money you need     what you will spend it on, and     how you will pay it back. B. What Is a Profit and Loss Forecast?     A profit and loss forecast is a projection of how much you will sell and how much profit you will make. This is the foundation of your business plan. It gives you and your potential backers the basic information necessary to decide whether your business will succeed. Basically, a profit and loss forecast forces you to estimate how many dollars you will take in and how many dollars you will spend for some future period. While other extremely important factors affect your business, such as your cash flow (youll be in good shape if you can confidently predict that the money coming in will exceed the money going out by a healthy margin.     In you completed a rough break-even analysis for your business. That analysis helped you decide whether you chose the right business. Now we are going to take a closer look at those numbers and develop them into a comprehensive forecast of your business future profits. (If you did not complete or dont remember the work you did then, review F, before you read ahead.)     Your business profits result from three specific dollar figures:     Sales revenue. This is all the money you take into your business each month, week or year. It is also called "gross sales," "sales income" or simply "sales."     Cost of sales. This is your direct cost of the product or service you sell. Sometimes it is called "direct product cost," "variable cost," "incremental cost" or "direct cost."     Fixed expenses. These are sometimes called "overhead," and you must pay them regardless of how well you do. Fixed expenses dont vary much from month to month. They include rent, insurance and other set expenses. They are also called "fixed costs," "operating expenses," "expenses" or "discretionary costs" (discussed in).         In a given period, you make profits when sales revenues exceed your total cost of sales and fixed expenses. To put it another way, sales revenue minus both cost of sales and fixed expenses equals profits and/or losses for a given time period. Our job here is to examine closely all the above numbers and, once you are convinced they are right, to present them on a month-by-month basis for two years. Two years is enough time to see if any short-term problems or long-range trends begin developing. Of course, you can change the timeframe if necessary. For instance, if you are starting a beer stand for the annual county fair or a vineyard with a five-year growing cycle, a different timeframe will make sense for you.     C. Determine Your Average Cost of Sales     Your first step in your profit and loss projection is to determine your average cost of sales-that is, your direct cost of the products or services you sell. Youll use the Sales Revenue Forecast you completed F1, to make this estimate.