An Income Statement Projection is one of the financial projections that is important for any startup to have, but a challenge to create for an early stage startup that has little or no revenue or expense history. Too often entrepreneurs "make up" some numbers to show the hockey-stick growth they think investors expect, but that ends up be difficult to defend or justify.

A better approach is to create a bottoms-up model that's anchored in a monthly plan of exactly what activities you'll perform each month, and then estimating what that activity will cost to estimate expenses, and what revenue the monthly marketing and sales activities will support. It all comes down to making assumptions that can be improved over time as the entrepreneur gains experience and learns how to adjust the assumptions month-to-month to develop a more accurate projection.

By basing an income statement projection on underlying assumptions, the entrepreneur has a plan that is defensible. If an angel investor or venture capitalist questions the numbers, you can have a more insightful talk by discussing the underlying assumptions and ask the investor which assumption they think is wrong. That tends to be a more useful discussion than just hearing "I think your numbers are too aggressive" or "I think your numbers are too conservative".