerpipe_nr_words, ifNull(body_ext_links_number, 0) AS body_ext_links_number, ifNull(body_int_links_number, 0) AS body_int_links_number, ifNull(meta_nofollow, 0) AS meta_nofollow, ifNull(meta_noarchive, 0) AS meta_noarchive, ifNull(props_was_rendered, 0) AS props_was_rendered, ifNull(src_redirect, \'\') AS src_redirect, ifNull(download_time_msec, 0) AS download_time_msec, ifNull(download_ttfb_msec, 0) AS download_ttfb_msec, ifNull(download_size, 0) AS download_size FROM crawler3.page_info_local FINAL PREWHERE (src_root_hash, src_unparsed) IN ((getAhrefsRootHashFromUnparsed(getAhrefsUnparsedNoserviceFromURL(\'https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html\')), getAhrefsUnparsedNoserviceFromURL(\'https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html\'))) FORMAT JSONEachRow'

Response:

{"found_url":"https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html","crawl_time":1775094698,"first_indexed_time":1544373115,"http_code":200,"src_unparsed":"com,nolo!www,\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html s443","src_root_hash":"9734753383446508417","history_drop_reason":null,"meta_title":"Profit and Loss Forecast for Small Businesses: Step‑by‑Step Guide","meta_descriptions":["Learn how to create a profit and loss forecast for your small business, estimate revenue and costs, calculate profit margin, and compare P&L forecasts to cash flow."],"attrs_boilerpipe_text":"Turn your guesses into a game plan: forecast sales, wrangle costs, and see if your business really pays you back.\nBy\n,\nAttorney\nUC Law San Francisco\nUpdated by\nAmanda Hayes\n,\nAttorney\nUniversity of North Carolina School of Law\nA profit and loss (P&L) forecast is a projection of how much money your\nsmall business\nwill bring in by\nselling products or services\n. In good times, you use it to ensure that there'll be enough money coming in to exceed the costs of providing the goods and services so you can make a solid profit. In tough times, your P&L can play an essential role in showing you what kind of plan you need to return to break even, so you'll be able to survive until better times come.\nIf you use accounting software, such as Intuit's QuickBooks, it'll generate a P&L forecast for you once you enter monthly sales and expense estimates. You can also create your own forecast using a basic spreadsheet. Just look at the sample P&L below to see how to set up this important\naccounting document\n.\nIn This Article\nStep 1: Estimate Future Revenue\nStep 2: Estimate Your Variable Costs\nStep 3: Estimate Your Gross Profit\nStep 4: Calculate Your Net Profit Using Fixed (Overhead) Costs\nYour Gross Profit Margin\nDifference Between Profit and Loss Forecast and Cash Flow Statement\nStep 1: Estimate Future Revenue\nStart by estimating how much you'll take in each month during the next six to 12 months. No question, this number will be a guesstimate. If you're already in business, you can extrapolate from current sales levels and allow for significant seasonal fluctuations and other known variables.\nExample:\nSuppose Emme owns and operates a consignment shop that sells gently used clothes for women and children. She buys her inventory from moms who bring in their own and their children's clothing to sell. Emme is careful to buy mostly well-known brands (and when possible, high-end ones) that she can sell for a premium.\nEmme was selling $15,000 of clothing per month when the economy took a dive. Sales have been down almost 30% lately. So Emme wants to create a more realistic profit and loss forecast for the upcoming year. She estimates that she'll bring in an average of $10,000 per month in sales over the next year—more at back-to-school time and the holidays, less during the slow summer months.\nStep 2: Estimate Your Variable Costs\nNow estimate the monthly cost to you of the goods or services you'll sell as part of achieving your sales estimate. These are your variable costs.\nThese costs are called \"variable,\" or sometimes \"incremental,\" because they go up or down depending on the volume of products or services you produce or sell. (And in retail, they're called \"cost of goods.\") For example, if you're a mail-order business, then the more you sell, the more you'll pay for shipping costs.\nOther variable costs include:\ninventory\nsupplies\nmaterials\npackaging, and\nsometimes, labor used in providing your product or service.\nIn the case of services, count labor costs as variable costs only if they'll go up or down depending on how many sales you make. For instance, if you have to\nhire independent contractors\nor temps to cover busy periods, those labor costs are variable.\nBut if you employ a manager, bookkeeper, or\nmarketing\nemployee, you'll have to pay their salaries no matter how much sales go up or down. These wages should be listed under fixed costs (overhead) in Step 4, below.\nExample:\nEmme used to spend more than $6,500 per month to buy used clothing to resell. But because sales have been down so much, she'll need less inventory. She estimates that she'll probably spend only about $4,500 per month.\nStep 3: Estimate Your Gross Profit\nNow, simply subtract your average monthly variable costs from your estimated average monthly sales revenue to get your estimated monthly gross profit. This number will let you calculate how much of each dollar of sales you get to keep. From that amount, however, you'll have to pay for overhead costs. Anything left over is your net profit.\nExample:\nEmme subtracts her inventory costs of $4,500 per month from her sales estimate of $10,000 per month. She estimates her new average monthly gross profit will be $5,500. Again, this number is her gross profit before subtracting her overhead, which is discussed below.\nStep 4: Calculate Your Net Profit Using Fixed (Overhead) Costs\nYour net profit is the most important number you need to determine. Your net profit lets you see whether you'll have any money left after paying your overhead costs or, failing that, whether you can at least break even. To arrive at your net profit, make a list of your monthly fixed costs, which are items such as:\nrent from your\ncommercial lease\nemployees' wages (including\npayroll taxes\n, benefits, and\nworkers' comp costs\n)\nyour salary if you plan to\npay yourself\na regular wage regardless of how profitable the business is (but if, as is typical, you'll just take what's left over after costs are paid, don't include your salary as a fixed cost)\nutilities\ntelephone\ninsurance\noffice equipment\nadvertising, and\naccounting, bookkeeping, or tax preparation fees.\nDivide any annual expenses, such as insurance premiums, by 12 to get a monthly amount.\nTo arrive at your monthly net profit (or loss), subtract your average estimated monthly fixed costs from your monthly gross profit.\nExample: Estimate Monthly Net Profit\nOver the past year, Emme has been able to pay herself $50,000 from the business. But she knows that with sales dropping, this salary won't be possible in the coming year. She guesses she'll need to cut her take-home wages to $30,000—and if she can't bring home at least that amount for living expenses, she won't keep the shop open. So she includes $30,000 in her fixed costs.\nEmme adds up her total fixed costs, including the following:\n$1,000 for rent\n$100 for utilities\n$4,000 for labor (this amount includes $12,000 per year for a part-time assistant, employment taxes and costs, and her $30,000 salary), and\n$100 for insurance (her annual premium is $1,200), and so on.\nThe total of her fixed costs comes to $5,500 per month. When she puts one month's numbers together in a spreadsheet, here's what it looks like.\nJanuary\nSales Revenue\n10,000\nCost of Goods\n4,500\nGross Profit\n5,500\nFixed Costs\nRent\n1,000\nLabor\n4,000\nUtilities\n100\nPhone\n30\nInsurance\n100\nAdvertising\n40\nAccounting\n130\nMiscellaneous\n100\nTotal Fixed Costs\n5,500\nNet Profit (Loss)\n0\nWhen you're satisfied with your cost estimates for an average month, fill in estimates for six or 12 months. Then, for each month, subtract your total fixed expenses from your gross profit to get the net profit.\nExample: Estimated Net Profit for Twelve Months\nEmme fills in an entire year of sales estimates, with the usual dip in sales she experiences in summer and then upswings in September when the kids go back to school and in December, traditionally her best month. Then, using her estimate of $4,500 in monthly variable costs and her estimate of $5,500 in monthly fixed costs, she comes up with a net profit for each month. Emme notices that in the summer, she'll lose a little over $1,000 per month for a few months in a row, but will make it back up by December.\nEmme's Profit and Loss Forecast\nJan\nFeb\nMarch\nApril\nMay\nJune\nJuly\nAug\nSept\nOct\nNov\nDec\nSales Revenue\n10,000\n10,000\n10,000\n10,000\n10,000\n8,000\n8,000\n7,000\n12,000\n10,000\n10,000\n15,000\nVariable Costs\n4,500\n4,500\n4,500\n4,500\n4,500\n3,600\n3,600\n3,150\n5,400\n4,500\n4,500\n6,750\nGross Profit\n5,500\n5,500\n5,500\n5,500\n5,500\n4,400\n4,400\n3,850\n6,600\n5,500\n5,500\n8,250\nFixed Costs\nRent\n1,000\n1,000\n1,000\n1,000\n1,000\n1,000\n1,000\n1,000\n1,000\n1,000\n1,000\n1,000\nLabor\n4,000\n4,000\n4,000\n4,000\n4,000\n4,000\n4,000\n4,000\n4,000\n4,000\n4,000\n4,000\nUtilities\n100\n100\n100\n100\n100\n100\n100\n100\n100\n100\n100\n100\nPhone\n30\n30\n30\n30\n30\n30\n30\n30\n30\n30\n30\n30\nInsurance\n100\n100\n100\n100\n100\n100\n100\n100\n100\n100\n100\n100\nAdvertising\n40\n40\n40\n40\n40\n40\n40\n40\n40\n40\n40\n40\nAccounting\n130\n130\n130\n130\n130\n130\n130\n130\n130\n130\n130\n130\nMiscellaneous\n100\n100\n100\n100\n100\n100\n100\n100\n100\n100\n100\n100\nTotal Fixed Costs\n5,500\n5,500\n5,500\n5,500\n5,500\n5,500\n5,500\n5,500\n5,500\n5,500\n5,500\n5,500\nNet Profit (Loss)\n0\n0\n0\n0\n0\n-1,100\n-1,100\n-1,650\n1,100\n0\n0\n2,750\nCreating this new profit and loss forecast lets Emme see that she can't count on taking any extra profits out of the business for the next year. And if her sales estimates are too high, she won't be able to take home $30,000 over the year for living expenses. She needs to think long and hard about whether it makes sense to drain her savings account and continue toiling for a year in the hopes that the economy will rebound soon and allow her to make a good living again from the store.\nYour Gross Profit Margin\nIt's also useful to know your gross profit margin. Gross profit margin measures the difference between the costs of producing a product or providing a service and what you're selling it for. In short, it lets you know how profitable your products and services are.\nTo get your profit margin, divide your estimated average monthly gross profit by your estimated monthly sales.\nExample:\nEmme divides her monthly gross profit of $5,500 (knowing that this figure varies in some months) by her $10,000 of sales. Her profit margin is 55%. Now she knows she'll get to keep, on average, about 55 cents of every sales dollar she takes in (before paying for overhead).\nWhat Your Profit Margin Means\nProfit margins can be used in many different ways.\nAssessing profitability.\nSome businesses regularly calculate their profit margin to monitor the profitability of their products or services. A decrease in profit margin over time usually means that variable costs have gone up—for instance, costs for raw materials, manufacturing, or labor. Rising variable costs should nudge the company to either look for new suppliers or raise prices.\nSet pricing.\nOther businesses use their anticipated profit margin to help them price products or services (and increase profitability). For example, suppose a business requires a profit margin of 60%. It produces a product that costs $20 to make. Using the profit margin formula ($20 ÷ (100% - 60%), it would set the retail price of its product at around $50. The business would make $30 in profit off of the $50 sale, a 60% profit margin.\n(Some experts disagree with this use of profit margin, recommending instead that businesses start with the price they think customers will pay and then make sure the costs are low enough to make a profit.)\nEvaluating new inventory.\nAnother way to use profit margins is to screen new products and services to sell. For instance, a retail gift shop might decide to add only new products that can be bought and sold at a price that yields a profit margin of 50%.\nWhat's a Good Profit Margin?\nThe answer varies across industries. According to the NYU Stern School of Business, the\naverage profit margins per industry sector\ninclude the following:\nthe farming and agricultural industry has a lower profit margin, around 13%\nthe software industry has traditionally had high profit margins, around 70%; and\nthe profit margins for restaurants and retail are somewhere in the middle, around 30%.\nBut without looking at the costs of a company's overhead, such as marketing and administration, profit margins don't give the whole picture of a company's profitability.\nDifference Between Profit and Loss Forecast and Cash Flow Statement\nBoth a P&L forecast and a\ncash flow statement\nare essential to assessing the financial state of your business. But they differ in their purpose and method of accounting.\nAccounting methods.\nA P&L forecast uses accrual accounting, meaning your revenue reflects how much your business makes and is owed. So, your revenue would include money your business has earned, but your\ncustomer hasn't yet paid\n. A cash flow statement uses cash basis accounting, meaning your revenue total doesn't include money your business is owed but hasn't yet received. You'll only count the money your business has been paid.\nPurposes.\nA business owner would use a P&L forecast to assess their\ncompany's profitability\n. You'll use your P&L statement to see if your business is a worthwhile venture. You'll use a cash flow statement to track the money going in and out of your business. Your cash flow statement has a more immediate purpose than the P&L forecast. Your cash flow statement will show you if your business has enough in the bank to pay for upcoming expenses.","attrs_markdown":"- Legal Issues Explained\n  Injuries & Illnesses\n  ***\n  [Accidents & Injuries (Personal Injury)](https:\/\/www.nolo.com\/legal-encyclopedia\/accident-law) [Car Accidents](https:\/\/www.nolo.com\/legal-encyclopedia\/vehicle-accidents) [Disability Law](https:\/\/www.nolo.com\/legal-encyclopedia\/disability-law) [Workers’ Compensation](https:\/\/www.nolo.com\/legal-encyclopedia\/workers-compensation)\n  \n  Criminal & Traffic\n  ***\n  [Criminal Law](https:\/\/www.nolo.com\/legal-encyclopedia\/criminal-law) [DUI \/ DWI & Traffic Tickets](https:\/\/www.nolo.com\/legal-encyclopedia\/dui-traffic-tickets)\n  \n  Money & Property\n  ***\n  [Bankruptcy](https:\/\/www.nolo.com\/legal-encyclopedia\/bankruptcy) [Debt Management](https:\/\/www.nolo.com\/legal-encyclopedia\/collection-agencies) [Foreclosure](https:\/\/www.nolo.com\/legal-encyclopedia\/foreclosure) 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Tools](https:\/\/store.nolo.com\/products\/?_gl=1*vfh9px*_ga*MTY0NDQ3OTI5LjE2OTIyMDcwMjE.*_ga_RJLCGB9QZ9*MTcxNTI2NTc2OC4yOTguMS4xNzE1MjY2MjY1LjU0LjAuMA.. \"Books & DIY Legal Tools\")\n- [Find a Lawyer](https:\/\/www.nolo.com\/attorney-consult \"Find a Lawyer\")\n- [Our History](https:\/\/www.nolo.com\/about\/history \"Our History\")\n- [Sign In](https:\/\/www.nolo.com\/login)\n\nLegal Issues Explained\n\n- Injuries & Illnesses\n- Criminal & Traffic\n- Money & Property\n- Business\n- Everyday Legal Issues\n- [See All Legal Issues](https:\/\/www.nolo.com\/legal-encyclopedia)\n\nBack\n\nInjuries & Illnesses\n\n- [Accidents & Injuries (Personal Injury)](https:\/\/www.nolo.com\/legal-encyclopedia\/accident-law)\n- [Car Accidents](https:\/\/www.nolo.com\/legal-encyclopedia\/vehicle-accidents)\n- [Disability Law](https:\/\/www.nolo.com\/legal-encyclopedia\/disability-law)\n- [Workers’ Compensation](https:\/\/www.nolo.com\/legal-encyclopedia\/workers-compensation)\n- [See All Legal Issues](https:\/\/www.nolo.com\/legal-encyclopedia)\n\nCriminal & Traffic\n\n- [Criminal Law](https:\/\/www.nolo.com\/legal-encyclopedia\/criminal-law)\n- [DUI \/ DWI & Traffic Tickets](https:\/\/www.nolo.com\/legal-encyclopedia\/dui-traffic-tickets)\n- [See All Legal Issues](https:\/\/www.nolo.com\/legal-encyclopedia)\n\nMoney & Property\n\n- [Bankruptcy](https:\/\/www.nolo.com\/legal-encyclopedia\/bankruptcy)\n- [Debt Management](https:\/\/www.nolo.com\/legal-encyclopedia\/collection-agencies)\n- [Foreclosure](https:\/\/www.nolo.com\/legal-encyclopedia\/foreclosure)\n- [Personal Finance](https:\/\/www.nolo.com\/legal-encyclopedia\/personal-finance-retirement)\n- [Real Estate](https:\/\/www.nolo.com\/legal-encyclopedia\/real-estate-rental-property)\n- [Social Security & Retirement](https:\/\/www.nolo.com\/legal-encyclopedia\/social-security-retirement)\n- [Taxes](https:\/\/www.nolo.com\/legal-encyclopedia\/taxes)\n- [Wills, Trusts & Probate](https:\/\/www.nolo.com\/legal-encyclopedia\/wills-trusts-estates)\n- [See All Legal Issues](https:\/\/www.nolo.com\/legal-encyclopedia)\n\nBusiness\n\n- [Business Formation: LLCs & Corporations](https:\/\/www.nolo.com\/legal-encyclopedia\/llc-corporations-partnerships)\n- [Nonprofits](https:\/\/www.nolo.com\/legal-encyclopedia\/nonprofits)\n- [Patent, Copyright & Trademark](https:\/\/www.nolo.com\/legal-encyclopedia\/patent-copyright-trademark)\n- [Small Business](https:\/\/www.nolo.com\/legal-encyclopedia\/small-business)\n- [See All Legal Issues](https:\/\/www.nolo.com\/legal-encyclopedia)\n\nEveryday Legal Issues\n\n- [Divorce & Family Law](https:\/\/www.nolo.com\/legal-encyclopedia\/family-law-divorce)\n- [Employment Law](https:\/\/www.nolo.com\/legal-encyclopedia\/hr-employment-law)\n- [Immigration](https:\/\/www.nolo.com\/legal-encyclopedia\/immigration)\n- [Landlords](https:\/\/www.nolo.com\/legal-encyclopedia\/landlords)\n- [LGBTQ Law](https:\/\/www.nolo.com\/legal-encyclopedia\/lgbt-law)\n- [Small Claims Court & Lawsuits](https:\/\/www.nolo.com\/legal-encyclopedia\/lawsuits-court)\n- [Tenants](https:\/\/www.nolo.com\/legal-encyclopedia\/renters-rights)\n- [See All Legal Issues](https:\/\/www.nolo.com\/legal-encyclopedia)\n\n[Learn by Legal Issue](https:\/\/www.nolo.com\/legal-encyclopedia \"Learn by Legal Issue\") [Small Business](https:\/\/www.nolo.com\/legal-encyclopedia\/small-business \"Small Business \")  [Business Cash Flow Problems & Bankruptcy](https:\/\/www.nolo.com\/legal-encyclopedia\/business-bankruptcy \"Business Cash Flow Problems & Bankruptcy\")\n\n# Basic Profit and Loss Forecast\n## Turn your guesses into a game plan: forecast sales, wrangle costs, and see if your business really pays you back.\nBy **[Bethany K. Laurence](https:\/\/www.nolo.com\/law-authors\/bethany-laurence.html \"Bethany K. Laurence, Attorney · UC Law San Francisco\")**, **Attorney**  UC Law San Francisco   \n Updated by **[Amanda Hayes](https:\/\/www.nolo.com\/law-authors\/amanda-hayes.html \"Amanda Hayes, Attorney · University of North Carolina School of Law\")**, **Attorney**  University of North Carolina School of Law\n\nUpdated 2\/23\/2026\n\n[Why Trust Us?](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#trust-us)\n\n[Fact-Checked](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#fact-checked)\n\nNolo was born in 1971 as a publisher of self-help legal books. Guided by the motto “law for all,” our attorney authors and editors have been explaining the law to everyday people ever since. Learn more about our [**history**](https:\/\/www.nolo.com\/about\/history) and our [**editorial standards**.](https:\/\/www.nolo.com\/about\/about.html#editorial-standards)\n\nEach article that we publish has been written or reviewed by one of our editors, who together have over 100 years of experience practicing law. We strive to keep our information current as laws change. Learn more about our  [**editorial standards**](https:\/\/www.nolo.com\/about\/about.html#editorial-standards).\n\nA profit and loss (P\\&L) forecast is a projection of how much money your [small business](https:\/\/www.nolo.com\/legal-encyclopedia\/small-business) will bring in by [selling products or services](https:\/\/www.nolo.com\/legal-encyclopedia\/selling-goods-services). In good times, you use it to ensure that there'll be enough money coming in to exceed the costs of providing the goods and services so you can make a solid profit. In tough times, your P\\&L can play an essential role in showing you what kind of plan you need to return to break even, so you'll be able to survive until better times come.\n\nIf you use accounting software, such as Intuit's QuickBooks, it'll generate a P\\&L forecast for you once you enter monthly sales and expense estimates. You can also create your own forecast using a basic spreadsheet. Just look at the sample P\\&L below to see how to set up this important [accounting document](https:\/\/www.nolo.com\/legal-encyclopedia\/bookkeeping-accounting-basics-29653.html).\n\n[In This Article](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#toc-collapse)\n\n- [Step 1: Estimate Future Revenue](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#step-1-estimate-future-revenue)\n- [Step 2: Estimate Your Variable Costs](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#step-2-estimate-your-variable-costs)\n- [Step 3: Estimate Your Gross Profit](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#step-3-estimate-your-gross-profit)\n- [Step 4: Calculate Your Net Profit Using Fixed (Overhead) Costs](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#step-4-calculate-your-net-profit-using-fixed-overhead-costs)\n- [Your Gross Profit Margin](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#your-gross-profit-margin)\n- [Difference Between Profit and Loss Forecast and Cash Flow Statement](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#difference-between-profit-and-loss-forecast-and-cash-flow-statement)\n## Step 1: Estimate Future Revenue\nStart by estimating how much you'll take in each month during the next six to 12 months. No question, this number will be a guesstimate. If you're already in business, you can extrapolate from current sales levels and allow for significant seasonal fluctuations and other known variables.\n\n**Example:** Suppose Emme owns and operates a consignment shop that sells gently used clothes for women and children. She buys her inventory from moms who bring in their own and their children's clothing to sell. Emme is careful to buy mostly well-known brands (and when possible, high-end ones) that she can sell for a premium.\n\nEmme was selling \\$15,000 of clothing per month when the economy took a dive. Sales have been down almost 30% lately. So Emme wants to create a more realistic profit and loss forecast for the upcoming year. She estimates that she'll bring in an average of \\$10,000 per month in sales over the next year—more at back-to-school time and the holidays, less during the slow summer months.\n\n## Step 2: Estimate Your Variable Costs\nNow estimate the monthly cost to you of the goods or services you'll sell as part of achieving your sales estimate. These are your variable costs.\n\nThese costs are called \"variable,\" or sometimes \"incremental,\" because they go up or down depending on the volume of products or services you produce or sell. (And in retail, they're called \"cost of goods.\") For example, if you're a mail-order business, then the more you sell, the more you'll pay for shipping costs.\n\nOther variable costs include:\n\n- inventory\n- supplies\n- materials\n- packaging, and\n- sometimes, labor used in providing your product or service.\n\nIn the case of services, count labor costs as variable costs only if they'll go up or down depending on how many sales you make. For instance, if you have to [hire independent contractors](https:\/\/www.nolo.com\/legal-encyclopedia\/contractors-freelancers) or temps to cover busy periods, those labor costs are variable.\n\nBut if you employ a manager, bookkeeper, or [marketing](https:\/\/www.nolo.com\/legal-encyclopedia\/marketing-advertising) employee, you'll have to pay their salaries no matter how much sales go up or down. These wages should be listed under fixed costs (overhead) in Step 4, below.\n\n**Example:** Emme used to spend more than \\$6,500 per month to buy used clothing to resell. But because sales have been down so much, she'll need less inventory. She estimates that she'll probably spend only about \\$4,500 per month.\n\n## Step 3: Estimate Your Gross Profit\nNow, simply subtract your average monthly variable costs from your estimated average monthly sales revenue to get your estimated monthly gross profit. This number will let you calculate how much of each dollar of sales you get to keep. From that amount, however, you'll have to pay for overhead costs. Anything left over is your net profit.\n\n**Example:** Emme subtracts her inventory costs of \\$4,500 per month from her sales estimate of \\$10,000 per month. She estimates her new average monthly gross profit will be \\$5,500. Again, this number is her gross profit before subtracting her overhead, which is discussed below.\n\n## Step 4: Calculate Your Net Profit Using Fixed (Overhead) Costs\nYour net profit is the most important number you need to determine. Your net profit lets you see whether you'll have any money left after paying your overhead costs or, failing that, whether you can at least break even. To arrive at your net profit, make a list of your monthly fixed costs, which are items such as:\n\n- rent from your [commercial lease](https:\/\/www.nolo.com\/legal-encyclopedia\/commercial-lease-basics-29934.html)\n- employees' wages (including [payroll taxes](https:\/\/www.nolo.com\/legal-encyclopedia\/state-guide-income-tax-withholding-requirements.html), benefits, and [workers' comp costs](https:\/\/www.nolo.com\/legal-encyclopedia\/workers-compensation-basics-employers-30333.html))\n- your salary if you plan to [pay yourself](https:\/\/www.nolo.com\/legal-encyclopedia\/how-to-pay-yourself-as-a-small-business-owner.html) a regular wage regardless of how profitable the business is (but if, as is typical, you'll just take what's left over after costs are paid, don't include your salary as a fixed cost)\n- utilities\n- telephone\n- [insurance](https:\/\/www.nolo.com\/legal-encyclopedia\/what-types-insurance-does-your-small-business-need.html)\n- office equipment\n- advertising, and\n- accounting, bookkeeping, or tax preparation fees.\n\nDivide any annual expenses, such as insurance premiums, by 12 to get a monthly amount.\n\nTo arrive at your monthly net profit (or loss), subtract your average estimated monthly fixed costs from your monthly gross profit.\n\n### Example: Estimate Monthly Net Profit\nOver the past year, Emme has been able to pay herself \\$50,000 from the business. But she knows that with sales dropping, this salary won't be possible in the coming year. She guesses she'll need to cut her take-home wages to \\$30,000—and if she can't bring home at least that amount for living expenses, she won't keep the shop open. So she includes \\$30,000 in her fixed costs.\n\nEmme adds up her total fixed costs, including the following:\n\n- \\$1,000 for rent\n- \\$100 for utilities\n- \\$4,000 for labor (this amount includes \\$12,000 per year for a part-time assistant, employment taxes and costs, and her \\$30,000 salary), and\n- \\$100 for insurance (her annual premium is \\$1,200), and so on.\n\nThe total of her fixed costs comes to \\$5,500 per month. When she puts one month's numbers together in a spreadsheet, here's what it looks like.\n\n|   |   |   |\n|---|---|---|\n| **January** |   |   |\n| **Sales Revenue** | **10,000** |   |\n| Cost of Goods | 4,500 |   |\n| **Gross Profit** | **5,500** |   |\n| **Fixed Costs** |   |   |\n| Rent | 1,000 |   |\n| Labor | 4,000 |   |\n| Utilities | 100 |   |\n| Phone | 30 |   |\n| Insurance | 100 |   |\n| Advertising | 40 |   |\n| Accounting | 130 |   |\n| Miscellaneous | 100 |   |\n| **Total Fixed Costs** | **5,500** |   |\n| **Net Profit (Loss)** | **0** |   |\n\nWhen you're satisfied with your cost estimates for an average month, fill in estimates for six or 12 months. Then, for each month, subtract your total fixed expenses from your gross profit to get the net profit.\n\n### Example: Estimated Net Profit for Twelve Months\nEmme fills in an entire year of sales estimates, with the usual dip in sales she experiences in summer and then upswings in September when the kids go back to school and in December, traditionally her best month. Then, using her estimate of \\$4,500 in monthly variable costs and her estimate of \\$5,500 in monthly fixed costs, she comes up with a net profit for each month. Emme notices that in the summer, she'll lose a little over \\$1,000 per month for a few months in a row, but will make it back up by December.\n\n|   |   |   |   |   |   |   |   |   |   |   |   |   |\n|---|---|---|---|---|---|---|---|---|---|---|---|---|\n| **Emme's Profit and Loss Forecast** |   |   |   |   |   |   |   |   |   |   |   |   |\n|   | **Jan** | **Feb** | **March** | **April** | **May** | **June** | **July** | **Aug** | **Sept** | **Oct** | **Nov** | **Dec** |\n| **Sales Revenue** | **10,000** | **10,000** | **10,000** | **10,000** | **10,000** | **8,000** | **8,000** | **7,000** | **12,000** | **10,000** | **10,000** | **15,000** |\n| Variable Costs | 4,500 | 4,500 | 4,500 | 4,500 | 4,500 | 3,600 | 3,600 | 3,150 | 5,400 | 4,500 | 4,500 | 6,750 |\n| **Gross Profit** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **4,400** | **4,400** | **3,850** | **6,600** | **5,500** | **5,500** | **8,250** |\n| **Fixed Costs** |   |   |   |   |   |   |   |   |   |   |   |   |\n| Rent | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 |\n| Labor | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 |\n| Utilities | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |\n| Phone | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 |\n| Insurance | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |\n| Advertising | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 |\n| Accounting | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 |\n| Miscellaneous | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |\n| **Total Fixed Costs** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** |\n| **Net Profit (Loss)** | **0** | **0** | **0** | **0** | **0** | **\\-1,100** | **\\-1,100** | **\\-1,650** | **1,100** | **0** | **0** | **2,750** |\n\nCreating this new profit and loss forecast lets Emme see that she can't count on taking any extra profits out of the business for the next year. And if her sales estimates are too high, she won't be able to take home \\$30,000 over the year for living expenses. She needs to think long and hard about whether it makes sense to drain her savings account and continue toiling for a year in the hopes that the economy will rebound soon and allow her to make a good living again from the store.\n\n## Your Gross Profit Margin\nIt's also useful to know your gross profit margin. Gross profit margin measures the difference between the costs of producing a product or providing a service and what you're selling it for. In short, it lets you know how profitable your products and services are.\n\nTo get your profit margin, divide your estimated average monthly gross profit by your estimated monthly sales.\n\n> **Example:** Emme divides her monthly gross profit of \\$5,500 (knowing that this figure varies in some months) by her \\$10,000 of sales. Her profit margin is 55%. Now she knows she'll get to keep, on average, about 55 cents of every sales dollar she takes in (before paying for overhead).\n### What Your Profit Margin Means\nProfit margins can be used in many different ways.\n\n**Assessing profitability.** Some businesses regularly calculate their profit margin to monitor the profitability of their products or services. A decrease in profit margin over time usually means that variable costs have gone up—for instance, costs for raw materials, manufacturing, or labor. Rising variable costs should nudge the company to either look for new suppliers or raise prices.\n\n**Set pricing.** Other businesses use their anticipated profit margin to help them price products or services (and increase profitability). For example, suppose a business requires a profit margin of 60%. It produces a product that costs \\$20 to make. Using the profit margin formula (\\$20 ÷ (100% - 60%), it would set the retail price of its product at around \\$50. The business would make \\$30 in profit off of the \\$50 sale, a 60% profit margin.\n\n(Some experts disagree with this use of profit margin, recommending instead that businesses start with the price they think customers will pay and then make sure the costs are low enough to make a profit.)\n\n**Evaluating new inventory.** Another way to use profit margins is to screen new products and services to sell. For instance, a retail gift shop might decide to add only new products that can be bought and sold at a price that yields a profit margin of 50%.\n\n### What's a Good Profit Margin?\nThe answer varies across industries. According to the NYU Stern School of Business, the [average profit margins per industry sector](https:\/\/pages.stern.nyu.edu\/~adamodar\/New_Home_Page\/datafile\/margin.html) include the following:\n\n- the farming and agricultural industry has a lower profit margin, around 13%\n- the software industry has traditionally had high profit margins, around 70%; and\n- the profit margins for restaurants and retail are somewhere in the middle, around 30%.\n\nBut without looking at the costs of a company's overhead, such as marketing and administration, profit margins don't give the whole picture of a company's profitability.\n\n## Difference Between Profit and Loss Forecast and Cash Flow Statement\nBoth a P\\&L forecast and a [cash flow statement](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-3.html) are essential to assessing the financial state of your business. But they differ in their purpose and method of accounting.\n\n**Accounting methods.** A P\\&L forecast uses accrual accounting, meaning your revenue reflects how much your business makes and is owed. So, your revenue would include money your business has earned, but your [customer hasn't yet paid](https:\/\/www.nolo.com\/legal-encyclopedia\/get-clients-pay-up-29988.html). A cash flow statement uses cash basis accounting, meaning your revenue total doesn't include money your business is owed but hasn't yet received. You'll only count the money your business has been paid.\n\n**Purposes.** A business owner would use a P\\&L forecast to assess their [company's profitability](https:\/\/www.nolo.com\/legal-encyclopedia\/will-business-make-money-29850.html). You'll use your P\\&L statement to see if your business is a worthwhile venture. You'll use a cash flow statement to track the money going in and out of your business. Your cash flow statement has a more immediate purpose than the P\\&L forecast. Your cash flow statement will show you if your business has enough in the bank to pay for upcoming expenses.\n\nBased on Your Previous Answers, We Have a Few Last Questions\n\nThese additional details allow our attorneys to gain a deeper understanding of the specifics of your case\n\nSubmit\n\nClose\n\nNeed Professional Help? Talk to a Business Law Attorney.\n\n![](https:\/\/api.trustedform.com\/ns.gif)\n\nIn This Article\n\n- [Step 1: Estimate Future Revenue](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#step-1-estimate-future-revenue)\n- [Step 2: Estimate Your Variable Costs](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#step-2-estimate-your-variable-costs)\n- [Step 3: Estimate Your Gross Profit](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#step-3-estimate-your-gross-profit)\n- [Step 4: Calculate Your Net Profit Using Fixed (Overhead) Costs](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#step-4-calculate-your-net-profit-using-fixed-overhead-costs)\n- [Your Gross Profit Margin](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#your-gross-profit-margin)\n- [Difference Between Profit and Loss Forecast and Cash Flow Statement](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#difference-between-profit-and-loss-forecast-and-cash-flow-statement)\n\n## Want More Legal Info? Nolo Can Help\nExplore related offerings for additional insights in this area of law. Whether it’s another article, a book, a form, or a connection to an attorney, we’ve got solutions for all situations.\n\n***\n[When You Can't Pay Your Business Debts: Personal Liability and Bankruptcy Options](https:\/\/www.nolo.com\/legal-encyclopedia\/business-debts-personal-liability-bankruptcy-29573.html)\n***\n\n***\n[What Can Creditors Do If You Don't Pay?](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter4-4.html)\n***\n\n***\n[How to Support and Motivate Your Remaining Employees After Layoffs](https:\/\/www.nolo.com\/legal-encyclopedia\/how-to-support-remaining-employees-after-layoffs.html)\n***\n\n***\n[Are You Personally Liable for Your Business's Debts?](https:\/\/www.nolo.com\/legal-encyclopedia\/business-debts-personal-liability-29905.html)\n***\n\n***\n[What the Federal Government Shutdown Means for Small Businesses](https:\/\/www.nolo.com\/legal-encyclopedia\/what-the-federal-government-shutdown-means-for-small-businesses.html)\n***\n\n### Related Topics\n[Small Business](https:\/\/www.nolo.com\/legal-encyclopedia\/small-business)\n\n[Business Cash Flow Problems & Bankruptcy](https:\/\/www.nolo.com\/legal-encyclopedia\/business-bankruptcy)\n\n[Business Financing, Loans & Capital](https:\/\/www.nolo.com\/legal-encyclopedia\/loans-capital)\n\n[Business Litigation](https:\/\/www.nolo.com\/legal-encyclopedia\/business-litigation)\n\n[eCommerce](https:\/\/www.nolo.com\/legal-encyclopedia\/ecommerce-website-development)\n\n[Going Out of Business](https:\/\/www.nolo.com\/legal-encyclopedia\/going-out-business)\n\n[View all related topics \\>](https:\/\/www.nolo.com\/legal-encyclopedia\/small-business)\n\n### DIY Legal Tools from Nolo\nFor over 50 years, Nolo’s team of experts has created top-rated legal books, forms, and software to help everyday people resolve their legal issues. 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Your use of this website constitutes acceptance of the [Terms of Use](https:\/\/www.internetbrands.com\/ibterms \"Terms of Use\"), [Supplemental Terms](https:\/\/www.internetbrands.com\/ibterms\/supplementallegalterms\/ \"Disclaimer — Legal information is not legal advice\"), [Privacy Policy](https:\/\/www.internetbrands.com\/privacy\/privacy-main \"Privacy Policy\"), [Cookie Policy](https:\/\/www.internetbrands.com\/privacy\/cookie-policy \"Cookie Policy\"), and [Consumer Health Data Notice](https:\/\/www.internetbrands.com\/privacy\/consumer-health-data-privacy-notice \"Consumer Health Data Notice\").\n\nCookie Settings\n\n[Your Privacy Choices![Privacy Options Checkmark](https:\/\/icons.internetbrands.com\/ccpa\/privacyoptions29x14.png)]()\n\n![](https:\/\/www.facebook.com\/tr?id=344858165663318&ev=PageView&noscript=1)","attrs_readable_markdown":"Turn your guesses into a game plan: forecast sales, wrangle costs, and see if your business really pays you back.\n\nBy , **Attorney**  UC Law San Francisco   \n Updated by **[Amanda Hayes](https:\/\/www.nolo.com\/law-authors\/amanda-hayes.html \"Amanda Hayes, Attorney · University of North Carolina School of Law\")**, **Attorney**  University of North Carolina School of Law\n\nA profit and loss (P\\&L) forecast is a projection of how much money your [small business](https:\/\/www.nolo.com\/legal-encyclopedia\/small-business) will bring in by [selling products or services](https:\/\/www.nolo.com\/legal-encyclopedia\/selling-goods-services). In good times, you use it to ensure that there'll be enough money coming in to exceed the costs of providing the goods and services so you can make a solid profit. In tough times, your P\\&L can play an essential role in showing you what kind of plan you need to return to break even, so you'll be able to survive until better times come.\n\nIf you use accounting software, such as Intuit's QuickBooks, it'll generate a P\\&L forecast for you once you enter monthly sales and expense estimates. You can also create your own forecast using a basic spreadsheet. Just look at the sample P\\&L below to see how to set up this important [accounting document](https:\/\/www.nolo.com\/legal-encyclopedia\/bookkeeping-accounting-basics-29653.html).\n\n[In This Article](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#toc-collapse)\n\n- [Step 1: Estimate Future Revenue](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#step-1-estimate-future-revenue)\n- [Step 2: Estimate Your Variable Costs](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#step-2-estimate-your-variable-costs)\n- [Step 3: Estimate Your Gross Profit](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#step-3-estimate-your-gross-profit)\n- [Step 4: Calculate Your Net Profit Using Fixed (Overhead) Costs](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#step-4-calculate-your-net-profit-using-fixed-overhead-costs)\n- [Your Gross Profit Margin](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#your-gross-profit-margin)\n- [Difference Between Profit and Loss Forecast and Cash Flow Statement](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-2.html#difference-between-profit-and-loss-forecast-and-cash-flow-statement)\n## Step 1: Estimate Future Revenue\nStart by estimating how much you'll take in each month during the next six to 12 months. No question, this number will be a guesstimate. If you're already in business, you can extrapolate from current sales levels and allow for significant seasonal fluctuations and other known variables.\n\n**Example:** Suppose Emme owns and operates a consignment shop that sells gently used clothes for women and children. She buys her inventory from moms who bring in their own and their children's clothing to sell. Emme is careful to buy mostly well-known brands (and when possible, high-end ones) that she can sell for a premium.\n\nEmme was selling \\$15,000 of clothing per month when the economy took a dive. Sales have been down almost 30% lately. So Emme wants to create a more realistic profit and loss forecast for the upcoming year. She estimates that she'll bring in an average of \\$10,000 per month in sales over the next year—more at back-to-school time and the holidays, less during the slow summer months.\n\n## Step 2: Estimate Your Variable Costs\nNow estimate the monthly cost to you of the goods or services you'll sell as part of achieving your sales estimate. These are your variable costs.\n\nThese costs are called \"variable,\" or sometimes \"incremental,\" because they go up or down depending on the volume of products or services you produce or sell. (And in retail, they're called \"cost of goods.\") For example, if you're a mail-order business, then the more you sell, the more you'll pay for shipping costs.\n\nOther variable costs include:\n\n- inventory\n- supplies\n- materials\n- packaging, and\n- sometimes, labor used in providing your product or service.\n\nIn the case of services, count labor costs as variable costs only if they'll go up or down depending on how many sales you make. For instance, if you have to [hire independent contractors](https:\/\/www.nolo.com\/legal-encyclopedia\/contractors-freelancers) or temps to cover busy periods, those labor costs are variable.\n\nBut if you employ a manager, bookkeeper, or [marketing](https:\/\/www.nolo.com\/legal-encyclopedia\/marketing-advertising) employee, you'll have to pay their salaries no matter how much sales go up or down. These wages should be listed under fixed costs (overhead) in Step 4, below.\n\n**Example:** Emme used to spend more than \\$6,500 per month to buy used clothing to resell. But because sales have been down so much, she'll need less inventory. She estimates that she'll probably spend only about \\$4,500 per month.\n\n## Step 3: Estimate Your Gross Profit\nNow, simply subtract your average monthly variable costs from your estimated average monthly sales revenue to get your estimated monthly gross profit. This number will let you calculate how much of each dollar of sales you get to keep. From that amount, however, you'll have to pay for overhead costs. Anything left over is your net profit.\n\n**Example:** Emme subtracts her inventory costs of \\$4,500 per month from her sales estimate of \\$10,000 per month. She estimates her new average monthly gross profit will be \\$5,500. Again, this number is her gross profit before subtracting her overhead, which is discussed below.\n\n## Step 4: Calculate Your Net Profit Using Fixed (Overhead) Costs\nYour net profit is the most important number you need to determine. Your net profit lets you see whether you'll have any money left after paying your overhead costs or, failing that, whether you can at least break even. To arrive at your net profit, make a list of your monthly fixed costs, which are items such as:\n\n- rent from your [commercial lease](https:\/\/www.nolo.com\/legal-encyclopedia\/commercial-lease-basics-29934.html)\n- employees' wages (including [payroll taxes](https:\/\/www.nolo.com\/legal-encyclopedia\/state-guide-income-tax-withholding-requirements.html), benefits, and [workers' comp costs](https:\/\/www.nolo.com\/legal-encyclopedia\/workers-compensation-basics-employers-30333.html))\n- your salary if you plan to [pay yourself](https:\/\/www.nolo.com\/legal-encyclopedia\/how-to-pay-yourself-as-a-small-business-owner.html) a regular wage regardless of how profitable the business is (but if, as is typical, you'll just take what's left over after costs are paid, don't include your salary as a fixed cost)\n- utilities\n- telephone\n- [insurance](https:\/\/www.nolo.com\/legal-encyclopedia\/what-types-insurance-does-your-small-business-need.html)\n- office equipment\n- advertising, and\n- accounting, bookkeeping, or tax preparation fees.\n\nDivide any annual expenses, such as insurance premiums, by 12 to get a monthly amount.\n\nTo arrive at your monthly net profit (or loss), subtract your average estimated monthly fixed costs from your monthly gross profit.\n\n### Example: Estimate Monthly Net Profit\nOver the past year, Emme has been able to pay herself \\$50,000 from the business. But she knows that with sales dropping, this salary won't be possible in the coming year. She guesses she'll need to cut her take-home wages to \\$30,000—and if she can't bring home at least that amount for living expenses, she won't keep the shop open. So she includes \\$30,000 in her fixed costs.\n\nEmme adds up her total fixed costs, including the following:\n\n- \\$1,000 for rent\n- \\$100 for utilities\n- \\$4,000 for labor (this amount includes \\$12,000 per year for a part-time assistant, employment taxes and costs, and her \\$30,000 salary), and\n- \\$100 for insurance (her annual premium is \\$1,200), and so on.\n\nThe total of her fixed costs comes to \\$5,500 per month. When she puts one month's numbers together in a spreadsheet, here's what it looks like.\n\n|   |   |   |\n|---|---|---|\n| **January** |   |   |\n| **Sales Revenue** | **10,000** |   |\n| Cost of Goods | 4,500 |   |\n| **Gross Profit** | **5,500** |   |\n| **Fixed Costs** |   |   |\n| Rent | 1,000 |   |\n| Labor | 4,000 |   |\n| Utilities | 100 |   |\n| Phone | 30 |   |\n| Insurance | 100 |   |\n| Advertising | 40 |   |\n| Accounting | 130 |   |\n| Miscellaneous | 100 |   |\n| **Total Fixed Costs** | **5,500** |   |\n| **Net Profit (Loss)** | **0** |   |\n\nWhen you're satisfied with your cost estimates for an average month, fill in estimates for six or 12 months. Then, for each month, subtract your total fixed expenses from your gross profit to get the net profit.\n\n### Example: Estimated Net Profit for Twelve Months\nEmme fills in an entire year of sales estimates, with the usual dip in sales she experiences in summer and then upswings in September when the kids go back to school and in December, traditionally her best month. Then, using her estimate of \\$4,500 in monthly variable costs and her estimate of \\$5,500 in monthly fixed costs, she comes up with a net profit for each month. Emme notices that in the summer, she'll lose a little over \\$1,000 per month for a few months in a row, but will make it back up by December.\n\n|   |   |   |   |   |   |   |   |   |   |   |   |   |\n|---|---|---|---|---|---|---|---|---|---|---|---|---|\n| **Emme's Profit and Loss Forecast** |   |   |   |   |   |   |   |   |   |   |   |   |\n|   | **Jan** | **Feb** | **March** | **April** | **May** | **June** | **July** | **Aug** | **Sept** | **Oct** | **Nov** | **Dec** |\n| **Sales Revenue** | **10,000** | **10,000** | **10,000** | **10,000** | **10,000** | **8,000** | **8,000** | **7,000** | **12,000** | **10,000** | **10,000** | **15,000** |\n| Variable Costs | 4,500 | 4,500 | 4,500 | 4,500 | 4,500 | 3,600 | 3,600 | 3,150 | 5,400 | 4,500 | 4,500 | 6,750 |\n| **Gross Profit** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **4,400** | **4,400** | **3,850** | **6,600** | **5,500** | **5,500** | **8,250** |\n| **Fixed Costs** |   |   |   |   |   |   |   |   |   |   |   |   |\n| Rent | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 |\n| Labor | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 |\n| Utilities | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |\n| Phone | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 |\n| Insurance | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |\n| Advertising | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 |\n| Accounting | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 |\n| Miscellaneous | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |\n| **Total Fixed Costs** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** |\n| **Net Profit (Loss)** | **0** | **0** | **0** | **0** | **0** | **\\-1,100** | **\\-1,100** | **\\-1,650** | **1,100** | **0** | **0** | **2,750** |\n\nCreating this new profit and loss forecast lets Emme see that she can't count on taking any extra profits out of the business for the next year. And if her sales estimates are too high, she won't be able to take home \\$30,000 over the year for living expenses. She needs to think long and hard about whether it makes sense to drain her savings account and continue toiling for a year in the hopes that the economy will rebound soon and allow her to make a good living again from the store.\n\n## Your Gross Profit Margin\nIt's also useful to know your gross profit margin. Gross profit margin measures the difference between the costs of producing a product or providing a service and what you're selling it for. In short, it lets you know how profitable your products and services are.\n\nTo get your profit margin, divide your estimated average monthly gross profit by your estimated monthly sales.\n\n> **Example:** Emme divides her monthly gross profit of \\$5,500 (knowing that this figure varies in some months) by her \\$10,000 of sales. Her profit margin is 55%. Now she knows she'll get to keep, on average, about 55 cents of every sales dollar she takes in (before paying for overhead).\n### What Your Profit Margin Means\nProfit margins can be used in many different ways.\n\n**Assessing profitability.** Some businesses regularly calculate their profit margin to monitor the profitability of their products or services. A decrease in profit margin over time usually means that variable costs have gone up—for instance, costs for raw materials, manufacturing, or labor. Rising variable costs should nudge the company to either look for new suppliers or raise prices.\n\n**Set pricing.** Other businesses use their anticipated profit margin to help them price products or services (and increase profitability). For example, suppose a business requires a profit margin of 60%. It produces a product that costs \\$20 to make. Using the profit margin formula (\\$20 ÷ (100% - 60%), it would set the retail price of its product at around \\$50. The business would make \\$30 in profit off of the \\$50 sale, a 60% profit margin.\n\n(Some experts disagree with this use of profit margin, recommending instead that businesses start with the price they think customers will pay and then make sure the costs are low enough to make a profit.)\n\n**Evaluating new inventory.** Another way to use profit margins is to screen new products and services to sell. For instance, a retail gift shop might decide to add only new products that can be bought and sold at a price that yields a profit margin of 50%.\n\n### What's a Good Profit Margin?\nThe answer varies across industries. According to the NYU Stern School of Business, the [average profit margins per industry sector](https:\/\/pages.stern.nyu.edu\/~adamodar\/New_Home_Page\/datafile\/margin.html) include the following:\n\n- the farming and agricultural industry has a lower profit margin, around 13%\n- the software industry has traditionally had high profit margins, around 70%; and\n- the profit margins for restaurants and retail are somewhere in the middle, around 30%.\n\nBut without looking at the costs of a company's overhead, such as marketing and administration, profit margins don't give the whole picture of a company's profitability.\n\n## Difference Between Profit and Loss Forecast and Cash Flow Statement\nBoth a P\\&L forecast and a [cash flow statement](https:\/\/www.nolo.com\/legal-encyclopedia\/free-books\/small-business-book\/chapter14-3.html) are essential to assessing the financial state of your business. But they differ in their purpose and method of accounting.\n\n**Accounting methods.** A P\\&L forecast uses accrual accounting, meaning your revenue reflects how much your business makes and is owed. So, your revenue would include money your business has earned, but your [customer hasn't yet paid](https:\/\/www.nolo.com\/legal-encyclopedia\/get-clients-pay-up-29988.html). A cash flow statement uses cash basis accounting, meaning your revenue total doesn't include money your business is owed but hasn't yet received. You'll only count the money your business has been paid.\n\n**Purposes.** A business owner would use a P\\&L forecast to assess their [company's profitability](https:\/\/www.nolo.com\/legal-encyclopedia\/will-business-make-money-29850.html). You'll use your P\\&L statement to see if your business is a worthwhile venture. You'll use a cash flow statement to track the money going in and out of your business. Your cash flow statement has a more immediate purpose than the P\\&L forecast. Your cash flow statement will show you if your business has enough in the bank to pay for upcoming expenses.","meta_canonical":null,"ml_categories_json":"{\"\/Finance\":880,\"\/Finance\/Financial_Planning_and_Management\":816,\"\/Finance\/Financial_Planning_and_Management\/Asset_and_Portfolio_Management\":625,\"\/Business_and_Industrial\":481,\"\/Business_and_Industrial\/Small_Business\":423,\"\/Business_and_Industrial\/Small_Business\/Business_Formation\":369}","ml_types_json":"{\"\/Article\":997,\"\/Article\/Tutorial_or_Guide\":715}","ml_intent_types_json":"{\"Informational\":920,\"Commercial\":334}","meta_language":"en","attrs_author":"Bethany K. 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Profit and Loss Forecast for Small Businesses: Step‑by‑Step Guide

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Learn how to create a profit and loss forecast for your small business, estimate revenue and costs, calculate profit margin, and compare P&L forecasts to cash flow.

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Turn your guesses into a game plan: forecast sales, wrangle costs, and see if your business really pays you back. By , Attorney UC Law San Francisco Updated by Amanda Hayes , Attorney University of North Carolina School of Law A profit and loss (P&L) forecast is a projection of how much money your small business will bring in by selling products or services . In good times, you use it to ensure that there'll be enough money coming in to exceed the costs of providing the goods and services so you can make a solid profit. In tough times, your P&L can play an essential role in showing you what kind of plan you need to return to break even, so you'll be able to survive until better times come. If you use accounting software, such as Intuit's QuickBooks, it'll generate a P&L forecast for you once you enter monthly sales and expense estimates. You can also create your own forecast using a basic spreadsheet. Just look at the sample P&L below to see how to set up this important accounting document . In This Article Step 1: Estimate Future Revenue Step 2: Estimate Your Variable Costs Step 3: Estimate Your Gross Profit Step 4: Calculate Your Net Profit Using Fixed (Overhead) Costs Your Gross Profit Margin Difference Between Profit and Loss Forecast and Cash Flow Statement Step 1: Estimate Future Revenue Start by estimating how much you'll take in each month during the next six to 12 months. No question, this number will be a guesstimate. If you're already in business, you can extrapolate from current sales levels and allow for significant seasonal fluctuations and other known variables. Example: Suppose Emme owns and operates a consignment shop that sells gently used clothes for women and children. She buys her inventory from moms who bring in their own and their children's clothing to sell. Emme is careful to buy mostly well-known brands (and when possible, high-end ones) that she can sell for a premium. Emme was selling $15,000 of clothing per month when the economy took a dive. Sales have been down almost 30% lately. So Emme wants to create a more realistic profit and loss forecast for the upcoming year. She estimates that she'll bring in an average of $10,000 per month in sales over the next year—more at back-to-school time and the holidays, less during the slow summer months. Step 2: Estimate Your Variable Costs Now estimate the monthly cost to you of the goods or services you'll sell as part of achieving your sales estimate. These are your variable costs. These costs are called "variable," or sometimes "incremental," because they go up or down depending on the volume of products or services you produce or sell. (And in retail, they're called "cost of goods.") For example, if you're a mail-order business, then the more you sell, the more you'll pay for shipping costs. Other variable costs include: inventory supplies materials packaging, and sometimes, labor used in providing your product or service. In the case of services, count labor costs as variable costs only if they'll go up or down depending on how many sales you make. For instance, if you have to hire independent contractors or temps to cover busy periods, those labor costs are variable. But if you employ a manager, bookkeeper, or marketing employee, you'll have to pay their salaries no matter how much sales go up or down. These wages should be listed under fixed costs (overhead) in Step 4, below. Example: Emme used to spend more than $6,500 per month to buy used clothing to resell. But because sales have been down so much, she'll need less inventory. She estimates that she'll probably spend only about $4,500 per month. Step 3: Estimate Your Gross Profit Now, simply subtract your average monthly variable costs from your estimated average monthly sales revenue to get your estimated monthly gross profit. This number will let you calculate how much of each dollar of sales you get to keep. From that amount, however, you'll have to pay for overhead costs. Anything left over is your net profit. Example: Emme subtracts her inventory costs of $4,500 per month from her sales estimate of $10,000 per month. She estimates her new average monthly gross profit will be $5,500. Again, this number is her gross profit before subtracting her overhead, which is discussed below. Step 4: Calculate Your Net Profit Using Fixed (Overhead) Costs Your net profit is the most important number you need to determine. Your net profit lets you see whether you'll have any money left after paying your overhead costs or, failing that, whether you can at least break even. To arrive at your net profit, make a list of your monthly fixed costs, which are items such as: rent from your commercial lease employees' wages (including payroll taxes , benefits, and workers' comp costs ) your salary if you plan to pay yourself a regular wage regardless of how profitable the business is (but if, as is typical, you'll just take what's left over after costs are paid, don't include your salary as a fixed cost) utilities telephone insurance office equipment advertising, and accounting, bookkeeping, or tax preparation fees. Divide any annual expenses, such as insurance premiums, by 12 to get a monthly amount. To arrive at your monthly net profit (or loss), subtract your average estimated monthly fixed costs from your monthly gross profit. Example: Estimate Monthly Net Profit Over the past year, Emme has been able to pay herself $50,000 from the business. But she knows that with sales dropping, this salary won't be possible in the coming year. She guesses she'll need to cut her take-home wages to $30,000—and if she can't bring home at least that amount for living expenses, she won't keep the shop open. So she includes $30,000 in her fixed costs. Emme adds up her total fixed costs, including the following: $1,000 for rent $100 for utilities $4,000 for labor (this amount includes $12,000 per year for a part-time assistant, employment taxes and costs, and her $30,000 salary), and $100 for insurance (her annual premium is $1,200), and so on. The total of her fixed costs comes to $5,500 per month. When she puts one month's numbers together in a spreadsheet, here's what it looks like. January Sales Revenue 10,000 Cost of Goods 4,500 Gross Profit 5,500 Fixed Costs Rent 1,000 Labor 4,000 Utilities 100 Phone 30 Insurance 100 Advertising 40 Accounting 130 Miscellaneous 100 Total Fixed Costs 5,500 Net Profit (Loss) 0 When you're satisfied with your cost estimates for an average month, fill in estimates for six or 12 months. Then, for each month, subtract your total fixed expenses from your gross profit to get the net profit. Example: Estimated Net Profit for Twelve Months Emme fills in an entire year of sales estimates, with the usual dip in sales she experiences in summer and then upswings in September when the kids go back to school and in December, traditionally her best month. Then, using her estimate of $4,500 in monthly variable costs and her estimate of $5,500 in monthly fixed costs, she comes up with a net profit for each month. Emme notices that in the summer, she'll lose a little over $1,000 per month for a few months in a row, but will make it back up by December. Emme's Profit and Loss Forecast Jan Feb March April May June July Aug Sept Oct Nov Dec Sales Revenue 10,000 10,000 10,000 10,000 10,000 8,000 8,000 7,000 12,000 10,000 10,000 15,000 Variable Costs 4,500 4,500 4,500 4,500 4,500 3,600 3,600 3,150 5,400 4,500 4,500 6,750 Gross Profit 5,500 5,500 5,500 5,500 5,500 4,400 4,400 3,850 6,600 5,500 5,500 8,250 Fixed Costs Rent 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Labor 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 Utilities 100 100 100 100 100 100 100 100 100 100 100 100 Phone 30 30 30 30 30 30 30 30 30 30 30 30 Insurance 100 100 100 100 100 100 100 100 100 100 100 100 Advertising 40 40 40 40 40 40 40 40 40 40 40 40 Accounting 130 130 130 130 130 130 130 130 130 130 130 130 Miscellaneous 100 100 100 100 100 100 100 100 100 100 100 100 Total Fixed Costs 5,500 5,500 5,500 5,500 5,500 5,500 5,500 5,500 5,500 5,500 5,500 5,500 Net Profit (Loss) 0 0 0 0 0 -1,100 -1,100 -1,650 1,100 0 0 2,750 Creating this new profit and loss forecast lets Emme see that she can't count on taking any extra profits out of the business for the next year. And if her sales estimates are too high, she won't be able to take home $30,000 over the year for living expenses. She needs to think long and hard about whether it makes sense to drain her savings account and continue toiling for a year in the hopes that the economy will rebound soon and allow her to make a good living again from the store. Your Gross Profit Margin It's also useful to know your gross profit margin. Gross profit margin measures the difference between the costs of producing a product or providing a service and what you're selling it for. In short, it lets you know how profitable your products and services are. To get your profit margin, divide your estimated average monthly gross profit by your estimated monthly sales. Example: Emme divides her monthly gross profit of $5,500 (knowing that this figure varies in some months) by her $10,000 of sales. Her profit margin is 55%. Now she knows she'll get to keep, on average, about 55 cents of every sales dollar she takes in (before paying for overhead). What Your Profit Margin Means Profit margins can be used in many different ways. Assessing profitability. Some businesses regularly calculate their profit margin to monitor the profitability of their products or services. A decrease in profit margin over time usually means that variable costs have gone up—for instance, costs for raw materials, manufacturing, or labor. Rising variable costs should nudge the company to either look for new suppliers or raise prices. Set pricing. Other businesses use their anticipated profit margin to help them price products or services (and increase profitability). For example, suppose a business requires a profit margin of 60%. It produces a product that costs $20 to make. Using the profit margin formula ($20 ÷ (100% - 60%), it would set the retail price of its product at around $50. The business would make $30 in profit off of the $50 sale, a 60% profit margin. (Some experts disagree with this use of profit margin, recommending instead that businesses start with the price they think customers will pay and then make sure the costs are low enough to make a profit.) Evaluating new inventory. Another way to use profit margins is to screen new products and services to sell. For instance, a retail gift shop might decide to add only new products that can be bought and sold at a price that yields a profit margin of 50%. What's a Good Profit Margin? The answer varies across industries. According to the NYU Stern School of Business, the average profit margins per industry sector include the following: the farming and agricultural industry has a lower profit margin, around 13% the software industry has traditionally had high profit margins, around 70%; and the profit margins for restaurants and retail are somewhere in the middle, around 30%. But without looking at the costs of a company's overhead, such as marketing and administration, profit margins don't give the whole picture of a company's profitability. Difference Between Profit and Loss Forecast and Cash Flow Statement Both a P&L forecast and a cash flow statement are essential to assessing the financial state of your business. But they differ in their purpose and method of accounting. Accounting methods. A P&L forecast uses accrual accounting, meaning your revenue reflects how much your business makes and is owed. So, your revenue would include money your business has earned, but your customer hasn't yet paid . A cash flow statement uses cash basis accounting, meaning your revenue total doesn't include money your business is owed but hasn't yet received. You'll only count the money your business has been paid. Purposes. A business owner would use a P&L forecast to assess their company's profitability . You'll use your P&L statement to see if your business is a worthwhile venture. You'll use a cash flow statement to track the money going in and out of your business. Your cash flow statement has a more immediate purpose than the P&L forecast. Your cash flow statement will show you if your business has enough in the bank to pay for upcoming expenses.

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By **[Bethany K. Laurence](https://www.nolo.com/law-authors/bethany-laurence.html "Bethany K. Laurence, Attorney · UC Law San Francisco")**, **Attorney** UC Law San Francisco Updated by **[Amanda Hayes](https://www.nolo.com/law-authors/amanda-hayes.html "Amanda Hayes, Attorney · University of North Carolina School of Law")**, **Attorney** University of North Carolina School of Law Updated 2/23/2026 [Why Trust Us?](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#trust-us) [Fact-Checked](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#fact-checked) Nolo was born in 1971 as a publisher of self-help legal books. Guided by the motto “law for all,” our attorney authors and editors have been explaining the law to everyday people ever since. Learn more about our [**history**](https://www.nolo.com/about/history) and our [**editorial standards**.](https://www.nolo.com/about/about.html#editorial-standards) Each article that we publish has been written or reviewed by one of our editors, who together have over 100 years of experience practicing law. We strive to keep our information current as laws change. Learn more about our [**editorial standards**](https://www.nolo.com/about/about.html#editorial-standards). A profit and loss (P\&L) forecast is a projection of how much money your [small business](https://www.nolo.com/legal-encyclopedia/small-business) will bring in by [selling products or services](https://www.nolo.com/legal-encyclopedia/selling-goods-services). In good times, you use it to ensure that there'll be enough money coming in to exceed the costs of providing the goods and services so you can make a solid profit. In tough times, your P\&L can play an essential role in showing you what kind of plan you need to return to break even, so you'll be able to survive until better times come. If you use accounting software, such as Intuit's QuickBooks, it'll generate a P\&L forecast for you once you enter monthly sales and expense estimates. You can also create your own forecast using a basic spreadsheet. Just look at the sample P\&L below to see how to set up this important [accounting document](https://www.nolo.com/legal-encyclopedia/bookkeeping-accounting-basics-29653.html). [In This Article](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#toc-collapse) - [Step 1: Estimate Future Revenue](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#step-1-estimate-future-revenue) - [Step 2: Estimate Your Variable Costs](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#step-2-estimate-your-variable-costs) - [Step 3: Estimate Your Gross Profit](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#step-3-estimate-your-gross-profit) - [Step 4: Calculate Your Net Profit Using Fixed (Overhead) Costs](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#step-4-calculate-your-net-profit-using-fixed-overhead-costs) - [Your Gross Profit Margin](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#your-gross-profit-margin) - [Difference Between Profit and Loss Forecast and Cash Flow Statement](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#difference-between-profit-and-loss-forecast-and-cash-flow-statement) ## Step 1: Estimate Future Revenue Start by estimating how much you'll take in each month during the next six to 12 months. No question, this number will be a guesstimate. If you're already in business, you can extrapolate from current sales levels and allow for significant seasonal fluctuations and other known variables. **Example:** Suppose Emme owns and operates a consignment shop that sells gently used clothes for women and children. She buys her inventory from moms who bring in their own and their children's clothing to sell. Emme is careful to buy mostly well-known brands (and when possible, high-end ones) that she can sell for a premium. Emme was selling \$15,000 of clothing per month when the economy took a dive. Sales have been down almost 30% lately. So Emme wants to create a more realistic profit and loss forecast for the upcoming year. She estimates that she'll bring in an average of \$10,000 per month in sales over the next year—more at back-to-school time and the holidays, less during the slow summer months. ## Step 2: Estimate Your Variable Costs Now estimate the monthly cost to you of the goods or services you'll sell as part of achieving your sales estimate. These are your variable costs. These costs are called "variable," or sometimes "incremental," because they go up or down depending on the volume of products or services you produce or sell. (And in retail, they're called "cost of goods.") For example, if you're a mail-order business, then the more you sell, the more you'll pay for shipping costs. Other variable costs include: - inventory - supplies - materials - packaging, and - sometimes, labor used in providing your product or service. In the case of services, count labor costs as variable costs only if they'll go up or down depending on how many sales you make. For instance, if you have to [hire independent contractors](https://www.nolo.com/legal-encyclopedia/contractors-freelancers) or temps to cover busy periods, those labor costs are variable. But if you employ a manager, bookkeeper, or [marketing](https://www.nolo.com/legal-encyclopedia/marketing-advertising) employee, you'll have to pay their salaries no matter how much sales go up or down. These wages should be listed under fixed costs (overhead) in Step 4, below. **Example:** Emme used to spend more than \$6,500 per month to buy used clothing to resell. But because sales have been down so much, she'll need less inventory. She estimates that she'll probably spend only about \$4,500 per month. ## Step 3: Estimate Your Gross Profit Now, simply subtract your average monthly variable costs from your estimated average monthly sales revenue to get your estimated monthly gross profit. This number will let you calculate how much of each dollar of sales you get to keep. From that amount, however, you'll have to pay for overhead costs. Anything left over is your net profit. **Example:** Emme subtracts her inventory costs of \$4,500 per month from her sales estimate of \$10,000 per month. She estimates her new average monthly gross profit will be \$5,500. Again, this number is her gross profit before subtracting her overhead, which is discussed below. ## Step 4: Calculate Your Net Profit Using Fixed (Overhead) Costs Your net profit is the most important number you need to determine. Your net profit lets you see whether you'll have any money left after paying your overhead costs or, failing that, whether you can at least break even. To arrive at your net profit, make a list of your monthly fixed costs, which are items such as: - rent from your [commercial lease](https://www.nolo.com/legal-encyclopedia/commercial-lease-basics-29934.html) - employees' wages (including [payroll taxes](https://www.nolo.com/legal-encyclopedia/state-guide-income-tax-withholding-requirements.html), benefits, and [workers' comp costs](https://www.nolo.com/legal-encyclopedia/workers-compensation-basics-employers-30333.html)) - your salary if you plan to [pay yourself](https://www.nolo.com/legal-encyclopedia/how-to-pay-yourself-as-a-small-business-owner.html) a regular wage regardless of how profitable the business is (but if, as is typical, you'll just take what's left over after costs are paid, don't include your salary as a fixed cost) - utilities - telephone - [insurance](https://www.nolo.com/legal-encyclopedia/what-types-insurance-does-your-small-business-need.html) - office equipment - advertising, and - accounting, bookkeeping, or tax preparation fees. Divide any annual expenses, such as insurance premiums, by 12 to get a monthly amount. To arrive at your monthly net profit (or loss), subtract your average estimated monthly fixed costs from your monthly gross profit. ### Example: Estimate Monthly Net Profit Over the past year, Emme has been able to pay herself \$50,000 from the business. But she knows that with sales dropping, this salary won't be possible in the coming year. She guesses she'll need to cut her take-home wages to \$30,000—and if she can't bring home at least that amount for living expenses, she won't keep the shop open. So she includes \$30,000 in her fixed costs. Emme adds up her total fixed costs, including the following: - \$1,000 for rent - \$100 for utilities - \$4,000 for labor (this amount includes \$12,000 per year for a part-time assistant, employment taxes and costs, and her \$30,000 salary), and - \$100 for insurance (her annual premium is \$1,200), and so on. The total of her fixed costs comes to \$5,500 per month. When she puts one month's numbers together in a spreadsheet, here's what it looks like. | | | | |---|---|---| | **January** | | | | **Sales Revenue** | **10,000** | | | Cost of Goods | 4,500 | | | **Gross Profit** | **5,500** | | | **Fixed Costs** | | | | Rent | 1,000 | | | Labor | 4,000 | | | Utilities | 100 | | | Phone | 30 | | | Insurance | 100 | | | Advertising | 40 | | | Accounting | 130 | | | Miscellaneous | 100 | | | **Total Fixed Costs** | **5,500** | | | **Net Profit (Loss)** | **0** | | When you're satisfied with your cost estimates for an average month, fill in estimates for six or 12 months. Then, for each month, subtract your total fixed expenses from your gross profit to get the net profit. ### Example: Estimated Net Profit for Twelve Months Emme fills in an entire year of sales estimates, with the usual dip in sales she experiences in summer and then upswings in September when the kids go back to school and in December, traditionally her best month. Then, using her estimate of \$4,500 in monthly variable costs and her estimate of \$5,500 in monthly fixed costs, she comes up with a net profit for each month. Emme notices that in the summer, she'll lose a little over \$1,000 per month for a few months in a row, but will make it back up by December. | | | | | | | | | | | | | | |---|---|---|---|---|---|---|---|---|---|---|---|---| | **Emme's Profit and Loss Forecast** | | | | | | | | | | | | | | | **Jan** | **Feb** | **March** | **April** | **May** | **June** | **July** | **Aug** | **Sept** | **Oct** | **Nov** | **Dec** | | **Sales Revenue** | **10,000** | **10,000** | **10,000** | **10,000** | **10,000** | **8,000** | **8,000** | **7,000** | **12,000** | **10,000** | **10,000** | **15,000** | | Variable Costs | 4,500 | 4,500 | 4,500 | 4,500 | 4,500 | 3,600 | 3,600 | 3,150 | 5,400 | 4,500 | 4,500 | 6,750 | | **Gross Profit** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **4,400** | **4,400** | **3,850** | **6,600** | **5,500** | **5,500** | **8,250** | | **Fixed Costs** | | | | | | | | | | | | | | Rent | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | | Labor | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | | Utilities | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | Phone | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | | Insurance | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | Advertising | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | | Accounting | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | | Miscellaneous | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | **Total Fixed Costs** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | | **Net Profit (Loss)** | **0** | **0** | **0** | **0** | **0** | **\-1,100** | **\-1,100** | **\-1,650** | **1,100** | **0** | **0** | **2,750** | Creating this new profit and loss forecast lets Emme see that she can't count on taking any extra profits out of the business for the next year. And if her sales estimates are too high, she won't be able to take home \$30,000 over the year for living expenses. She needs to think long and hard about whether it makes sense to drain her savings account and continue toiling for a year in the hopes that the economy will rebound soon and allow her to make a good living again from the store. ## Your Gross Profit Margin It's also useful to know your gross profit margin. Gross profit margin measures the difference between the costs of producing a product or providing a service and what you're selling it for. In short, it lets you know how profitable your products and services are. To get your profit margin, divide your estimated average monthly gross profit by your estimated monthly sales. > **Example:** Emme divides her monthly gross profit of \$5,500 (knowing that this figure varies in some months) by her \$10,000 of sales. Her profit margin is 55%. Now she knows she'll get to keep, on average, about 55 cents of every sales dollar she takes in (before paying for overhead). ### What Your Profit Margin Means Profit margins can be used in many different ways. **Assessing profitability.** Some businesses regularly calculate their profit margin to monitor the profitability of their products or services. A decrease in profit margin over time usually means that variable costs have gone up—for instance, costs for raw materials, manufacturing, or labor. Rising variable costs should nudge the company to either look for new suppliers or raise prices. **Set pricing.** Other businesses use their anticipated profit margin to help them price products or services (and increase profitability). For example, suppose a business requires a profit margin of 60%. It produces a product that costs \$20 to make. Using the profit margin formula (\$20 ÷ (100% - 60%), it would set the retail price of its product at around \$50. The business would make \$30 in profit off of the \$50 sale, a 60% profit margin. (Some experts disagree with this use of profit margin, recommending instead that businesses start with the price they think customers will pay and then make sure the costs are low enough to make a profit.) **Evaluating new inventory.** Another way to use profit margins is to screen new products and services to sell. For instance, a retail gift shop might decide to add only new products that can be bought and sold at a price that yields a profit margin of 50%. ### What's a Good Profit Margin? The answer varies across industries. According to the NYU Stern School of Business, the [average profit margins per industry sector](https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html) include the following: - the farming and agricultural industry has a lower profit margin, around 13% - the software industry has traditionally had high profit margins, around 70%; and - the profit margins for restaurants and retail are somewhere in the middle, around 30%. But without looking at the costs of a company's overhead, such as marketing and administration, profit margins don't give the whole picture of a company's profitability. ## Difference Between Profit and Loss Forecast and Cash Flow Statement Both a P\&L forecast and a [cash flow statement](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-3.html) are essential to assessing the financial state of your business. But they differ in their purpose and method of accounting. **Accounting methods.** A P\&L forecast uses accrual accounting, meaning your revenue reflects how much your business makes and is owed. So, your revenue would include money your business has earned, but your [customer hasn't yet paid](https://www.nolo.com/legal-encyclopedia/get-clients-pay-up-29988.html). A cash flow statement uses cash basis accounting, meaning your revenue total doesn't include money your business is owed but hasn't yet received. You'll only count the money your business has been paid. **Purposes.** A business owner would use a P\&L forecast to assess their [company's profitability](https://www.nolo.com/legal-encyclopedia/will-business-make-money-29850.html). You'll use your P\&L statement to see if your business is a worthwhile venture. You'll use a cash flow statement to track the money going in and out of your business. Your cash flow statement has a more immediate purpose than the P\&L forecast. Your cash flow statement will show you if your business has enough in the bank to pay for upcoming expenses. Based on Your Previous Answers, We Have a Few Last Questions These additional details allow our attorneys to gain a deeper understanding of the specifics of your case Submit Close Need Professional Help? Talk to a Business Law Attorney. ![](https://api.trustedform.com/ns.gif) In This Article - [Step 1: Estimate Future Revenue](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#step-1-estimate-future-revenue) - [Step 2: Estimate Your Variable Costs](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#step-2-estimate-your-variable-costs) - [Step 3: Estimate Your Gross Profit](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#step-3-estimate-your-gross-profit) - [Step 4: Calculate Your Net Profit Using Fixed (Overhead) Costs](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#step-4-calculate-your-net-profit-using-fixed-overhead-costs) - [Your Gross Profit Margin](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#your-gross-profit-margin) - [Difference Between Profit and Loss Forecast and Cash Flow Statement](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#difference-between-profit-and-loss-forecast-and-cash-flow-statement) ## Want More Legal Info? 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Turn your guesses into a game plan: forecast sales, wrangle costs, and see if your business really pays you back. By , **Attorney** UC Law San Francisco Updated by **[Amanda Hayes](https://www.nolo.com/law-authors/amanda-hayes.html "Amanda Hayes, Attorney · University of North Carolina School of Law")**, **Attorney** University of North Carolina School of Law A profit and loss (P\&L) forecast is a projection of how much money your [small business](https://www.nolo.com/legal-encyclopedia/small-business) will bring in by [selling products or services](https://www.nolo.com/legal-encyclopedia/selling-goods-services). In good times, you use it to ensure that there'll be enough money coming in to exceed the costs of providing the goods and services so you can make a solid profit. In tough times, your P\&L can play an essential role in showing you what kind of plan you need to return to break even, so you'll be able to survive until better times come. If you use accounting software, such as Intuit's QuickBooks, it'll generate a P\&L forecast for you once you enter monthly sales and expense estimates. You can also create your own forecast using a basic spreadsheet. Just look at the sample P\&L below to see how to set up this important [accounting document](https://www.nolo.com/legal-encyclopedia/bookkeeping-accounting-basics-29653.html). [In This Article](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#toc-collapse) - [Step 1: Estimate Future Revenue](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#step-1-estimate-future-revenue) - [Step 2: Estimate Your Variable Costs](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#step-2-estimate-your-variable-costs) - [Step 3: Estimate Your Gross Profit](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#step-3-estimate-your-gross-profit) - [Step 4: Calculate Your Net Profit Using Fixed (Overhead) Costs](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#step-4-calculate-your-net-profit-using-fixed-overhead-costs) - [Your Gross Profit Margin](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#your-gross-profit-margin) - [Difference Between Profit and Loss Forecast and Cash Flow Statement](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-2.html#difference-between-profit-and-loss-forecast-and-cash-flow-statement) ## Step 1: Estimate Future Revenue Start by estimating how much you'll take in each month during the next six to 12 months. No question, this number will be a guesstimate. If you're already in business, you can extrapolate from current sales levels and allow for significant seasonal fluctuations and other known variables. **Example:** Suppose Emme owns and operates a consignment shop that sells gently used clothes for women and children. She buys her inventory from moms who bring in their own and their children's clothing to sell. Emme is careful to buy mostly well-known brands (and when possible, high-end ones) that she can sell for a premium. Emme was selling \$15,000 of clothing per month when the economy took a dive. Sales have been down almost 30% lately. So Emme wants to create a more realistic profit and loss forecast for the upcoming year. She estimates that she'll bring in an average of \$10,000 per month in sales over the next year—more at back-to-school time and the holidays, less during the slow summer months. ## Step 2: Estimate Your Variable Costs Now estimate the monthly cost to you of the goods or services you'll sell as part of achieving your sales estimate. These are your variable costs. These costs are called "variable," or sometimes "incremental," because they go up or down depending on the volume of products or services you produce or sell. (And in retail, they're called "cost of goods.") For example, if you're a mail-order business, then the more you sell, the more you'll pay for shipping costs. Other variable costs include: - inventory - supplies - materials - packaging, and - sometimes, labor used in providing your product or service. In the case of services, count labor costs as variable costs only if they'll go up or down depending on how many sales you make. For instance, if you have to [hire independent contractors](https://www.nolo.com/legal-encyclopedia/contractors-freelancers) or temps to cover busy periods, those labor costs are variable. But if you employ a manager, bookkeeper, or [marketing](https://www.nolo.com/legal-encyclopedia/marketing-advertising) employee, you'll have to pay their salaries no matter how much sales go up or down. These wages should be listed under fixed costs (overhead) in Step 4, below. **Example:** Emme used to spend more than \$6,500 per month to buy used clothing to resell. But because sales have been down so much, she'll need less inventory. She estimates that she'll probably spend only about \$4,500 per month. ## Step 3: Estimate Your Gross Profit Now, simply subtract your average monthly variable costs from your estimated average monthly sales revenue to get your estimated monthly gross profit. This number will let you calculate how much of each dollar of sales you get to keep. From that amount, however, you'll have to pay for overhead costs. Anything left over is your net profit. **Example:** Emme subtracts her inventory costs of \$4,500 per month from her sales estimate of \$10,000 per month. She estimates her new average monthly gross profit will be \$5,500. Again, this number is her gross profit before subtracting her overhead, which is discussed below. ## Step 4: Calculate Your Net Profit Using Fixed (Overhead) Costs Your net profit is the most important number you need to determine. Your net profit lets you see whether you'll have any money left after paying your overhead costs or, failing that, whether you can at least break even. To arrive at your net profit, make a list of your monthly fixed costs, which are items such as: - rent from your [commercial lease](https://www.nolo.com/legal-encyclopedia/commercial-lease-basics-29934.html) - employees' wages (including [payroll taxes](https://www.nolo.com/legal-encyclopedia/state-guide-income-tax-withholding-requirements.html), benefits, and [workers' comp costs](https://www.nolo.com/legal-encyclopedia/workers-compensation-basics-employers-30333.html)) - your salary if you plan to [pay yourself](https://www.nolo.com/legal-encyclopedia/how-to-pay-yourself-as-a-small-business-owner.html) a regular wage regardless of how profitable the business is (but if, as is typical, you'll just take what's left over after costs are paid, don't include your salary as a fixed cost) - utilities - telephone - [insurance](https://www.nolo.com/legal-encyclopedia/what-types-insurance-does-your-small-business-need.html) - office equipment - advertising, and - accounting, bookkeeping, or tax preparation fees. Divide any annual expenses, such as insurance premiums, by 12 to get a monthly amount. To arrive at your monthly net profit (or loss), subtract your average estimated monthly fixed costs from your monthly gross profit. ### Example: Estimate Monthly Net Profit Over the past year, Emme has been able to pay herself \$50,000 from the business. But she knows that with sales dropping, this salary won't be possible in the coming year. She guesses she'll need to cut her take-home wages to \$30,000—and if she can't bring home at least that amount for living expenses, she won't keep the shop open. So she includes \$30,000 in her fixed costs. Emme adds up her total fixed costs, including the following: - \$1,000 for rent - \$100 for utilities - \$4,000 for labor (this amount includes \$12,000 per year for a part-time assistant, employment taxes and costs, and her \$30,000 salary), and - \$100 for insurance (her annual premium is \$1,200), and so on. The total of her fixed costs comes to \$5,500 per month. When she puts one month's numbers together in a spreadsheet, here's what it looks like. | | | | |---|---|---| | **January** | | | | **Sales Revenue** | **10,000** | | | Cost of Goods | 4,500 | | | **Gross Profit** | **5,500** | | | **Fixed Costs** | | | | Rent | 1,000 | | | Labor | 4,000 | | | Utilities | 100 | | | Phone | 30 | | | Insurance | 100 | | | Advertising | 40 | | | Accounting | 130 | | | Miscellaneous | 100 | | | **Total Fixed Costs** | **5,500** | | | **Net Profit (Loss)** | **0** | | When you're satisfied with your cost estimates for an average month, fill in estimates for six or 12 months. Then, for each month, subtract your total fixed expenses from your gross profit to get the net profit. ### Example: Estimated Net Profit for Twelve Months Emme fills in an entire year of sales estimates, with the usual dip in sales she experiences in summer and then upswings in September when the kids go back to school and in December, traditionally her best month. Then, using her estimate of \$4,500 in monthly variable costs and her estimate of \$5,500 in monthly fixed costs, she comes up with a net profit for each month. Emme notices that in the summer, she'll lose a little over \$1,000 per month for a few months in a row, but will make it back up by December. | | | | | | | | | | | | | | |---|---|---|---|---|---|---|---|---|---|---|---|---| | **Emme's Profit and Loss Forecast** | | | | | | | | | | | | | | | **Jan** | **Feb** | **March** | **April** | **May** | **June** | **July** | **Aug** | **Sept** | **Oct** | **Nov** | **Dec** | | **Sales Revenue** | **10,000** | **10,000** | **10,000** | **10,000** | **10,000** | **8,000** | **8,000** | **7,000** | **12,000** | **10,000** | **10,000** | **15,000** | | Variable Costs | 4,500 | 4,500 | 4,500 | 4,500 | 4,500 | 3,600 | 3,600 | 3,150 | 5,400 | 4,500 | 4,500 | 6,750 | | **Gross Profit** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **4,400** | **4,400** | **3,850** | **6,600** | **5,500** | **5,500** | **8,250** | | **Fixed Costs** | | | | | | | | | | | | | | Rent | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | | Labor | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | | Utilities | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | Phone | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | | Insurance | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | Advertising | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | 40 | | Accounting | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | 130 | | Miscellaneous | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | **Total Fixed Costs** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | **5,500** | | **Net Profit (Loss)** | **0** | **0** | **0** | **0** | **0** | **\-1,100** | **\-1,100** | **\-1,650** | **1,100** | **0** | **0** | **2,750** | Creating this new profit and loss forecast lets Emme see that she can't count on taking any extra profits out of the business for the next year. And if her sales estimates are too high, she won't be able to take home \$30,000 over the year for living expenses. She needs to think long and hard about whether it makes sense to drain her savings account and continue toiling for a year in the hopes that the economy will rebound soon and allow her to make a good living again from the store. ## Your Gross Profit Margin It's also useful to know your gross profit margin. Gross profit margin measures the difference between the costs of producing a product or providing a service and what you're selling it for. In short, it lets you know how profitable your products and services are. To get your profit margin, divide your estimated average monthly gross profit by your estimated monthly sales. > **Example:** Emme divides her monthly gross profit of \$5,500 (knowing that this figure varies in some months) by her \$10,000 of sales. Her profit margin is 55%. Now she knows she'll get to keep, on average, about 55 cents of every sales dollar she takes in (before paying for overhead). ### What Your Profit Margin Means Profit margins can be used in many different ways. **Assessing profitability.** Some businesses regularly calculate their profit margin to monitor the profitability of their products or services. A decrease in profit margin over time usually means that variable costs have gone up—for instance, costs for raw materials, manufacturing, or labor. Rising variable costs should nudge the company to either look for new suppliers or raise prices. **Set pricing.** Other businesses use their anticipated profit margin to help them price products or services (and increase profitability). For example, suppose a business requires a profit margin of 60%. It produces a product that costs \$20 to make. Using the profit margin formula (\$20 ÷ (100% - 60%), it would set the retail price of its product at around \$50. The business would make \$30 in profit off of the \$50 sale, a 60% profit margin. (Some experts disagree with this use of profit margin, recommending instead that businesses start with the price they think customers will pay and then make sure the costs are low enough to make a profit.) **Evaluating new inventory.** Another way to use profit margins is to screen new products and services to sell. For instance, a retail gift shop might decide to add only new products that can be bought and sold at a price that yields a profit margin of 50%. ### What's a Good Profit Margin? The answer varies across industries. According to the NYU Stern School of Business, the [average profit margins per industry sector](https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html) include the following: - the farming and agricultural industry has a lower profit margin, around 13% - the software industry has traditionally had high profit margins, around 70%; and - the profit margins for restaurants and retail are somewhere in the middle, around 30%. But without looking at the costs of a company's overhead, such as marketing and administration, profit margins don't give the whole picture of a company's profitability. ## Difference Between Profit and Loss Forecast and Cash Flow Statement Both a P\&L forecast and a [cash flow statement](https://www.nolo.com/legal-encyclopedia/free-books/small-business-book/chapter14-3.html) are essential to assessing the financial state of your business. But they differ in their purpose and method of accounting. **Accounting methods.** A P\&L forecast uses accrual accounting, meaning your revenue reflects how much your business makes and is owed. So, your revenue would include money your business has earned, but your [customer hasn't yet paid](https://www.nolo.com/legal-encyclopedia/get-clients-pay-up-29988.html). A cash flow statement uses cash basis accounting, meaning your revenue total doesn't include money your business is owed but hasn't yet received. You'll only count the money your business has been paid. **Purposes.** A business owner would use a P\&L forecast to assess their [company's profitability](https://www.nolo.com/legal-encyclopedia/will-business-make-money-29850.html). You'll use your P\&L statement to see if your business is a worthwhile venture. You'll use a cash flow statement to track the money going in and out of your business. Your cash flow statement has a more immediate purpose than the P\&L forecast. Your cash flow statement will show you if your business has enough in the bank to pay for upcoming expenses.

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