Entrepreneurship, Second Edition

8.2. Financial Statement Overview

You'll need to include three standard financial statements in your business plan: the income statement, the statement of cash flows, and the balance sheet. Most people first want to know why there are three statements. The reason is simple: Each one provides a slightly different view of the company. Any one alone is only part of the picture. Together they provide a detailed description of the economics of your company.

The first of these statements, the income statement, describes how well a company conducted its business over a recent period of time—typically, a quarter (three months) or a year. This indicator of overall performance begins with the company's revenues on the top line. From that accounting of sales, subtract the company's expenses. These include

Cost of the products that the company actually sold

Selling, marketing, and administrative costs

Depreciation—the estimated cost of using your property, plant, and equipment

Interest on debts

Taxes ...