How to Project Annual Profit in a Letter

Scott Shpak reports:

"The next 12 months are crucial to every small business, whether you've been in operation for years or are in the planning stage. When shareholders and bank managers are involved, financial communications establish confidence and trust. Base the one-year profit projection letter for these stakeholders on your income statement forecast...The income statement presents a dynamic picture of your [business'] fiscal performance, and your budgeted income statement for the next 12 months serves as the basis for a profit projection letter. The income statement reports revenue, costs to supply goods or services[,] and company overheads. An existing company may forecast based on previous performance, while a startup uses market research and experiential guesswork. Your profit projection letter takes the financial data of the income statement and gives context to your predictions...Projecting revenues is a big challenge when budgeting. Bankers and investors want to know the reasons for the numbers you predict. They seek grounded and logical thinking that justifies revenue, as it is key to your profit projection. An existing business owner has an easier time, as he is able to build on previous results. If you're starting from scratch, you must create revenue predictions from research, so your guesswork may be extensive...Your company's gross margin is key to those analyzing your business. The gross margin is your revenue minus the costs necessary to earn revenue. If you are projecting to produce revenue with significantly lower costs, your profit projection letter should explain that...Your net profit is what you write your one-year profit projection letter to showcase. From your gross margin, subtract the costs of doing business. Your overheads, or fixed costs, are generally not influenced by fluctuations in sales. However, a dollar spent on overhead is a dollar erased from your net profit, so savvy investors want to see control and lean thinking. Your projection letter can highlight fixed cost savings, acquisitions and disposal of assets...Use your introduction to state the purpose of your projection letter. With content extracted from your income statement, you have three sections ready to go. The introduction prepares and directs your readers to key points. Concluding your profit projection restates your expectations for the next year. Refer the reader back to key points for emphasis."