Income Statements

The income statement is a financial document used to assess the financial health of an organization over a period of time. At a minimum you must complete an income statement once at the end of the year. A better strategy for the start-up firm is to construct a basic income statement each week to see how you are doing. However, as a start-up the minimum number of income statements you should create for the first two years is one Income statement each month you are in operations.

Banks rely on the income statement for the purpose of scoring your loan application. Bankers can see what you are spending your money on and how much value your customers place on whatever it is you sell.

Your sales revenue is a function of how much value the consumer places on your products and how well you are able to communicate that value proposition to the buyers.

Investors rely on the income statement for the purpose of determining whether you are a good investment risk. This is especially true in today's venture capital world. No longer will investors throw money at unproven ideas. They now want to see that consuming public shares your enthusiasm about your product.

You rely on the balance sheet because it measures your progress and efficiency in the running of your business.

Income Statements are composed of three basic elements:

• Sales revenues,
• Expenses to create those sales, and
• A residual value that depends on whether sales revenues were more than expenses. When revenues are more than expenses you are left with a profit (GOOD THING). When expenses exceed your revenues you are left with a loss (BAD THING).