INSTRUCTIONS
THREE-YEAR INCOME PROJECTION

WHAT IS A THREE-YEAR INCOME PROJECTION? 
A three-year income projection is a pro forma income (or profit & loss) statement.   This statement differs from a cash flow statement in that it includes only projected income and deductible expenses.  This difference is illustrated as follows:  Your company plans to make payments of $9000 on a vehicle in 1996. $3000 of that amount is interest.  The full amount ($9,000) will be recorded on a cash flow statement because is is the cash paid out; only the interest ($3,000), an expense for using loan funds, will be recorded on a projected income statement.  Principal paid on your loan ($6,000) is repayment of borrowed funds and not a deductible expense.

VARIATION IN PERIOD COVERED 
There is some difference of opinion as to the period of time that should be covered and whether or not it should be on an annual or month-by-month basis.  If you are seeking funds, talk to the lender about his or her specific requirements.  If not, we suggest a three-year projection with annual rather than monthly projections.  With the rapidly-changing economy, it is difficult to make accurate detailed projections. 
 
ACCOUNT FOR INCREASES AND DECREASES  
Increases in income and expenses are only realistic and should be reflected in your projections.  Industry trends can also cause decreases in both income and expenses.  An example of this might be in the computer industry where heavy competition and standardization of components has caused a decrease in both cost and sale price of certain items.  The state of the economy will also be a contributing factor in the outlook for your business.

SOURCES OF INFORMATION 
Information for a three-year projection can be developed from your pro forma cash flow statement and your business and marketing analysis. The first year's figures can be transferred from the totals of income and expense items.  The second and third years' figures are derived by combining these totals with projected trends in your particular industry.  Again, if you are an established business, you will also be able to use past financial statements to help you determine what you project for the future of your business. Try to anticipate fluctuations in costs, efficiency of operation, changes in your market, etc.  
1.	The first job is to customize your spreadsheet, again using  your Chart of Accounts and the same categories that you used on other spreadsheets. This spreadsheet will utilize only Income and Expense categories.
2.	Transfer revenue and expense annual totals to "Year 1" of your 3-year income projection. Do not attempt to input numbers into formulated cells. They will automatically be calculated. 
3.	Input information into "Year 2" and "Year 3" by  repeating, increasing, or decreasing the numbers from "Year 1" according to contracts in effect, projected industry trends, expected growth, marketing plans, etc.  Again, do not attempt to input numbers into formulated cells.
4.	All numbers in the "Three-Year Total" column will be automatically calculated for you. 
FOR YOUR OWN USE:  At the end of each year, compare your company's projections against its actual performance.