One of the most important exercises a potential business owner can do is an estimate of the future profits for the business. When done well, the potential entrepreneur must deal with reasonable expectations of sales while trying to control expenses to earn a profit.

In general, bankers have a good understanding of income potential and reasonable expenses for businesses in their community and when a plan fails to meet these expectations, a loan application is likely to be rejected. A poor financial projection shows that the potential business owner is not prepared for the project and will have a high risk of failure.

Our income estimator is designed to help you make realistic projections of sales and expenses. Just like any other average, it is bound to be wrong almost all of the time. Half the business owners will do better than average and half will do worse. However, there is a way to see how well your projections of expenses compare to the national at the level of sales you expect by going to bizstats.com and comparing your projections to the data gathered from tax returns.

When you click the button marked tax format, the output is in the same form as used by Bizstats.com a site every prospective small business owner should get familiar with. You can learn the size of your industry and how businesses in that industry spend there revenues as a percentage of sales. For a direct comparison of the estimate you just completed to a business of the same size in your industry go to: morebusiness.com/tools/bizstats

Remember to base all expenses on the yearly rate. If you know the hourly rate, multiply by 2080 for the annual rate. If you know the monthly rate, multiply by 12 to get the annual rate.

WARNING: Since your expense for rent and your potential revenue depend on the location you select, do not sign a lease until you do your financial projections. You do not need a lease to apply for a business loan; you can use a letter of intent to lease from the landlord that states the terms of the lease.