Solving the warnings (2/6): the net income

Continuing the previous post about solving warnings, this post is about the Net Income warning.

Net income is the second warning in the Dashboard. It tells the user that in at least one of the years forecasted, the net result is negative. While that is perfectly reasonable, especially when it comes to entrepreneurship projects, it is something that you should investigate why it is occurring.

If you go to the Income Statement report, the final line is the Net income and you can notice the results of every year. In the following example, the third year has a negative net income, which has triggered the warning.

 

If you expect your project to sustain losses in the first years of activity and all of your forecasting assumptions are correct, then there is nothing wrong with having the net income warning triggered. But if all your forecasting is on the negative side (the net income is negative in every year), maybe you made a mistake in our assumptions; so go look into it. Even if you have only one negative year, you should check if the value of the forecasting can be considered “normal” or if it is exaggerated; if it is different than what you expected, then inspect if your assumptions are correct (again, do not get too overwhelmed, it is normal that the net income might be negative for the first years, or in a particular unusual year).

And do not forget, the net income has revenues on the plus side and costs on the minus side. Therefore, understanding the net income is understanding its own components.

The next post will be about solving the Equity warning. Stay tuned!