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In this segment, you will delve into the essential task of calculating your total revenue, expenses, and net profit using functions in your “twelve-month profit and loss projection” worksheet. Understanding your net profit, which is the profit remaining after all expenses and taxes are accounted for, is critical in estimating your business’s financial performance in its first year. This insight aids in forecasting when your business might start turning a profit and informs strategic decisions regarding operations, investments, and the timing for seeking additional funding for growth. Begin by employing the “SUM” function to accumulate the totals for your first month in the “total revenue” row. Select the corresponding cell for total revenue beneath your first month, type the equals sign, and then “s-u-m.” Choose the “SUM” function from the suggested options and define the range of cells to be summed. For subsequent months, adjust the range to correspond with the column you are focusing on. To expedite the process, drag the sum function across your “total revenue” row, applying it to each cell in the row. Proceed to calculate total revenue for your category in the “yearly” column by dragging the function down to encompass the rest of the revenue categories. Follow the same process to total each month and category in your “cost of sales” and “expenses” sections.
Next, employ a subtraction formula to determine your “gross profit,” which involves subtracting “cost of sales” from “revenue.” A formula in this context is a command that performs specific calculations on a range of cells, like subtracting one cell’s value from another or multiplying values in two different cells. Once you have your gross profit calculation set up, drag the subtraction formula across the row to calculate it for each month and the year. Then, use a multiplication formula to calculate your “reserve for contingencies,” which are funds set aside for unexpected expenses. A prudent reserve for contingencies is typically around twenty percent of total expenses, or sufficient to cover three-to-six months of operating costs. Multiply your subtotal expenses by the desired reserve percentage, expressed as a decimal (for instance, twenty percent as 0.2). Extend your formula across the row to apply it to all columns. Afterward, use the “SUM” function to add your subtotal expenses to your reserve for contingencies and drag this formula across the row to include the subtotal and contingency reserve in each column. Then, subtract “total expenses” from “gross profit” to ascertain your “net profit before taxes,” applying the formula across the row to compute monthly and yearly totals. Sum up your taxes for each tax type and subtract these from your net profit to arrive at your “net operating income.” Extend your subtraction formula across the entire row to finalize your table. Remember, as more detailed information becomes available, you can revisit and revise specific categories or months, with your functions and formulas automatically updating the sheet totals. Now it’s your turn to apply these techniques: Calculate your monthly and category totals, and total expenses; subtract “total expenses” from “gross profit” to determine “net profit”; compute your “reserve for contingencies”; and finally, subtract taxes from “net profit” to ascertain your “net operating income.”