We're going to continue with our case study where we're looking at the operating model of a B2B slash business by looking at building their expenses. And here we've got a whole load of assumptions in terms of how the cost of sales, the hosting expenses, the customer support, and the payment processing services are all gonna be forecast as a percentage of the monthly recurring revenue, whereas the other expenses and more fixed costs are gonna be forecast as a percentage of total revenues. So what I wanna do is to apply these assumptions to each month for our forecast period. So if we just go back to the calculations we did for the revenue forecast and pick up the offset function that we had from here. So if I just copy that offset function, and then we're gonna paste it in for the cost of sales, and then put our percentage function back on this, we should now be able to go across to the end and across all three, copy this down and to the right and get all these assumptions pulled across for all of those three years. We're holding them consistent for all three years broadly, but we're gonna say that our payment processing services go down as we scale up the business into the future, and we can see that pulling through to year two and into year three with that formula. We're gonna do the same thing for the expenses, just so that we have all of those assumptions in for each month. And what we can see here from these assumptions is that our R&D expenses are gonna stay consistent at 35% of our revenues, but what we're gonna do at the end of year one, when we're gonna assume that there is the series A capital fundraising round, is we'll be able to invest more heavily into a real top-notch sales team to drive the sales in the business, which is reflected in the assumption that we saw in the revenue forecast where we get this massive growth in the number of new customers in the second year. So that's the assumption, sort of underlying this model as it sits at the moment. We can also do the same thing for our tax expense. So if we just apply the same formula to our tax expense, that will then carry across into the month by month forecasts.

Now what we've got to do is apply those percentages to the right numbers. So if we come down to our income statements, our hosting expenses are gonna be the monthly assumption 5%, and multiply that by our subscription revenue only. This is our monthly recurring revenue. What I'm gonna do is to lock onto just the row 42 here. That will enable me to copy this down for these three assumptions. The customer services, the payment processing services as well, because they both rely on the monthly recurring revenues or the subscription revenues. I can then calculate my total cost of sales and also the gross profit for the business. The total revenue minus those cost of sales.

The gross profit margin is going to be simply the gross profit number divided by the revenue that we've earned. And as a result, you can see that gross profit margin is really healthy, the cost of actually providing a service relatively small for the actual service itself. However, when we get down to the research and development side, this is where our major expenses come through. The assumptions here are as a percentage of revenues. So I take the assumption for the month, multiply it by the total revenues, and again, we wanna lock onto just the row 44 here because this is gonna apply equally to the sales and marketing and general and admin expenses as well to give us our total operating expenses of 752,000, which leads us to an EBITDA number. If we take our gross profit and subtract our total operating expenses, we're making a loss. This company's investing heavily in developing the product and looking to grow the sales of that product to get market share, to generate that revenue, and then we'll maybe adjust these expenses down in the future.

Our EBITDA profit margin, therefore must be negative.

That's the EBITDA divided by your total revenue. Just to finish off the income statement for the first month, we can summarize everything after that pretty easily. The tax expense is gonna be the tax expense assumption, 20% here multiplied by the EBITDA number. Now we've set this up as a negative expense, so this comes through as a positive negative assumption, giving us a positive expense. This is just to make it clearer that while making a loss for EBITDA, the tax expense is really a credit. Again, that however, is not a cashflow. You don't get money back from the government if you make a loss. So our net income in this company's income statement will be the sum of these two items from an accounting perspective. But if we think about the cash flows, then this tax expense won't be a cash inflow. Once we've got this all set up, we can now just copy across for every single month.

And then look to summarize this for the annual calculations, all we need to do is use the formulas that we've already had. When we're totalling this up for the cost of sales, we need to make sure we're adding down to get the annual numbers, and the gross profit is going to be the revenue minus the cost of sales, giving us a gross profit margin that stays relatively constant as we go across these three years, we can use the formulas that we've got for the summation of the year, months, into years for the recess and development, sales, marketing and general admin operating expenses. We wanna make sure we're adding down and our EBITDA calculation we can copy across from the right, so we can see, See our losses are growing, but in terms of that loss margin, the second year, we're seeing a big increase, big push to increase that sales and marketing expense. And as a result, we're gonna suffer some losses. However, the aim here is to generate the revenue, and we can see that our revenue has jumped substantially into year two and year three. For the tax expense, let's just copy the formula for the summation and for the total loss. Let's copy across. So now we've got all of our costs forecast, and we've got the profit and loss statement, the income statement forecast as well.