Revenue is the biggest driver of profitability. I gave this presentation on how to use the income statement as a tool to plan for business profitability The talk was at Grossmont College in San Diego at Paula Margulies class on Business Planning.

1. The income statement
as a tool for profit
planning.

2. Two pertinent questions:
How will you or your company
make more money this
year than last year?
Can we focus on how to make
more money?
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3. KNOW the Income Statement
$ REVENUE
- Cost of goods sold
- Sell, Gen &Admin
Operating Income
-Interest Expense
-Taxes
$ Net Income
Net Income = Profit
Profits go back into a
business or to a
dividend to owner(s)
The Income Statement is a tool
to focus you as a business
owner to measure and plan to
make money.
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4. KNOW key drivers
$ REVENUE
Revenue = $Price * #Quantity
What will client’s pay? How many
clients do you have?
Revenue is more than
a number. It measures
client behavior in $.
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5. Cash Waterfall
COSTS
Equity
Revenue
Dividend
Revenue pays for costs.
What’s left over is equity.
Equity stays in the business
to grow it. Or is distributed
to owners as dividend.
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6. ACTIONABLE IDEA$
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Use well prepared
financial statements
as tool to think of
money making
opportunities.

7. Two Basic Stories
↑ Revenue
of the income statement
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8. The Top Line Story*
Company increases revenues
to increase profit.
How can revenue grow?
↑ QUANTITY * ↑ PRICE
↑growth either organic or acquired
The top line refers to the revenue line of the income statement. It is
considered the most important line item of the income statement.
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9. The Margin Story*
Company lowers its costs
to increase profit.
 labor, materials, supplies
 sales force, office, information systems
How low can costs go and still provide quality?
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Margin = costs / revenue; there are 3 types gross margin, operating
margin and net profit margin

10. Assets (balance sheet) Generate
Revenues and Profits
What assets can you use or buy or create
that will increase revenues?
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If you own a restaurant what type of assets
will you need to buy in order to generate
sales? Hint: What does your client want?

11. Hope is not a good story
Common hope stories:
• I will compete by lowering my price.
• I will give my product away for free to
get exposure.
• If I build it they will come.
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12. A Profit Plan is good story
Buy assets that have a direct effect on ↑
revenues. Don’t just HOPE.  PLAN to be a
profitable business.
A profit plan helps:
• Keep the business on track.
• Attract a lender or investor to your
business.
• Attract a buyer of your business.
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13. How do you do better than
competitors?
• Focus on your clients needs and goals. Can you
increase your client’s sales or decrease their
costs?
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