financial model business plan

How to Write a Small Business Financial Plan

Noah Parsons

4 min. read

Updated April 22, 2024

Creating a financial plan is often the most intimidating part of writing a business plan.

It’s also one of the most vital. Businesses with well-structured and accurate financial statements are more prepared to pitch to investors, receive funding, and achieve long-term success.

Thankfully, you don’t need an accounting degree to successfully create your budget and forecasts.

Here is everything you need to include in your financial plan, along with optional performance metrics, funding specifics, mistakes to avoid , and free templates.

• Key components of a financial plan

A sound financial plan is made up of six key components that help you easily track and forecast your business financials. They include your:

Sales forecast

What do you expect to sell in a given period? Segment and organize your sales projections with a personalized sales forecast based on your business type.

Subscription sales forecast

While not too different from traditional sales forecasts—there are a few specific terms and calculations you’ll need to know when forecasting sales for a subscription-based business.

Expense budget

Create, review, and revise your expense budget to keep your business on track and more easily predict future expenses.

How to forecast personnel costs

How much do your current, and future, employees’ pay, taxes, and benefits cost your business? Find out by forecasting your personnel costs.

Profit and loss forecast

Track how you make money and how much you spend by listing all of your revenue streams and expenses in your profit and loss statement.

Cash flow forecast

Manage and create projections for the inflow and outflow of cash by building a cash flow statement and forecast.

Balance sheet

Need a snapshot of your business’s financial position? Keep an eye on your assets, liabilities, and equity within the balance sheet.

What to include if you plan to pursue funding

Do you plan to pursue any form of funding or financing? If the answer is yes, then there are a few additional pieces of information that you’ll need to include as part of your financial plan.

Highlight any risks and assumptions

Every entrepreneur takes risks with the biggest being assumptions and guesses about the future. Just be sure to track and address these unknowns in your plan early on.

Plan your exit strategy

Investors will want to know your long-term plans as a business owner. While you don’t need to have all the details, it’s worth taking the time to think through how you eventually plan to leave your business.

• Financial ratios and metrics

With your financial statements and forecasts in place, you have all the numbers needed to calculate insightful financial ratios.

While including these metrics in your plan is entirely optional, having them easily accessible can be valuable for tracking your performance and overall financial situation.

Key financial terms you should know

It’s not hard. Anybody who can run a business can understand these key financial terms. And every business owner and entrepreneur should know them.

Common business ratios

Unsure of which business ratios you should be using? Check out this list of key financial ratios that bankers, financial analysts, and investors will want to see.

Break-even analysis

Do you want to know when you’ll become profitable? Find out how much you need to sell to offset your production costs by conducting a break-even analysis.

How to calculate ROI

How much could a business decision be worth? Evaluate the efficiency or profitability by calculating the potential return on investment (ROI).

• How to improve your financial plan

Your financial statements are the core part of your business plan that you’ll revisit most often. Instead of worrying about getting it perfect the first time, check out the following resources to learn how to improve your projections over time.

Common mistakes with business forecasts

I was glad to be asked about common mistakes with startup financial projections. I read about 100 business plans per year, and I have this list of mistakes.

How to improve your financial projections

Learn how to improve your business financial projections by following these five basic guidelines.

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• Financial plan templates and tools

Download and use these free financial templates and calculators to easily create your own financial plan.

Sales forecast template

Download a free detailed sales forecast spreadsheet, with built-in formulas, to easily estimate your first full year of monthly sales.

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Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• What to include for funding

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Small Business Tools

How to Prepare a Financial Plan for Startup Business (w/ example)

Free Financial Statements Template

Ajay Jagtap

• December 7, 2023

13 Min Read

If someone were to ask you about your business financials, could you give them a detailed answer?

Let’s say they ask—how do you allocate your operating expenses? What is your cash flow situation like? What is your exit strategy? And a series of similar other questions.

Instead of mumbling what to answer or shooting in the dark, as a founder, you must prepare yourself to answer this line of questioning—and creating a financial plan for your startup is the best way to do it.

A business plan’s financial plan section is no easy task—we get that.

But, you know what—this in-depth guide and financial plan example can make forecasting as simple as counting on your fingertips.

Ready to get started? Let’s begin by discussing startup financial planning.

What is Startup Financial Planning?

Startup financial planning, in simple terms, is a process of planning the financial aspects of a new business. It’s an integral part of a business plan and comprises its three major components: balance sheet, income statement, and cash-flow statement.

Apart from these statements, your financial section may also include revenue and sales forecasts, assets & liabilities, break-even analysis , and more. Your first financial plan may not be very detailed, but you can tweak and update it as your company grows.

Key Takeaways

• Realistic assumptions, thorough research, and a clear understanding of the market are the key to reliable financial projections.
• Cash flow projection, balance sheet, and income statement are three major components of a financial plan.
• Preparing a financial plan is easier and faster when you use a financial planning tool.
• Exploring “what-if” scenarios is an ideal method to understand the potential risks and opportunities involved in the business operations.

Why is Financial Planning Important to Your Startup?

Poor financial planning is one of the biggest reasons why most startups fail. In fact, a recent CNBC study reported that running out of cash was the reason behind 44% of startup failures in 2022.

A well-prepared financial plan provides a clear financial direction for your business, helps you set realistic financial objectives, create accurate forecasts, and shows your business is committed to its financial objectives.

It’s a key element of your business plan for winning potential investors. In fact, YC considered recent financial statements and projections to be critical elements of their Series A due diligence checklist .

Your financial plan demonstrates how your business manages expenses and generates revenue and helps them understand where your business stands today and in 5 years.

Makes sense why financial planning is important to your startup, doesn’t it? Let’s cut to the chase and discuss the key components of a startup’s financial plan.

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Key Components of a Startup Financial Plan

Whether creating a financial plan from scratch for a business venture or just modifying it for an existing one, here are the key components to consider including in your startup’s financial planning process.

Income Statement

An Income statement , also known as a profit-and-loss statement(P&L), shows your company’s income and expenditures. It also demonstrates how your business experienced any profit or loss over a given time.

Consider it as a snapshot of your business that shows the feasibility of your business idea. An income statement can be generated considering three scenarios: worst, expected, and best.

Your income or P&L statement must list the following:

• Cost of goods or cost of sale
• Gross margin
• Operating expenses
• Revenue streams
• EBITDA (Earnings before interest, tax, depreciation , & amortization )

Established businesses can prepare annual income statements, whereas new businesses and startups should consider preparing monthly statements.

Cash flow Statement

A cash flow statement is one of the most critical financial statements for startups that summarize your business’s cash in-and-out flows over a given time.

This section provides details on the cash position of your business and its ability to meet monetary commitments on a timely basis.

Your cash flow projection consists of the following three components:

✅ Cash revenue projection: Here, you must enter each month’s estimated or expected sales figures.

✅ Cash disbursements: List expenditures that you expect to pay in cash for each month over one year.

✅ Cash flow reconciliation: Cash flow reconciliation is a process used to ensure the accuracy of cash flow projections. The adjusted amount is the cash flow balance carried over to the next month.

Furthermore, a company’s cash flow projections can be crucial while assessing liquidity, its ability to generate positive cash flows and pay off debts, and invest in growth initiatives.

Balance Sheet

Your balance sheet is a financial statement that reports your company’s assets, liabilities, and shareholder equity at a given time.

Consider it as a snapshot of what your business owns and owes, as well as the amount invested by the shareholders.

This statement consists of three parts: assets , liabilities, and the balance calculated by the difference between the first two. The final numbers on this sheet reflect the business owner’s equity or value.

Balance sheets follow the following accounting equation with assets on one side and liabilities plus Owner’s equity on the other:

Here is what’s the core purpose of having a balance-sheet:

• Indicates the capital need of the business
• It helps to identify the allocation of resources
• It calculates the requirement of seed money you put up, and
• How much finance is required?

Since it helps investors understand the condition of your business on a given date, it’s a financial statement you can’t miss out on.

Break-even Analysis

Break-even analysis is a startup or small business accounting practice used to determine when a company, product, or service will become profitable.

For instance, a break-even analysis could help you understand how many candles you need to sell to cover your warehousing and manufacturing costs and start making profits.

Remember, anything you sell beyond the break-even point will result in profit.

You must be aware of your fixed and variable costs to accurately determine your startup’s break-even point.

• Fixed costs: fixed expenses that stay the same no matter what.
• Variable costs: expenses that fluctuate over time depending on production or sales.

A break-even point helps you smartly price your goods or services, cover fixed costs, catch missing expenses, and set sales targets while helping investors gain confidence in your business. No brainer—why it’s a key component of your startup’s financial plan.

Having covered all the key elements of a financial plan, let’s discuss how you can create a financial plan for your startup.

How to Create a Financial Section of a Startup Business Plan?

1. determine your financial needs.

You can’t start financial planning without understanding your financial requirements, can you? Get your notepad or simply open a notion doc; it’s time for some critical thinking.

Start by assessing your current situation by—calculating your income, expenses , assets, and liabilities, what the startup costs are, how much you have against them, and how much financing you need.

Assessing your current financial situation and health will help determine how much capital you need for your startup and help plan fundraising activities and outreach.

Furthermore, determining financial needs helps prioritize operational activities and expenses, effectively allocate resources, and increase the viability and sustainability of a business in the long run.

Having learned to determine financial needs, let’s head straight to setting financial goals.

2. Define Your Financial Goals

Setting realistic financial goals is fundamental in preparing an effective financial plan. So, it would help to outline your long-term strategies and goals at the beginning of your financial planning process.

Let’s understand it this way—if you are a SaaS startup pursuing VC financing rounds, you may ask investors about what matters to them the most and prepare your financial plan accordingly.

However, a coffee shop owner seeking a business loan may need to create a plan that appeals to banks, not investors. At the same time, an internal financial plan designed to offer financial direction and resource allocation may not be the same as previous examples, seeing its different use case.

Feeling overwhelmed? Just define your financial goals—you’ll be fine.

You can start by identifying your business KPIs (key performance indicators); it would be an ideal starting point.

3. Choose the Right Financial Planning Tool

Let’s face it—preparing a financial plan using Excel is no joke. One would only use this method if they had all the time in the world.

Having the right financial planning software will simplify and speed up the process and guide you through creating accurate financial forecasts.

Many financial planning software and tools claim to be the ideal solution, but it’s you who will identify and choose a tool that is best for your financial planning needs.

Create a Financial Plan with Upmetrics in no time

Enter your Financial Assumptions, and we’ll calculate your monthly/quarterly and yearly financial projections.

Start Forecasting

4. Make Assumptions Before Projecting Financials

Once you have a financial planning tool, you can move forward to the next step— making financial assumptions for your plan based on your company’s current performance and past financial records.

You’re just making predictions about your company’s financial future, so there’s no need to overthink or complicate the process.

You can gather your business’ historical financial data, market trends, and other relevant documents to help create a base for accurate financial projections.

After you have developed rough assumptions and a good understanding of your business finances, you can move forward to the next step—projecting financials.

5. Prepare Realistic Financial Projections

It’s a no-brainer—financial forecasting is the most critical yet challenging aspect of financial planning. However, it’s effortless if you’re using a financial planning software.

Upmetrics’ forecasting feature can help you project financials for up to 7 years. However, new startups usually consider planning for the next five years. Although it can be contradictory considering your financial goals and investor specifications.

Following are the two key aspects of your financial projections:

Revenue Projections

In simple terms, revenue projections help investors determine how much revenue your business plans to generate in years to come.

It generally involves conducting market research, determining pricing strategy , and cash flow analysis—which we’ve already discussed in the previous steps.

The following are the key components of an accurate revenue projection report:

• Market analysis
• Sales forecast
• Pricing strategy
• Growth assumptions
• Seasonal variations

This is a critical section for pre-revenue startups, so ensure your projections accurately align with your startup’s financial model and revenue goals.

Expense Projections

Both revenue and expense projections are correlated to each other. As revenue forecasts projected revenue assumptions, expense projections will estimate expenses associated with operating your business.

Accurately estimating your expenses will help in effective cash flow analysis and proper resource allocation.

These are the most common costs to consider while projecting expenses:

• Fixed costs
• Variable costs
• Employee costs or payroll expenses
• Operational expenses
• Marketing and advertising expenses
• Emergency fund

Remember, realistic assumptions, thorough research, and a clear understanding of your market are the key to reliable financial projections.

6. Consider “What if” Scenarios

After you project your financials, it’s time to test your assumptions with what-if analysis, also known as sensitivity analysis.

Using what-if analysis with different scenarios while projecting your financials will increase transparency and help investors better understand your startup’s future with its best, expected, and worst-case scenarios.

Exploring “what-if” scenarios is the best way to better understand the potential risks and opportunities involved in business operations. This proactive exercise will help you make strategic decisions and necessary adjustments to your financial plan.

7. Build a Visual Report

If you’ve closely followed the steps leading to this, you know how to research for financial projections, create a financial plan, and test assumptions using “what-if” scenarios.

Now, we’ll prepare visual reports to present your numbers in a visually appealing and easily digestible format.

Don’t worry—it’s no extra effort. You’ve already made a visual report while creating your financial plan and forecasting financials.

Check the dashboard to see the visual presentation of your projections and reports, and use the necessary financial data, diagrams, and graphs in the final draft of your financial plan.

Here’s what Upmetrics’ dashboard looks like:

8. Monitor and Adjust Your Financial Plan

Even though it’s not a primary step in creating a good financial plan, it’s quite essential to regularly monitor and adjust your financial plan to ensure the assumptions you made are still relevant, and you are heading in the right direction.

There are multiple ways to monitor your financial plan.

For instance, you can compare your assumptions with actual results to ensure accurate projections based on metrics like new customers acquired and acquisition costs, net profit, and gross margin.

Consider making necessary adjustments if your assumptions are not resonating with actual numbers.

Also, keep an eye on whether the changes you’ve identified are having the desired effect by monitoring their implementation.

And that was the last step in our financial planning guide. However, it’s not the end. Have a look at this financial plan example.

Startup Financial Plan Example

Having learned about financial planning, let’s quickly discuss a coffee shop startup financial plan example prepared using Upmetrics.

Important Assumptions

• The sales forecast is conservative and assumes a 5% increase in Year 2 and a 10% in Year 3.
• The analysis accounts for economic seasonality – wherein some months revenues peak (such as holidays ) and wanes in slower months.
• The analysis assumes the owner will not withdraw any salary till the 3rd year; at any time it is assumed that the owner’s withdrawal is available at his discretion.
• Sales are cash basis – nonaccrual accounting
• Moderate ramp- up in staff over the 5 years forecast
• Barista salary in the forecast is $36,000 in 2023.
• In general, most cafes have an 85% gross profit margin
• In general, most cafes have a 3% net profit margin

Projected Balance Sheet

Projected Cash-Flow Statement

Projected Profit & Loss Statement

Break Even Analysis

Start Preparing Your Financial Plan

We covered everything about financial planning in this guide, didn’t we? Although it doesn’t fulfill our objective to the fullest—we want you to finish your financial plan.

Sounds like a tough job? We have an easy way out for you—Upmetrics’ financial forecasting feature. Simply enter your financial assumptions, and let it do the rest.

So what are you waiting for? Try Upmetrics and create your financial plan in a snap.

Build your Business Plan Faster

with step-by-step Guidance & AI Assistance.

Frequently Asked Questions

How often should i update my financial projections.

Well, there is no particular rule about it. However, reviewing and updating your financial plan once a year is considered an ideal practice as it ensures that the financial aspirations you started and the projections you made are still relevant.

How do I estimate startup costs accurately?

You can estimate your startup costs by identifying and factoring various one-time, recurring, and hidden expenses. However, using a financial forecasting tool like Upmetrics will ensure accurate costs while speeding up the process.

What financial ratios should startups pay attention to?

Here’s a list of financial ratios every startup owner should keep an eye on:

• Net profit margin
• Current ratio
• Quick ratio
• Working capital
• Return on equity
• Debt-to-equity ratio
• Return on assets
• Debt-to-asset ratio

What are the 3 different scenarios in scenario analysis?

As discussed earlier, Scenario analysis is the process of ascertaining and analyzing possible events that can occur in the future. Startups or businesses often consider analyzing these three scenarios:

• base-case (expected) scenario
• Worst-case scenario
• best case scenario.

About the Author

Ajay is a SaaS writer and personal finance blogger who has been active in the space for over three years, writing about startups, business planning, budgeting, credit cards, and other topics related to personal finance. If not writing, he’s probably having a power nap. Read more

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Popular Templates

Startup financial models - 12 templates compared

Posted by Stéphane Nasser | April 20, 2020

As a founder, there comes a time when you need a business plan, complete with financial forecasts, income statements, and fancy graphs that will impress your investors.

Don't build it from scratch - use an existing model.

A financial model allows you to draft financial projections easily, fast, and in a professional manner. A great template will also force you to think through all the aspects of your project and make sure you really get the financial logic behind your business.

It can be annoying but trust me, it's worth your time.

This post compares the top 12 templates of financial models for SaaS startups. I have personally tested each model. I have ranked them on 40+ items along 5 categories. I've looked at both spreadsheets and SaaS apps, and both free and paid solutions.

If you are looking at building your SaaS financials, this article is for you.

Table of Contents

Methodology - what makes a great financial model for saas startups.

Here is the methodology I used to build this benchmark.

I compared 40 points across 5 categories: (a) financial statements, (b) analysis capabilities, (c) revenue modeling, (d) cost modeling, (e) extra features. A detailed analysis of each model is available below. In each case, I tested the software/spreadsheet myself.

Criteria 1: Financial statements

• Time scale : Are the statements over 1 year, 3 years or more? You usually want 3 years as a minimum when you speak with professional investors.
• Income statement : Does the template include an income statement? You usually want a monthly income statement, at least for year 1.
• Cash flow statement : Same as income statement
• Balance sheet : Same as income statement
• GAAP/IFRS : Are the statements compliant with GAAP and/or IFRS rules?
• Currency : How many currencies are available?

Criteria 2: Analysis capabilities

• Financial analysis : Number of typical financial metrics included e.g. breakeven point, quick ratio, average inventory, etc.
• SaaS analysis : Number of typical SaaS metrics included e.g. MRR growth, SaaS magic number, CAC/LTV, etc.
• Graphs : Number of built-in graphs
• Costs by P&L category : Does the template break down costs into P&L categories (CoGS, RD, G&A, etc.)
• Costs by departments : Does the model break down costs into departments (sales, marketing, CS, engineering, etc)
• VS Scenarios : Does the template allow you to compare multiple scenarios?
• VS Industry comparables : Does the template compare your financials against industry comparables?
• VS Actuals : Does the template allow you to run your model versus your actual numbers?

Criteria 3: Revenue modeling

• New client acquisition : How do you enter new clients into the model? Possibilities include: entering a number manually for each month or year (it sucks); autofill the model from a base number and a growth rate (sucks a bit less); autofill several streams - each stream represents a different type of client e.g SMB/enterprise (better); or even fully model each acquisition channel (the best, very rare)
• Offerings : How many offers can you define and how precisely can you model them? This includes the possibility to create one-off offers, recurring offers, or a combo, but also the possibility to create introduction times and end times for specific offers.
• Pricing model : How many pricing models can you define and how precisely: tiers (free, basic, premium), revenue models (per seat, per usage, etc), automatically increase or decrease the plans price over years.
• Existing clients : Can you model expansion, contraction, churn, reactivation?
• Commitment : Can you model monthly VS yearly VS multi-annual contracts?
• Service revenue : Can you model punctual service revenue on top of all the other pricing models and offerings?
• Enterprise specific : Does the template offer specific features to model complex enterprise sales, such as landing/expansion, custom product developments, various sales cycles, etc?

Criteria 4: Costs modeling

• Direct labor costs : The best templates allow you to correlate direct labor costs with relevant metrics. For example, your sales staff is calculated based on forecasted income and sales target per account executive. Same for customer success payroll with number of customers and workload target per CS staff.
• Direct non-labor costs : just like with labor costs, the best templates allow you to link some direct non-labor costs with relevant metrics. For instance, server costs can be a % of MRR.
• Indirect labor costs : same as above. Even for indirect costs, some templates find smart ways to tie them to some aspect of the business.
• Indirect non-labor costs : same as above
• Payment terms : Can you define the payments terms with your vendors and suppliers? May be useful if there is a hardware component to your offer.
• Hardware-friendly : This is a special mention for templates that model things like shipping costs, inventory delay, etc.

Criteria 5: Extra features

• Documentation : Is there proper documentation in the model and on the website? Are there good explainer videos? What kind of direct support (chat, email) comes with the template?
• Languages : In what language is the template available?
• Third-party integration : Third-party integrations can be useful to input or update data over time, or to display advanced graphs.
• Excel spreadsheet : Can you access your financials as a Microsoft Excel spreadsheet? This is a must if you need to share it with investors.
• Google Sheets : Does the model work in Google Sheets? Not all models that work in Microsoft Excel work in Google, so you may want to consider that point.
• Editable formulas : Some templates do not allow you to modify formulas - which is a massive bummer when it comes to customization.

Granted, it's not a perfect methodology. One could argue forever about whether cap tables should be included in a startup financial model. But it's the best I could come up with - without being a finance nerd myself :)

Disclaimers: affiliation, impartiality, and non-finito

Before jumping to the heart of the matter, please allow me three disclaimers:

• Affiliation: Some links in the article are affiliated - which means that if you end up buying a template through one of those links, OpenVC will get a few $$$. It doesn't cost you anything, and it allows us to keep writing useful articles for you.
• Impartiality: Regardless of whether there is a referral in place or not, I am committed to providing you with an honest opinion. We take great pride in being an independent, honest, and trusted source of information for entrepreneurs.
• Non finito: This is a non-finite work. We are happy to update the article if you bring new, relevant information to our knowledge. We are also happy to fix any mistake or clarify any confusion that you may find in the article.

1. "FISY Innovation Plan" by Remi Berthier

Fisy Innovation Plan, by Rémi Berthier

For years, this template has been the go-to financial model for French entrepreneurs. However, it didn't age that well.

Analysis capabilities are limited: only a handful of financial metrics, zero SaaS metrics, a couple of graphs, and it's impossible to categorize costs. Modeling, be it for revenue or costs, is all too basic and requires a lot of manual input. Also, it's entirely in French.

Having said that, it remains a free-of-charge, easy-to-use, easy-to-customize template that covers all the basics while including specificities to the French ecosystem such as CIR, JEI, etc. It also offers a detailed page of instructions on the website.

This model makes a lot of sense for French entrepreneurs looking for a simple solution. For the others, keep on reading.

Edit 2023: I've re-downloaded the template in 2023 and didn't notice any significant change versus the 2017 version I had initially reviewed, so I kept my review untouched.

2. "SaaS Financial Plan 2.0" by Christoph Janz

SaaS Financial Plan 2.0, by Christoph Janz

This template was built by SaaS apostle Christoph Janz, and you can tell. It packs a punch of SaaS knowledge in a sleek, clear spreadsheet. You'll find lots of good stuff: basic/pro/enterprise plans, churn/upgrade/downgrade, an elegant client acquisition model and a wealth of graphs and charts.

It's not all rosy, though. You want a 5 years forecast? No, you only need 2. You want to sell annual pro plans? Too bad, pro plans are monthly and that's that. Also, no balance sheet.

This template works great if you are a typical SaaS startup and fits the vision that Christoph put into his financial plan. If not, you may be better off considering templates with broader horizons.

Edit 2023: Based on the Dropbox information, the template has not been modified since my first review in 2017, so I kept it untouched.

3. "SaaS Financial Model 3.0" by Baremetrics

SaaS Financial Model 3.0, by Baremetrics

I reviewed this model for the first time in 2017, when Jaakko Piiponen was its sole author. Since then, the Baremetrics team has substantially updated it. This new 2023 review should finally do it justice.

This SaaS Financial Model 3.0 is geared towards people who want to pilot their SaaS business, as opposed to just raising funds. Its underlying philosophy is that you need to match actual numbers with your forecasts for maximum piloting accuracy. To reach that objective, this model wants you to frequently pull data from your accounting software (e.g. Quickbooks, Xero…) and will project many assumptions based on your last 3 months - what they call "Autopilot". It's a healthy approach, and if you're ok with the extra work, it may be the right one for you.

When it comes to financial statements, this model nails it: you get a monthly view of your P&L, cash flow, and balance sheet over 5 years. However, because this model is not designed for fundraising, it doesn't include a cap table, which may be a dealbreaker to some. The whole model is in USD - you can manually change to any other currency, but you'll have to click a lot….

The Baremetrics team has also beefed up the analysis capabilities. This new version packs up all the must-have financial and SaaS metrics (Churn, ARPC, LTV, Paid CAC, Blended CAC, CAC:Payback time, CAC:LTV, MRR Breakdown), plus 11 built-in charts. A very nice attention is the Chartbuilding tab, which groups all the numbers in a clean format so you can build additional custom charts effortlessly. Like Janz's and Murray's models, you can break down expenses by category (engineering, marketing, etc.). The icing on the cake: this SaaS financial Model 3.0 is the only free model of this benchmark that lets you build a "worst case scenario" on top of your base case - and of course, compare both scenarios to your Actuals. Kudos to that!

Revenue modeling and cost modeling follow the "Autopilot" philosophy described above, with a few notable twists. For instance, the Acquisition model can be augmented with a separate "Marketing funnel" sheet (also provided by Baremetrics, also free) that models a proper 7 step funnel (visitor, signups, MQL, SQL, opportunities, trial, customer) and distinguishes between paid and organic leads. Your CMO will love it. Similarly, each expense line can be tied to specific variables to reflect dependencies.

All in all, this model by Baremetrics is a very strong contender. The only weakness I found relates to modeling complex offers, such as a Basic, a Premium and a Pro plan. It's just not possible. Even modeling annual plans seems to take a bit of work using the "Deferred revenue" tab. On the upside, this SaaS Financial Model 3.0 models expansion, contraction, churn, and even reactivation, so it's a tit for tat.

If you're looking for a free model that cares about accuracy to pilot your SaaS business the year round, and you don't mind getting your hands dirty a bit, then this is the one. Support is limited to a well-written, opinionated page of instructions, and you can contact the creators on Twitter. The model is available on Excel and Google Sheets, and all the formulas are editable.

4. "Standard SaaS Financial Plan for Startups and SMBs" by Ben Murray

SaaS Financial Plan for Startups and SMBs, by Ben Murray

This template published by Ben Murray, AKA the SaaS CFO, has a lot in common with Chris Janz's model: it's free, it's SaaS-centric and it's really good overall.

But that's where similarities stop. Let's look at what differentiates them:

• Cost modeling: Janz does a much better job as many costs are tied to activity metrics. With Murray, you have to fill it all manually. Janz 1 - 0 Murray
• Commitment: Murray allows you to define which plans are annual and which are monthly. Janz does not. Janz 1 - 1 Murray
• Client acquisition: Murray wants you to manually input new clients each month, where Janz includes 3 acquisition channels. Janz 2 - 1 Murray
• Murray also allows you to add service revenue and offers up to 5 years of forecasts. Janz 2 - 2 Murray
• Since its latest update, Murray's model also allows you to input your actual number and compare them with your forecasts. Janz 2 - 3 Murray

At the end of the day, Murray's SaaS template is great - maybe the best amongst the free templates. It is a bit disappointing when it comes to modeling new client acquisition and costs, though.

To explore more powerful (and paid) templates, read on!

5. "SaaS Startup" by Pro Forma

SaaS Startup Kit, by Pro Forma

The SaaS startup kit is the first paying template we're looking at: one-time $99.

Because you're paying, you obviously get a lot more in return: balance sheet, cap table, GAAP/IFRS compliance, 161 currencies to choose from, a ton of financial metrics and graphs, and advanced capabilities to model your costs and your revenue, including for hardware startups.

Now, because we are paying, we are a lot pickier. And I see 3 problems with this SaaS Startup Kit. First, you cannot account for upgrades and downgrades (you can model churn, though). Second, you cannot break down costs by P&L categories or departments. Third, the formulas are "locked ' so you cannot edit them. That's a big problem if, like me, you like looking under the hood. But maybe you don't care?

All in all, I cannot tell you not to look at the SaaS startup kit. It has a lot going for it, and at $99, it's priced right. But if you can stretch your budget a little more, look at the next model - it may be the right one for you.

6. "SaaS Financial Model" by Taylor Davidson

"SaaS Financial Model" by Taylor Davidson

Let me start right off the bat: this "SaaS Financial Model" by Taylor Davidson is one of the best templates out there.

For $149, you get all the financial statements you may wish for, laid out over 5 years, and GAAP-compliant. Additional tabs are built-in for fundraising (assess needs and uses), valuation (ownership, DCF, waterfall exit, ROI), variants (simplified scenarios), and impact (for purpose-driven startups). Bonus point: the model works in Microsoft Excel and Google Sheets, supports all currencies, and is fully editable.

In terms of analysis capabilities, the template generates boatloads of financial and SaaS metrics, as well as 20+ beautiful graphs. Costs can be broken down by departments and P&L categories so you can make sense of all that good stuff. SaaS experts will especially appreciate the granularity provided by monthly cohort analysis - a rarity!

Modeling revenue and costs is extremely versatile. Instead of pre-modeling everything for you, the template provides you with very unique features (Pricing, Pipeline, Drivers) that allow you to customize it to your needs. Here are a few examples of what you can do:

• You can build as many subscription plans as you want.
• Contract length is not limited to monthly or annual but can be anything you want.
• Billings are separate from contract cycles, so can do an annual contract with quarterly billings, or 3-year contract with annual billings, or annual contract with monthly billings
• All costs, direct and indirect, labor and non-labor, can be tied to relevant activity metrics (revenue, headcount, etc.) which is what you would expect from this kind of template.
• All costs can also be tied that are *not* tied to an activity metric, say periodic costs that occur quarterly or annually, or costs that increase a % over time, or costs that are a % of salaries, or a % of revenues, for example. This is all built-in within the Drivers sheet and an absolute delight to use.
• For Enterprise sales, you can model a good old Pipeline in the Pipeline sheet and attribute different numbers of seats and "likelihood to close" to each deal.

True, it takes a bit of time to wrap your head around the internal logic of that model. But once you master it, there is virtually no limit to what you can do.

Thankfully, this financial model is well-documented. The website includes a long, detailed "Getting Started" page as well as specific articles and videos for technical points. The highlight is definitely the email support - I've consistently received detailed replies within 24 hours - at zero extra cost. Kudos to that.

Long story short - if you are willing to shell out $149 for a SaaS financial model, Taylor Davidon's template is arguably one of the absolute best you can get your hands on. The other one is the model built by Alexander Jarvis - read on to learn about it.

7. "SaaS: SME & Users" by Alexander Jarvis

8. "saas: enterprise, sme & users" by alexander jarvis.

"SaaS: SME & Users" by Alexander Jarvis

"SaaS: Enterprise, SME & Users" by Alexander Jarvis

It's hard to write a serious review about this template - everything about it is absolutely ridiculous. It is ridiculously rich, ridiculously detailed, ridiculously powerful. It's the kind of template that you use when you want to make a statement, like impress your investors or make your CFO feel irrelevant. It's heavy, bold, and over-the-top, in the best way possible. Brace yourselves, let's dive in.

This template by Alexander Jarvis comes in 2 versions. The "SaaS: SME & Users" is perfectly fine for most SaaS businesses. It sells at $319. The "SaaS: Enterprise, SME & Users" retails at $1,299 and includes extra logic to model enterprise sales. Because of their complexity, both models only work in Microsoft Excel (no Google Sheets).

In return for your money, you get the most advanced modeling capabilities - period.

• Each acquisition channel is modeled in great details: paid, organic, blog, social, emailing, and channel partners. Each channel can be assigned its own conversion rate from visitor to user. You can also differentiate between the customers that self-onboard and those who require sales intervention.
• You can design composite offerings based on usage fee, monthly fee and/or a one-time service fee. The templates allow 3 paid plans - typically basic, premium, pro - as well as a free trial plan, and each of these plans can exist with a monthly or annual commitment.
• Customers can upgrade, downgrade or churn, and you can even schedule module releases at different points in time, so you create new revenue streams over the years.
• All costs, direct and indirect, labor and non-labor, are modeled in a clever way i.e. they are tied to relevant activity metrics

I cannot stress enough how detailed this model is. Here is an example: the "email marketing" tab (yes, there is such a thing) takes into account 12+ inputs including stuff like the % of recipients who will share the newsletter with their friends. I love this kind of detail because it gives actionable points when thinking about execution. It also makes it easier to defend your numbers in front of investors because you can explain the underlying assumptions. If it's too much for you, you can always deactivate the advanced fields with the switch and focus on the core input.

If you buy the $1,299 version, you get an extra slew of tabs specifically dedicated to enterprise sales in all its complexity: enterprise-specific products and offerings, geographies, sales cycles, "land and expand", custom development, etc. If you are building the next Oracle or Palantir, that stuff alone is invaluable.

Documentation is ok. Instructions and comments are included inside the template, but not much in terms of FAQ/articles on the website. Having said that, I particularly appreciated the tutorial videos: one 28-min overview and 20 shorter videos that each cover a specific tab.

You want more? Time to talk about analysis capabilities. Alexander Jarvis' model is most lavish when it comes to that point. 50+ graphs are readily available - and that's without counting the sparklines that are peppered throughout the sheet. Because modeling is so detailed, the template can provide advanced SaaS metrics such as marketing leverage or expansion % of new MRR. Of course, costs can be allocated to P&L categories and departments so you really understand what's going on in your model.

When it comes to financial statements, the $319 version gives you only 3 years of forecasts, with no balance sheet and no cap table. The $1,299 version does a bit better with 5-year forecasts, but still no sign of balance sheet nor cap table. Some would argue that an early-stage startup doesn't need formal financial statements... However, this template does include a tab to compare your forecasts to your actuals, and another tab listing down industry metrics - both are very welcome additions.

If you want the best spreadsheet ever, it boils down to comparing Taylor Davidson's and Alexander Jarvis' templates, and picking the one that fits you the most. See the final section "Conclusion" for a side-by-side of both models.

However, some prefer using a specialized SaaS app to build their startup financial model. If that's your case, check out the last 4 models.

9. "EY Finance Navigator" by Alex and Wout

EY Finance Navigator, by Alex and Wout

The Finance Navigator was developed by Alexander Matthiessen and Wout Bobbink from EY's Dutch office. It's a SaaS app: you pay a monthly subscription to access an online tool. It's a fundamentally different approach from the spreadsheet-based models we've explored so far.

The Finance Navigator costs $30 per month without commitment or $380 over an 18 month period. For that price, you get very exhaustive financial statements: income statements, cash flow statements, and balance sheets over 10 years - no cap table though. All currencies are available and you can export the statements to a clean, well-designed spreadsheet format (only numbers, no formulas).

Documentation is good, with in-app guidance, website posts, a Q&A, and a 37 min walkthrough video. The tool was clearly thought to be user-friendly and the onboarding is best-in-class. You will have zero difficulties using EY's Finance Navigator whatsoever.

Unfortunately, simplicity is a double-edged sword. Revenue and cost modeling is super basic. For example, revenue is defined as a base number for month 1, then a monthly growth rate. No channels, no conversion rate, no pricing plans. The same goes for costs: you cannot tie costs to specific activity metrics, so you have to input them manually. Because it's a SaaS application, you cannot customize the model by adding fields or modifying formulas. And because it's so basic, there is only the bare minimum in terms of analysis capabilities.

At the end of the day, EY's Finance Navigator holds a lot of promises. UX is great and they have a couple of nice features like comparables and scenarios. The product has evolved over the years, adding up features and getting more usable. In my estimation, it's not quite enough to be used by advanced SaaS entrepreneurs. The product is geared towards traditional businesses - think bakery, restaurant, consulting, who just want clean and easy financials. Not the right pick for SaaS people - yet. I'd love to revisit the tool in a year and see what progress has been made.

10. "Liveplan" by Palo Alto Software

Liveplan, by Palo Alto Software

Liveplan sells its financial modeling SaaS app at $20 per month ($360 over 18 months), which makes it a close competitor to EY Finance Navigator.

Starting with the strong points, Liveplan offers exhaustive statements over 5 years: income statements, cash flow statements, and balance sheets. Compared with EY's model, you have a bit more control over revenue modeling: offerings can be defined as recurring fees, billable hours, and a one-time upfront fee can also be added. Pricing can be increased automatically over time, churn can be factored in, and you can model monthly or annual plans.

When looking at cost modeling, you can adjust payment terms for clients and suppliers. There are also specific variables for hardware products. Documentation is just fine, with a tutorial video per section embedded directly in the app, as well as plenty of instructions. Liveplan exists in 5 languages, and integrates with Quickbooks, which allows importing your actual numbers and comparing them with your forecasts. You can also export your financials into a (numbers-only) spreadsheet to share with your investors.

Now, although Liveplan's software has more powerful modeling capacities than EY's, it remains insufficient in my estimation. Here are just a few examples.

• Direct labor costs can be set as a % of revenue, but do not update the number of employees accordingly.
• Indirect costs can only be set as a constant, a % of overall revenue, or a % of a specific revenue.
• New client acquisition is just manual input - as in you manually input "2" clients in March and "4" clients in April. There is no channel modeling whatsoever.
• Costs cannot be broken down by P&L categories nor departments.

When modeling is too superficial, it translates into poor analysis capabilities. In Liveplan's case, you do have a dozen financial metrics available (net cash flow, account payable, cash on hand…) and another dozen graphs. But SaaS metrics are absent, which is a bummer for SaaS entrepreneurs.

At the end of the day, LivePlan was built for non-tech entrepreneurs. Perfect for a bike shop owner, but not quite there for SaaS people.

Don't take my word for it: there is a 60-day trial, so give it a spin for free and make up your own mind.

11. "Summit" by Matt Wensing

Summit, by Matt Wensing

Summit is a young startup (founded 2019) that brings a fresh take on the whole financial modeling thing with a SaaS solution.

Let's make it clear - Summit is not meant for fundraising. Forecasts on Summit are made for an 18-month period only. Costs cannot be allocated to P&L categories and departments, nor can you differentiate between labor/non-labor or direct/indirect costs. Therefore, you won't be able to generate any financial statements that your investors may require . Hell, you can't even export a spreadsheet!

So why talk about Summit? Because Summit is pretty awesome when it comes to piloting your SaaS startup with a financial model. Here is how it works. First you connect your live metrics (Stripe, Baremetrics, etc.) to your Summit account. This allows Summit to derive your future growth from the current trends. The next step consists in optimizing that future growth. To do that, you define a baseline scenario around 20+ metrics from sales, product, finance, then you play around with those variables to maximize your MRR or any other metric you like. What if we increase our close rate? What if we raise funds and funnel that money into paid ads? You instantly get clear answers. What's more, the clean dashboards and convenient built-in comments feature makes it easy and even pleasant to run those analyses and share with your team. It's a really fresh experience - no comparison possible with fuddy-duddy spreadsheets.

Summit is still a young product and there is room for improvement: currencies, tax rates, expansion and contraction of existing clients, one-off revenue. In particular, client acquisition would greatly benefit from more granularity and native integrations with social media accounts for instance.

At the end of the day, Summit is not meant to build financial statements, but to make decisions in a data-driven way. It's such a refreshing approach in the space that I highly recommend trying it out. Bonus point: it's 100% free for now, so it's a no-brainer.

12. "Causal" by Taimur and Lukas

Causal, by Taimur and Lukas

At first glance, Causal seemed very similar to Summit. It's also a SaaS solution, also founded in 2019, also bringing a new approach to modeling. But that's where the comparison stops because the philosophy behind Causal is quite unique.

Causal is not just a financial modeling tool for SaaS startups. It's a modeling tool that aims at replacing Excel for every modeling need you may have. This means that (a) Causal is super versatile and goes much deeper than Summit, and (b) Causal is much more complex with a steeper learning curve than Summit.

Looking at revenue and cost modeling, you can model anything you want on Causal with an interface that's 10x more modern and user-friendly than a spreadsheet. The same thing goes for analysis capabilities: you can generate dashboards, tables, and graphs for absolutely anything - including any financial statement your investors may want. You can also connect live data sources (Stripe and Google Sheets for now, more to come) to automatically update your models with real-time metrics.

As a SaaS entrepreneur, you don't have time to build a model from scratch. Lucky you, Causal has built-in templates - including two SaaS models built by Taylor Davidson himself (see template #6). You are then able to augment or fine-tune those models to suit your specific needs.

In terms of documentation, there are a few videos, a live chat as well as a walkthrough when you start a new model. That's not much, but Causal assumes that you are a modeling "nerd" and that your usual work environment is massive spreadsheets. If that's the case, you'll be just fine. Assuming you have the time and desire to put in the hours to learn a new tool, Causal may very well be the ultimate platform for financial modeling.

New models - reviews coming soon

"financial model template for startups" by basetemplates.

Financial Model Template, by BaseTemplates

Conclusion: this is the best financial model for SaaS startups

Best free spreadsheet

If you want a "good enough" model but are not willing to pay for it, go for Ben Murray's (model #4) or Chris Janz's (model #2) . Customize them a bit to offset their weaknesses.

See below a side-by-side comparison of the differences between both models.

Best paid spreadsheet

If you want the best financial model spreadsheet out there and are willing to pay for it, go for Taylor Davidson's (model #6) or Alexander Jarvis' (models #7/#8) . They are by far the best stuff on the market today.

See below a side-by-side comparison of the differences.

Best software

If you want to experience the future of financial modeling, go for Summit (model #11) or Causal (model #12) - while keeping in mind that both are very different.

Thanks for reading. Don't hesitate to leave a question in the comments, I try to reply personally to each one of them.

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Need a financial model for your startup? Fear not. I have extensively compared the top 12 templates, free and paid, so you don't have to do it.

The Complete Guide to Financial Modeling: Best Practices, Examples, and More

Whether you’ve been operating for years or are just getting started, your business has a lot of moving parts. Each piece — burn rate, valuation, cash flow  — affects the next, and keeping tabs on it all can be tough. Add external factors into the mix, and things can get very complicated very fast.

You need a way to forecast these changes, a strategy to help guide your strategic decision-making and attract outside investors.

Enter, financial modeling — the backbone of a successful financial planning and analysis (FP&A) strategy.

Table of Contents

What Is a Financial Model?

A financial model is a way to consolidate the various parts of your organization. It’s a numerical snapshot that helps value your company, direct financial planning, and project financials into the future.

Financial models are typically contained in the finance team’s faithful spreadsheets found in Excel or Google Sheets, with different components connected through mathematical formulas. If the model has been built correctly, you can tweak a number — say projected revenue — and immediately see how that change would affect other aspects of your business.

Some of the primary uses of financial modeling include:

• Valuing a company
• Revenue forecasting
• Preparing for multiple scenarios
• Assessing the viability of mergers

Ultimately, the goal of financial modeling is to see how specific changes — whether they’re outside your control or not — will affect the company’s market position and bottom line today and in the future.

There are many different types of models. Different types focus on different financial aspects – some will be evergreen, models you want to continually utilize and update, while others will only be relevant at specific points in your company’s lifecycle.

A type of model that would be useful for one business — say, an investment banking firm — might not be quite as useful for an early-stage SaaS startup or a company focused on one-time purchases.

There’s no better way to show you what we mean than by looking at examples of financial modeling.

SaaS Financial Model Template

7 types of financial model.

Each financial model serves a unique purpose in business decision-making and financial analysis. In this section, we explore seven essential financial models, highlighting their specific applications and roles in shaping strategic financial insights for diverse business scenarios.

The DCF or discounted cash flow model is used mostly for valuation. Gearing up for a new round of funding? This is the model you’re looking for.

The discounted cash flow model starts with projected future cash flows, i.e., how much cash the company expects to generate in the future. It then discounts these amounts to their net present value. This might sound a little strange, but it’s related to the time value of money ($1000 is worth more today than $1000 a month from now).

Specifically, DCF looks at free cash flow , and the discount rate would usually be the company’s weighted average cost of capital (WAAC), which is how much the company pays to finance its assets.

DCF also shows a company’s internal rate of return — the discount rate that would bring the net present value to zero. Venture capital firms and investment bankers like to look at this number before jumping aboard – the higher, the better.

Be aware, though, that DCF is not as useful for valuing SaaS companies. That’s because it doesn’t focus on recurring revenue or net revenue retention. In many cases, having no free cash flow is a normal part of a startup’s business plan, but it doesn’t mean the company is worthless.

We did say “mostly used for valuation.” The other big use is for gauging returns on capital expenditures – you can see how much a project is worth today based on its projected future revenue.

Three Statement Model

The three statement model provides an overview of the company by interlinking the “big three” financial statements: the balance sheet (for measuring working capital), the income statement (profit & loss), and the cash flow statement (inflows and outflows of cash/cash equivalents). The model can also include schedules like the debt or depreciation & amortization schedule.

Once you’ve built your three-statement financial model, you can test different scenarios. For instance, say you’re planning to make the leap to series B funding in the near future. You want to see how boosting advertising spend will affect operating cash flow, so you plug in a specific number to the income statement – say $50,000 – as well as a (reasonable) number for returns and series funding.

You see your operating cash flow decrease to less-than-ideal levels. You’d then plug in a lower number — if that’s too high, you’d go lower and keep doing this until you find that “sweet spot” number.

The three statement model is foundational not only because it’s the simplest model but also because you’ll need it to build more targeted models like DCF or LBO models.

A leveraged buyout is a purchase funded by sizable debt, with a very high debt-to-equity ratio. The LBO model shows the projected returns of that purchase, helping buyers – usually investment bankers or private equity firms – decide whether it’s worth the cost.

These are some of the most complicated types of models. Why? Because they use circular references and because there are so many different financing options.

Merger Model

A merger model projects what the new company’s financials will look like after a merger or acquisition. Specifically, it shows the earnings per share. If the earnings per share go up, it’s said to have accreted — if they go down, it’s said to have diluted.

In a spreadsheet, you’d divide this into three different cells. The first includes the acquiring company, the second the acquired, and the third shows the combined company.

Looking to go public? This model can give you a good approximation of what your IPO should be. To build your IPO model, leverage comparable company analysis and consider previous funding valuations.

Option Pricing Model

These assign a theoretical value to options, approximating their value. Is it in the money or out of the money

There are a few different types, including the binomial, Black Shoales, and the Monte Carlo simulation.

Sum of the Parts Model

This model is used for companies that have diverse business segments or many assets – companies too big for a (comparatively) simple DCF analysis. This model can also provide a more complete valuation than just DCF, as it includes marketable securities, real-estate holdings, and intellectual property (among others).

How To Create a Financial Model in 4 Steps

There’s no one-size-fits-all way to build a financial model (no matter which type you’re trying to build). The steps below will give you the basic overview of how to build any model. But if you want a deeper dive into SaaS specifically, check out this episode of The Role Forward with Taylor Davidson, expert financial modeler and founder of foresight.is .

1. Identify Goals

Without an objective – whether that’s valuation or seeing the effects of a specific event – your financial model will be useless. That’s why, before you get started, you’ll need to identify your goals.

What do you want to accomplish with this model? Do you want to build a response to specific scenarios, say a decrease in investor funding or a better-than-expected rollout? Do you want to value your company or find vulnerabilities and guide your budgeting process ? Your answers will inform how complex your model needs to be.

2. Gather Data

Now, you’ll need to populate the model. There are two main inputs – historical financial data and assumptions. Different metrics will be important to different business and model types. For instance, the LTV:CAC ratio is critical for SaaS companies.

What are your assumptions? Are they backed by real-world data like industry benchmarks and historical trends? Do they align with the assumptions of your business model? Make sure to vet these before including them in the model.

Regardless of what type of model you’re building, you’ll need to look at headcount, top-line revenue, expenses, and the balance sheet — the four building blocks.

3. Build Your Model

Now, we get to the main event — actually constructing your financial model. We can break this down into several steps.

First, you’ll need to fill in your three financial statements.

Using the data and assumptions from the last step, build forecasts to chart your revenue growth rate. These aren’t just one-time expenses. SaaS companies need to track monthly recurring revenue (MRR). If possible, break that down into customer segments and pricing tiers.

Financial models should be easy to understand. After all, it’s not just the finance team that will be using it. A valuable financial model needs to be able to help the whole company, from the CEO to the marketing and sales teams. That means your financial modeling design is just as important as the data that goes into it. Follow a logical structure. Highlight aspects of interest to investors and decision-makers.

Clearly mark drivers and assumptions. Use color coding — for instance, you might use black for formulas and blue for hard-coded input cells.

At the same time, make sure you don’t overwhelm — it’s easy to want to include as much detail as possible, but financial models should get to the point as quickly as possible.

4. Test & Refine

Once the model’s built, you can put it into action. If anything is obviously way off, you’ll know there’s an error. Backtrack through the previous steps and make any necessary corrections.

You should constantly update your financial modeling based on new data and changing assumptions. You can also perform sensitivity analysis to see how vulnerable your assumptions are to inaccuracies.

The Importance of Quality Data and Technology

A financial model is only as good as the data it’s based on. It’s not hard to find examples of companies that have been over or undervalued based on flawed data. Worse than that, a flawed model could lead a company in the entirely wrong direction. We can’t overstate the importance of ensuring data sources are solid, then checking and rechecking.

Finance's Complete Guide to CRM Hygiene

What could be more solid than your company’s own internal data, recorded automatically?

That’s exactly what Mosaic does, making it much easier to build these complex models. The financial modeling software will automatically generate a baseline scenario, which you can then iterate on with different business outcomes.

Technology helps not only with modeling, but also in ensuring the data is valid and up-to-date. Especially for startups, models need to be flexible. Remember the four building blocks? Mosaic gathers them all by integrating with your HRIS, CRM, and ERPs.

All of this information is presented in real-time, so that outputs reflect your company’s current, down-to-the-hour situation. You have a complete solution for projecting, visualizing, and then acting upon that information. A connected piece are financial dashboards. Similar to a car’s dashboard, a financial dashboard provides a simple, visual summary of relevant KPIs, showing if you’re “on-track” to achieving your objective

Advanced Financial Modeling Techniques

We’ve covered the basics — what about more complex maneuvers?

The most useful is scenario planning . Why? Well, because it will reveal critical vulnerabilities in the company. To find those vulnerabilities, you ask “what-if” questions like: What if the economic scenario completely changes? What if our new product doesn’t sell as well as we’d planned, or new regulations affect our industry? Think of it as your personalized financial playground.

Mosaic makes it easy to do scenario planning by generating baseline scenarios based on your company’s headcount, revenue, balance sheet, and income statement. From there, you can stress test these different levels.

All of this is made even more helpful with AI. Using AI for financial modeling can make it easier to analyze data and uncover trends that wouldn’t otherwise be obvious. AI can also help with budgeting , and refine your basic financial models and scenario plans, adding a level of mathematical validation that wouldn’t otherwise be possible.

Mosaic’s Role in Scenario Planning and Financial Modeling

Building financial models tailored to your business is a critical part of strategic FP&A. But many businesses find it too difficult to do, or make mistakes that seem like a good choice but aren’t (financial model templates, we’re looking at you).

The best way to get around that time-consuming, difficult process is to utilize software — software that makes it intuitive to build financial models that answer any question you could imagine.

Take the guesswork out of your modeling process by building financial models based on your own data. Get a demo of Mosaic today.

Financial Modeling FAQs

What is the difference between financial forecasting and financial modeling.

On the face of it, financial forecasting and financial modeling sound very similar. Both project your business’s financial performance into the future, help guide decision-making, and are quantitative rather than qualitative.

The difference lies in how they’re used.

Something like a cash flow forecast would be used as a tool in day-to-day, month-to-month operations. The goal would be to optimize liquidity and ensure you don’t hit any shortfalls.

Financial models, on the other hand, build a more complex simulation of the entire picture. They look quarters or even a year or two down the line, to determine what the company’s financial position might be — down to equity, assets, and — if you were to take a certain action, or a certain scenario were to impact, right now.

Forecasts are like a 2-D map of your state, while financial models are a 3-D map of the entire country.

What are some common financial modeling mistakes?

Transcription errors. Double, triple-check your model to make sure all formulas are entered correctly. This can be as simple as ensuring parentheses are included.

Hardcoding financial models. To hardcode means to enter numbers without making sure they are tied to other values. That defeats the whole purpose of financial modeling — to see how changes in one or more items will affect the rest of the company (that being said, some items like taxes should be hardcoded).

Overly relying on templates. It’s easy to just Google, say, “DCF model” and utilize the first Excel template that comes up. Why not, right? Even a CFO might think it’s a good idea to use a financial model template . The thing is, every company is unique — financial models are not “one-size fits all.”

A DCF for a mature, established company would be very different from a DCF for a startup with high-growth potential. To get the most out of financial modeling, build your own models that are tailor-made for your company.

How can Mosaic help you build your financial model?

Mosaic can help you build models from scratch in our centralized canvas Our software sources real-time data so that you know your financial model is accurate and can answer ad hoc questions on the fly With hundreds of metrics, we specialize in helping SaaS track their growth, secure funding, and create a business plan that secures them against the hazards of a fast-paced, difficult marketplace.

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How to Develop a Small Business Financial Plan

By Andy Marker | April 29, 2022

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Financial planning is critical for any successful small business, but the process can be complicated. To help you get started, we’ve created a step-by-step guide and rounded up top tips from experts.

Included on this page, you’ll find what to include in a financial plan , steps to develop one , and a downloadable starter kit .

What Is a Small Business Financial Plan?

A small business financial plan is an outline of the financial status of your business, including income statements, balance sheets, and cash flow information. A financial plan can help guide a small business toward sustainable growth.

Financial plans can aid in business goal setting and metrics tracking, as well as provide proof of profitable ideas. Craig Hewitt, Founder of Castos , shares that “creating a financial plan will show you if your business ideas are sustainable. A financial plan will show you where your business stands and help you make better decisions about resource allocation. It will also help you plan growth, survive cash flow shortages, and pitch to investors.”

Why Is It Important for a Small Business to Have a Financial Plan?

All small businesses should create a financial plan. This allows you to assess your business’s financial needs, recognize areas of opportunity, and project your growth over time. A strong financial plan is also a bonus for potential investors.

Mark Daoust , the President and CEO of Quiet Light Brokerage, Inc., explains why a financial plan is important for small businesses: “It can sometimes be difficult for business owners to evaluate their own progress, especially when starting a new company. A financial plan can be helpful in showing increased revenues, cash flow growth, and overall profit in quantifiable data. It's very encouraging for small business owners who are often working long hours and dealing with so many stressful decisions to know that they are on the right track.”

To learn more about other important considerations for a small business, peruse our list of free startup plan, budget, and cost templates .

What Does a Small Business Financial Plan Include?

All small businesses should include an income statement, a balance sheet, and a cash flow statement in their financial plan. You may also include other documents, such as personnel plans, break-even points, and sales forecasts, depending on the business and industry.

• Balance Sheet: A balance sheet determines the difference between your liabilities and assets to determine your equity. “A balance sheet is a snapshot of a business’s financial position at a particular moment in time,” says Yüzbaşıoğlu. “It adds up everything your business owns and subtracts all debts — the difference reflects the net worth of the business, also referred to as equity .” Yüzbaşıoğlu explains that this statement consists of three parts: assets, liabilities, and equity. “Assets include your money in the bank, accounts receivable, inventories, and more. Liabilities can include your accounts payables, credit card balances, and loan repayments, for example. Equity for most small businesses is just the owner’s equity, but it could also include investors’ shares, retained earnings, or stock proceeds,” he says.
• Cash Flow Statement: A cash flow statement shows where the money is coming from and where it is going. For existing businesses, this will include bank statements that list deposits and expenditures. A new business may not have much cash flow information, but it can include all startup costs and funding sources. “A cash flow statement shows how much cash is generated and used during a given period of time. It documents all the money flowing in and out of your business,” explains Yüzbaşıoğlu.
• Break-Even Analysis: A break-even analysis is a projection of how long it will take you to recoup your investments, such as expenses from startup costs or ongoing projects. In order to perform this analysis, Yüzbaşıoğlu explains, “You need to know the difference between fixed costs and variable costs. Fixed costs are the expenses that stay the same, regardless of how much you sell or don't sell. For example, expenses such as rent, wages, and accounting fees are typically fixed. Variable costs are the expenses that change in accordance with production or sales volume. “In other words, [a break-even analysis] determines the units of products or services you need to sell at least to cover your production costs. Generally, to calculate the break-even point in business, divide fixed costs by the gross profit margin. This produces a dollar figure that a company needs to break even,” Yüzbaşıoğlu shares.
• Personnel Plan: A personnel plan is an outline of various positions or departments that states what they do, why they are necessary, and how much they cost. This document is generally more useful for large businesses, or those that find themselves spending a large percentage of their budget on labor.
• Sales Forecast: A sales forecast can help determine how many sales and how much money you expect to make in a given time period. To learn more about various methods of predicting these figures, check out our guide to sales forecasting .

How to Write a Small Business Financial Plan

Writing a financial plan begins with collecting financial information from your small business. Create income statements, balance sheets, and cash flow statements, and any other documents you need using that information. Then share those documents with relevant stakeholders.

“Creating a financial plan is key to any business and essential for success: It provides protection and an opportunity to grow,” says Yüzbaşıoğlu. “You can use [the financial plan] to make better-informed decisions about things like resource allocation on future projects and to help shape the success of your company.”

1. Create a Plan

Create a strategic business plan that includes your business strategy and goals, and define their financial impact. Your financial plan will inform decisions for every aspect of your business, so it is important to know what is important and what is at stake.

2. Gather Financial Information

Collect all of the available financial information about your business. Organize bank statements, loan information, sales numbers, inventory costs, payroll information, and any other income and expenses your business has incurred. If you have not already started to do so, regularly record all of this information and store it in an easily accessible place.

3. Create an Income Statement

Your income statement should display revenue, expenses, and profit for a given time period. Your revenue minus your expenses equals your profit or loss. Many businesses create a new statement yearly or quarterly, but small businesses with less cash flow may benefit from creating statements for shorter time frames.

4. Create a Balance Sheet

Your balance sheet is a snapshot of your business’s financial status at a particular moment in time. You should update it on the same schedule as your income statement. To determine your equity, calculate all of your assets minus your liabilities.

5. Create a Cash Flow Statement

As mentioned above, the cash flow statement shows all past and projected cash flow for your business. “Your cash flow statement needs to cover three sections: operating activities, investing activities, and financing activities,” suggests Hewitt. “Operating activities are the movement of cash from the sale or purchase of goods or services. Investing activities are the sale or purchase of long-term assets. Financing activities are transactions with creditors and investments.”

6. Create Other Documents as Needed

Depending on the age, size, and industry of your business, you may find it useful to include these other documents in your financial plan as well.

• Sales Forecast: Your sales forecast should reference sales numbers from your past to estimate sales numbers for your future. Sales forecasts may be more useful for established companies with historical numbers to compare to, but small businesses can use forecasts to set goals and break records month over month. “To make future financial projections, start with a sales forecast,” says Yüzbaşıoğlu. “Project your sales over the course of 12 months. After projecting sales, calculate your cost of sales (also called cost of goods or direct costs). This will let you calculate gross margin. Gross margin is sales less the cost of sales, and it's a useful number for comparing with different standard industry ratios.”

7. Save the Plan for Reference and Share as Needed

The most important part of a financial plan is sharing it with stakeholders. You can also use much of the same information in your financial plan to create a budget for your small business.

Additionally, be sure to conduct regular reviews, as things will inevitably change. “My best tip for small businesses when creating a financial plan is to schedule reviews. Once you have your plan in place, it is essential that you review it often and compare how well the strategy fits with the actual monthly expenses. This will help you adjust your plan accordingly and prepare for the year ahead,” suggests Janet Patterson, Loan and Finance Expert at  Highway Title Loans.

Small Business Financial Plan Example

Download Small Business Financial Plan Example Microsoft Excel | Google Sheets

Here is an example of what a completed small business financial plan dashboard might look like. Once you have completed your income statement, balance sheet, and cash flow statements, use a template to create visual graphs to display the information to make it easier to read and share. In this example, this small business plots its income and cash flow statements quarterly, but you may find it valuable to update yours more often.

Small Business Financial Plan Starter Kit

Download Small Business Financial Plan Starter Kit

We’ve created this small business financial plan starter kit to help you get organized and complete your financial plan. In this kit, you will find a fully customizable income statement template, a balance sheet template, a cash flow statement template, and a dashboard template to display results. We have also included templates for break-even analysis, a personnel plan, and sales forecasts to meet your ongoing financial planning needs.

Small Business Income Statement Template 

Download Small Business Income Statement Template Microsoft Excel | Google Sheets

Use this small business income statement template to input your income information and track your growth over time. This template is filled to track by the year, but you can also track by months or quarters. The template is fully customizable to suit your business needs.

Small Business Balance Sheet Template 

Download Small Business Balance Sheet Template Microsoft Excel | Google Sheets

This customizable balance sheet template was created with small businesses in mind. Use it to create a snapshot of your company’s assets, liabilities, and equity quarter over quarter. 

Small Business Cash Flow Statement Template 

Download Small Business Cash Flow Template Microsoft Excel | Google Sheets

Use this customizable cash flow statement template to stay organized when documenting your cash flow. Note the time frame and input all of your financial data in the appropriate cell. With this information, the template will automatically generate your total cash payments, net cash change, and ending cash position.

Break-Even Analysis Template 

Download Break-Even Analysis Template Microsoft Excel | Google Sheets

This powerful template can help you determine the point at which you will break even on product investment. Input the sale price of the product, as well as its various associated costs, and this template will display the number of units needed to break even on your initial costs.

Personnel Plan Template  

Download Personnel Plan Template Microsoft Excel | Google Sheets

Use this simple personnel plan template to help organize and define the monetary cost of the various roles or departments within your company. This template will generate a labor cost total that you can use to compare roles and determine whether you need to make cuts or identify areas for growth.

Sales Forecast Template

Download Sales Forecast Template Microsoft Excel | Google Sheets

Use this customizable template to forecast your sales month over month and determine the percentage changes. You can use this template to set goals and track sales history as well.

Small Business Financial Plan Dashboard Template

Download Small Business Financial Plan Dashboard Template Microsoft Excel | Google Sheets

This dashboard template provides a visual example of a small business financial plan. It presents the information from your income statement, balance sheet, and cash flow statement in a graphical form that is easy to read and share.

Tips for Completing a Financial Plan for a Small Business

You can simplify the development of your small business financial plan in many ways, from outlining your goals to considering where you may need help. We’ve outlined a few tips from our experts below:

• Outline Your Business Goals: Before you create a financial plan, outline your business goals. This will help you determine where money is being well spent to achieve those goals and where it may not be. “Before applying for financing or investment, list the expected business goals for the next three to five years. You can ask a certified public accountant for help in this regard,” says Thé. The U.S. Small Business Administration or a local small business development center can also help you to understand the local market and important factors for business success. For more help, check out our quick how-to guide on writing a business plan .
• Make Sure You Have the Right Permits and Insurance: One of the best ways to keep your financial plan on track is to anticipate large expenditures. Double- and triple-check that you have the permits and insurances you need so that you do not incur any fines or surprise expenses down the line. “If you own your own business, you're no longer able to count on your employer for your insurance needs. It's important to have a plan for how you're going to pay for this additional expense and make sure that you know what specific insurance you need to cover your business,” suggests Daost.
• Separate Personal Goals from Business Goals: Be as unbiased as possible when creating and laying out your business’s financial goals. Your financial and prestige goals as a business owner may be loftier than what your business can currently achieve in the present. Inflating sales forecasts or income numbers will only come back to bite you in the end.
• Consider Hiring Help: You don’t know what you don’t know, but fortunately, many financial experts are ready to help you. “Hiring financial advisors can help you make sound financial decisions for your business and create a financial roadmap to follow. Many businesses fail in the first few years due to poor planning, which leads to costly mistakes. Having a financial advisor can help keep your business alive, make a profit, and thrive,” says Hewitt.
• Include Less Obvious Expenses: No income or expense is too small to consider — it all matters when you are creating your financial plan. “I wish I had known that you’re supposed to incorporate anticipated internal hidden expenses in the plan as well,” Patterson shares. “I formulated my first financial plan myself and didn’t have enough knowledge back then. Hence, I missed out on essential expenses, like office maintenance, that are less common.”

Do Small Business Owners Need a Financial Planner?

Not all small business owners need a designated financial planner, but you should understand the documents and information that make up a financial plan. If you do not hire an advisor, you must be informed about your own finances.

Small business owners tend to wear many hats, but Powell says, “it depends on the organization of the owner and their experience with the financial side of operating businesses.” Hiring a financial advisor can take some tasks off your plate and save you time to focus on the many other details that need your attention. Financial planners are experts in their field and may have more intimate knowledge of market trends and changing tax information that can end up saving you money in the long run. 

Yüzbaşıoğlu adds, “Small business owners can greatly benefit from working with a financial advisor. A successful small business often requires more than just the skills of an entrepreneur; a financial advisor can help the company effectively manage risks and maximize opportunities.”

For more examples of the tasks a financial planner might be able to help with, check through our list of free financial planning templates .

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The ultimate guide to financial modeling for startups

Multidisciplinary professional services organization

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Do you have a startup and do you want to build a sustainable financial future discover the best practices in the ultimate guide to financial modeling for startups..

W e have three very easy questions for you:  

• Do you want to build a (financially) sustainable business?
• Are you looking for funding?
• Do you want to avoid going bankrupt?

Probably you have answered yes at least once. If you have founded your own company, probably yes applies to all three questions.

To cover all three having (some form of) a financial model is crucial. Whatever the reason is for you ending up at looking at this article, apparently also for you financial modeling is an important topic, otherwise you wouldn’t be here, right? ;)

Well, you have come to the right place! Having supported around a thousand startups and scale-ups with their financial models over the past couple of years with the EY Finance Navigator team, we have written everything you need to know and all the best practices available around financial modeling for starting businesses: the ultimate guide to financial modeling for startups!

NOTE: in this article we are not sharing any financial modeling templates. Why? There are tons and tons of them already available online: simply look for ‘financial model template’ on the web and you are done.

This article is written with the purpose of doing something a template cannot do for you: helping you understand the different elements and technicalities of a startup’s financial model, learn how to fill it in and do checks on your data so you are able of making sense out of the outcomes yourself. And if you need  additional support, feel free to reach out using the contact form.

Need help building your financial projections?

Check out EY Finance Navigator: our financial modelling software for startups, trusted by entrepreneurs in more than 50 countries.

Find out more

Three reasons for having a financial model as a startup

Why it’s important to build an economically viable business

Before we dive into the technicalities and different elements of a startup’s financial model we are going to broaden our view a bit and address why forecasting in general is an important topic for startups. Almost all companies perform some kind of financial planning or budgeting, but there are particular reasons why a financial plan is important for startups specifically:

• You need one to build an economically viable business. Why? Because by quantifying (and then validating) your business plan and business model, assumptions and vision you are able of finding out whether you can turn your ideas into a sustainably operating business. Moreover, if you build different versions (“scenarios”) you are better prepared for the future, especially if things do not go the way you planned. What if you launch half a year later? Answering such a question in your “worst case scenario” helps you anticipate how your cash flow, profitability and funding need are impacted.
• You need one as part of the fundraising process. Financiers will typically ask you for a financial plan when you engage with them to raise funding, whether them being angel investor, VC, bank or subsidy provider. Certain investors will require more details then other, but building a model is wise even if you only need to provide them with high-level data. Why? Because it helps you answer the tricky questions a financier might have when he or she dives into your business case. Moreover, how are you planning to raise funding if you did not properly calculate how much funding you actually need?
• You need one to inform yourself and shareholders. How do you know how your company is doing if you don’t have any targets to achieve or steering information to compare against? How are you going to update your shareholders on how you are spending their money and whether you are performing as promised without any financial plan to benchmark against? You will need a forecast to do so.

Do these reasons apply to your case as well? Good! Then definitely continue reading…

Two different approaches to financial modelling for startups

Building a financial model is not difficult, but how to get the numbers?

Often building a financial model is not really an issue. The amount of templates you can find online are countless and there’s always someone Excel-savvy around to help you out with the technicalities. The REAL problem (and question we get most often) is: how to get to the numbers?

…how do you forecast sales? …what is the market size of my sector? …how much should I spend on marketing? Etc.

There are two main methods to answer these questions: top down forecasting and bottom up forecasting.

Top down forecasting

Using the top down approach you work from a macro/outside-in perspective towards a micro view. Typically industry estimates are taken as starting point and narrowed down into targets that are fit for your company.

In essence the top down method helps you to define a forecast based on the market share you would like to capture within a reasonable timeframe. A useful aid to perform top down forecasting is the TAM SAM SOM model.

The TAM SAM SOM model captures the market size on three levels: the total worldwide market for a product or service (TAM: total available market), the part of that market you address with your specific offering (the niche market) adjusted for your geographical reach (SAM: serviceable available market), and the part of SAM you can actually realistically capture (SOM: serviceable obtainable market), given the existing competition. SOM is therefore equal to your sales target as it represents the value of the market share you aim to capture.

Example of a TAM SAM SOM visualization (source: EY Finance Navigator’s financial planning software for startups)

Based on the sales targets you define using the TAM SAM SOM model the next step is to estimate all costs that are needed to build or deliver your product or service and all expenses that are needed to perform all sales and marketing, research and development, and general and administrative tasks for your company to stay alive.

When estimating these you obviously aim for profitability within a reasonable timeframe. In other words: at some point all costs and expenses should not exceed your revenue targets anymore so that you get to a positive EBITDA (earnings before interest, taxes, depreciation and amortization).

Bottom up forecasting

The pitfall of the top down approach is that it might seduce you to forecast too optimistically (especially sales). Often entrepreneurs calculate SOM (equal to sales) by taking a random percentage of the market, without really assessing whether this target is realistically achievable.

A tiny percentage of a market might seem insignificant, but could be way too optimistic for instance in the year of your launch. Therefore, it could be useful to complement the top down method with the bottom up approach.

The bottom up approach is less dependent on external factors (the market), but leverages internal company specific data such as sales data or your company’s internal capacity. Contrary to the top down method, the bottom up approach begins with a micro/inside-out view and builds towards a macro view. This means a projection is made based on the main value drivers of your business.

Short example: let’s assume one of the main drivers of an online SaaS business is online marketing. One of its online marketing tactics is to advertise its product via LinkedIn. The company could define the costs per click using LinkedIn’s advertising tool, estimate the number of website visitors it will attract as a result, the conversion from website visitor to a lead, and the conversion from lead to customer.

Based on these metrics the company will have a good idea of potential sales, of course constrained by the budget available for online advertising. Performing a bottom up analysis therefore does not only force you to think about what are realistic targets for your company, but also to think about the ways in which you will spend your resources.

With the bottom up approach, you estimate revenues, costs, expenses and investments in the same way as described above: based on the resources at hand and the company data that is available. The pitfall of the bottom up method though is that it might fail to show the optimism needed to convince others of the potential of your company.

If you are a startup founder and you are looking to raise funding, the bottom up approach might not do the trick. Investors usually expect startups to grow fast and gain significant market share rapidly. The bottom up method might fail to reflect that.

It is difficult to create a forecast with a steep growth curve if every sale has to be rationalized and if its point of departure is the maximal capacity of your company (or budget for advertising purposes). With the bottom up approach it is hard to take into account factors such as virality or word of mouth. Moreover, the whole reason why external financing is needed, is often to expand capacity and grow faster than a company would do organically.

Therefore, when you build your startup’s forecast it could be advisable to combine both the bottom up and top down methods, especially when you plan to achieve a strong growth curve by means of external funding. Use the bottom up method for your short term forecast (1-2 years ahead) and the top down method for the longer term (3-5 years ahead). This makes you able to substantiate and defend your short term targets very well and your long term targets demonstrate the desired market share and the ambition an investor is looking for.

Assumptions

No matter what approach you use to build your startup’s financial model, it is crucial you are able of substantiating your numbers with assumptions. As a startup, historic data is often not available so you need to be able to present the ‘proof’ behind your numbers.

This will also help you when you start discussing with investors, as they are typically interested in knowing the reasoning behind your numbers. They are considering to put money in your company, so you do not want to give them the feeling you are selling baloney!

Assumptions can be anything that validate your numbers: market research, web search volume, contracts with suppliers, pricing validation, historic sales, conversion rates, bills of materials, website traffic, etc. It could be useful to create a “data room” (e.g. a Drive folder) in which you collect these kinds of evidence. By doing so, you are slowly building a library that underpins all the numbers you have put in your model and you are well prepared in case an investor might request a due diligence process.

Now, that is more than enough background to get started. Let’s get to it: the financial overviews a good financial model (of a startup) should include!

Three outcomes of a startup’s financial model

Every sector, company, business owner and investor is different, but a good financial model usually contains at least the three outputs.

Every sector, company, business owner and investor is different. All of them have their own interests and all of them value different metrics. From that perspective it is thus fair to say every financial model has its own characteristics. Therefore it is possible to customize every model to its user.

However, a good financial model usually contains at least the three following outputs: the financial statements, an operational cash flow forecast and a KPI overview.

1. Financial statements

Any decent financial model includes a forecast of the three financial statements: the profit and loss statement (P&L), the balance sheet (BS) and the cash flow statement (CF). The financial statements are the generally accepted way of communicating financial information across companies, banks, investors, governments and basically anyone that needs to show and/or understand financial performance in some way. Since any financial professional is able of interpreting financial statements having a forecast of them in place is typically a requirement in practically any fundraising process.

The profit and loss (or income) statement is basically an overview of all the income and costs your company has generated over a specific period of time and shows you whether you are profitable or not.

The P&L shows several crucial performance metrics such as the gross margin, EBITDA and net margin. EBITDA (earnings before interest, taxes, depreciation and amortization) is very important for investors as it provides insights in the operational performance of a company and allows them to compare efficiency when comparing different companies. The P&L can be used for comparing different time periods, budget vs. actual performance, performance against other companies etc. and can therefore show weak or strong performance.

Example of a profit and loss statement (or: income statement) (source: EY Finance Navigator’s financial planning software for startups)

The balance sheet is an overview of everything a company owns (its assets) and owes (its liabilities) at a specific point in time. It shows a snapshot in time (for instance the end of the year) and is therefore different compared to the profit and loss statement which shows all revenues and costs that were generated during a certain time period.

Liabilities show the obligations of a company and how it has financed itself using debt, whereas assets show how these funds are used within the company (for instance as capital to pay for inventory or assets such as computers and buildings). The difference between the value of assets and liabilities consists of equity, which is the paid-in capital by investors that finance the assets not covered by debt (assets = liabilities + equity).

Because of this the balance sheet is always ‘in balance’. Shareholders' equity represents the net value of a company. In other words: the amount that would be returned to shareholders if all the company's assets were liquidated and all its debts repaid.

Example of a balance sheet (source: EY Finance Navigator’s financial planning software for startups)

The cash flow statement shows all cash going in and out of a company over a specific time period. The cash flow statement consists of three different parts: the operational cash flow, the investment cash flow and the financial cash flow. The separation between these three categories provides you with insights on where money is going in and out of the company.

Operational cash flow shows the cash inflows and outflows caused by core business operations. Investment cash flow shows changes in investments in assets and equipment. In most cases (concerning startups) investment cash flow will have a cash outflow (because investing in assets costs money), but in some cases investment cash flow can also be positive in case a company is divesting (selling assets, e.g. selling real estate).

Financial cash flow relates to cash changes arising from financing activities. Cash inflow occurs in case of raising capital (such as loans or equity) and cash outflow occurs in case dividends are paid or when interests on cash financing are paid (e.g. to bondholders).

The cash flow statement allows management to make informed decisions on business operations and allows it to prevent and monitor company debt. Moreover it helps define a company’s investment needs and supports the timely payment of expenses and debts.

Example of a cash flow statement (source: EY Finance Navigator’s financial planning software for startups)

2. operational cash flow overview.

For fundraising purposes a forecast of the financial statements is typically shown on a yearly basis. Monthly overviews are in most cases not really needed, because for early-stage startups it is more about showing the long term growth potential than about giving an insight in monthly operations.

However, for the actual day to day financial management of your company it is useful to include an operational cash flow for the coming 12 months ahead in your financial model.

Why? Because it addresses questions yearly financial statements cannot answer, for instance about the timing of cash in and outflows. This is important to anticipate (see section ‘Working Capital’ below).

Moreover, it provides you with an opportunity to track your actual performance versus your expected budget on a monthly basis, which helps you cut costs (if needed) and anticipate to potential cash dips months ahead.

To build an operational cash flow forecast you simply list all the categories of cash inflows and outflows (for instance in an Excel), add a starting balance (the cash you own at this very moment) and see what remains at the end of each month.

An example can be found below. If you would also add columns where you can enter your actual numbers (against the forecasted cash in-and outflows) you are able of tracking performance over time and anticipate cash issues early on.

Example of an operational cash flow budget (source: EY, 2018)

3. kpi overview.

The outputs of a startup’s financial model typically also include some company and/or sector specific KPIs (key performance indicators). As the name already implies KPIs are crucial metrics for your business.

KPIs do not only matter for an investor, but also for you as a company owner. Based on these metrics you track the performance of your company, experiment with different acquisition channels, business models and cost structures, and you use them to make you and your co-founders laser-focused on the targets you defined.

There are KPIs that show sales and profitability performance (such as revenue growth rate, gross margin, EBITDA margin or profits), KPIs related to cash flow and raising investment (such as the burn rate, runway and funding need breakdown) and company or industry specific KPIs.

SaaS companies for instance typically estimate and track, amongst others, the customer life time value (LTV), customer acquisition costs (CAC), LTV/CAC ratio and the churn rate. For SaaS businesses, these are crucial.

For your business or industry some other metrics might be more important. Perform a bit of research on the web, think about the most important drivers of your company and identify the ones most relevant to you and to potential investors. Include these in your financial model as well.

Example of several KPIs that could be relevant to startups (source: EY Finance Navigator’s financial planning software for startups)

The inputs to a startup’s financial model.

What are the six common elements that typically serve as the input sheets of a financial model?

The outputs discussed above do not all of a sudden appear out of nothing, obviously. They are the result of many calculations taking place in the background of a financial model, based on the data entered into different input pagessubstantiated by the assumptions and research performed by the person filling in the financial model.

In this article we are not discussing all the calculations that take place in a financial model, as that would be a heck of a job! As mentioned earlier, we focus on helping you understand the different elements and technicalities of a startup’s financial model, learn how to fill it in and make sense out of the outcomes.

If you want insights in the calculations you can download a financial modeling template online. If you do not want to worry about (errors in) calculations at all, try out our financial planning software for startups.

Below we have listed six common elements that typically serve as the input sheets of a financial model. One element we have left out as an input sheet is what you could call the financial model’s ‘settings’.

These define the setup of the complete model and include things such as the forecasting period (which is typically 3-5 years, sometimes ten for certain industries), the currency used, taxes that might apply, etc.

Before moving to the different inputs of a startup’s financial model, it is important to realize financial modeling is not a goal in itself. It should be a means to an end. And that end is typically to get more insights in the financial side of building a business, whether those insights are meant for yourself or for a potential investor.

A financial model is a quantification of your overall business and should therefore be a reflection of your strategy, business model and vision. It is therefore fair to say your financial model and business model canvas are two sides of the same coin.

If you are ever in doubt on what to include in your financial model or if you need to take a step back from the numbers, you can use your business model canvas as a tool to help you think about your financial plan.

1. Revenues

The first (and maybe also most fun) input sheet of a financial plan is the revenue forecast. Revenue projections can be tricky though, for instance when you have not achieved any sales in the past yet. So how would you go about this? For a deep dive we would recommend to have a look at our earlier article on how to create a killer sales forecast for your startup, but we will present the key takeaways below.

Forecasting revenues is typically performed using a combination of the top down (TAM SAM SOM model) and bottom up methods which have been discussed earlier in this article. Use the bottom up method for your short term sales forecast (1-2 years ahead) and the top down method for the longer term (3-5 years ahead). This makes you able to substantiate your short term targets on a detailed level, while at the same time your long term targets demonstrate the desired market share and the ambition an investor is looking for.

If you find it difficult estimating demand at all one way of tackling this is to perform keyword research. Keyword tools give you insights in the search volumes for keywords that relate to your offering. They can show you per city, country, continent (whatever you want) how much monthly searches are performed for that specific keyword on the internet.

This can give you a good indication on demand for certain offerings, compared across different countries. You could try for instance the keyword tool Ubersuggest. If you sell 3D printers, you could search “buy 3D printer” and see how much people search for these words per month.

Now you know the approaches to forecasting, this is how you actually put your forecast down on paper:

• List all the products or services that you are selling.
• Determine in which units you want to present your sales: for a soda producer, this could for instance be bottles sold, but also liters sold.
• Forecast per sales unit the number of units sold. This is based on the top down and bottom up analysis you have performed above.
• Add selling prices. Check out our article on new product pricing strategies if you want to learn more on how to determine pricing.

You could for instance end up with something that looks like this if you would prepare the forecast in Excel:

Revenue forecast example in Excel (source: EY, 2018)

The way in which you build up your revenue forecast depends a bit on your business model. The example above includes a traditional business model of a company selling products/services per unit.

However, for a SaaS business it could be better to prepare a revenue forecast based on existing customers, new customers and the churn rate. You can look for a financial modeling template for specific companies or business models on the web. Our financial planning software for startups also includes the usage of different business models to build up your revenue forecast.

2. Cost of goods sold (COGS)

Cost of goods sold (COGS) are those costs that undoubtedly need to be made in order for a company to deliver a service or produce a good. Without these costs, the product or service would simply not exist.

COGS differ based on the type of offering you sell. For a company that sells tangible products they would include for instance the costs of the materials used in creating the good. For a company that sells consultancy hours they would include the personnel costs of the employees delivering the service.

For a SaaS business COGS are different compared to ‘normal’ businesses as there is no regular production or service delivery process involved. However, also SaaS companies definitely incur COGS, such as hosting costs, customer support and onboarding costs, and online payment costs. From these examples you can notice that all of these costs have to be incurred in order to produce the good or deliver the service.

Not sure how to forecast COGS? One way of tackling this, is by looking at the sales targets defined in your revenue forecast. Let’s assume you sell a tangible good. From creating the revenue projections you know already how many units of sales you aim to have. You then add per unit of sales the costs of raw materials and labor costs involved in producing those goods.

Example: if you sell plastic bottles, you could calculate how much plastic (in grams) you need per bottle and what would be the price of a kilogram of plastic. Moreover, you need to know how much paper label you need per bottle and what is the price of that. Also, you need to know the costs of the cap.

If you know all of these costs required to produce one bottle you can multiply them by the total number of bottles sold. Finally you add the personnel costs for employees that are involved in production.

If you would prepare this in Excel it would probably look something like this:

Cost of goods sold forecast example in Excel (source: EY, 2018)

How to forecast COGS also depends on your business model. Sometimes it would make more sense to forecast COGS on total level, for instance per month. Or they could be a percentage of your revenues (for instance when you work with sales commissions). Our financial planning software for startups includes different types of COGS forecasting.

3. Operating expenses (OPEX)

Operating expenses are those expenses that a business incurs as a result of performing its normal business operations. Unlike the cost of goods sold, they are not necessarily needed to produce the goods that are sold or to deliver the services promised. They include costs related to the supporting and operational side of business, such as sales and marketing, research and development and general and administrative tasks.

Typical operating expenses for startups include: events, travelling, legal costs, online marketing, payroll costs (of employees not part of COGS), accounting, rent, utilities, insurance, prototyping, patent costs, IT costs, office supplies, promotional materials, etc.

If you are not sure about which expenses you might incur in the long term, you could always save a certain percentage of your revenues for the different expense categories. E.g. you could include 10% of your yearly revenues on a budget for sales and marketing activities.

Most important is that your spending on operating expenses aligns with your company strategy. Is the growth of your company heavily reliant on online marketing? Then you would expect significant spending in that category.

An example of what an operating expenses forecast could look like for instance for spending on sales and marketing, can be found below.

Operating expenses forecast example in Excel (source: EY, 2018)

4. personnel.

Personnel is probably one of the easier forecasts to build. With your personnel forecast you project the number of employees hired including their respective salaries, additional benefits and payroll taxes. To make personnel forecasting more simple you could split up your personnel into different categories, for instance:

• Direct labor: here you include the employees that will be solely engaged with the production of the goods sold or services delivered. Think of engineers and technicians for companies selling tangible hardware products, a junior advisor in a consultancy company, or customer onboarding personnel in a SaaS business. These costs are not part of operating expenses but are part of the cost of goods sold.
• Sales and marketing: for instance sales managers, marketing managers, copywriters, social media experts, etc. These employees are part of your operating expenses.
• Research and development: R&D managers, (software) engineers, technicians, etc. These employees are part of your operating expenses.
• General and administration: here you include back office and C-level personnel, such as the CEO, CFO, CMO, secretaries, bookkeepers, etc. These employees are part of your operating expenses.

An example of what a personnel forecast could look like, for instance for personnel working on sales and marketing, can be found below.

Personnel forecast example in Excel (source: EY, 2018)

If you want to check whether your personnel forecast is realistic, you could divide your projected revenues in a given year by the number of employees (‘FTEs’ or full time equivalents) for that year. This tells you how much revenue you expect to generate per employee and provides a solid basis for comparison with competitors and industry leaders.

When your revenue per employee is at a similar level compared to the top twenty tech companies (see the graph below) already in just a few years after your launch, this is a strong indicator that you might be too optimistic regarding your expected revenues or that you might invest insufficiently in personnel.

Revenue per employe (source: EY, 2018)

5. investments in assets (capital expenditures).

The fifth input sheet to your startup’s financial model are the investments in assets (or: capital expenditures). Capital expenditures are funds used by a company to acquire or upgrade physical assets such as physical property, intellectual property, buildings or equipment. This type of expense is made by companies to maintain or increase the scope of their operations. They can include everything from repairing a roof to building a brand new factory.

Typical capital expenditures depend on the type of business and industry. For startups it is quite common to invest in computers, software, office equipment and machinery, but buying a building would also apply as a capital expenditure.

Many startups are incentivized to categorize their expenses as capital expenditures instead of as operating expenses. This has to do with the fact that due to an accounting technicality payments related to investments in assets are spread out over several years in the profit and loss statement (see section ‘Deprecation’ below) and therefore do not show up all at once in the year of purchase. This means they have a less visible reducing impact on profits. Be aware that the rules for categorizing expenses as assets are quite strict though!

6. Financing

The final potential input sheet of a startup’s financial model could be a financing module. In this sheet you would add financing streams such as equity, loans or subsidies. The main goal of this would be to check the impact on your funding need when you add different types of funding in different years of the model.

When a model includes the possibility to input loans, it needs to account for the loan repayment and interest payments, as these have an impact on cash flows. Below you can find a simple example of a €100,000 loan with a duration of 10 years and an interest rate of 10%.

Loan input and repayment scheme example in Excel (source: EY, 2018)

The six different input sheets that are discussed above are all in some way linked to the outputs of the financial model. For the financial statements specifically the links are as follows:

• Revenues impact the top line of the profit and loss statement. In the P&L you deduct all costs, expenses and depreciation from the revenues to arrive at EBIT (earnings before interest and taxes). EBIT serves as input for the operational cash flow in the cash flow statement. If you deduct interest and taxes (see section ‘Taxes’ below) from EBIT, you arrive at the net profit. Revenues even impact the balance sheet as they define the accounts receivable position.
• Cost of goods sold also turns up in the profit and loss statement. Deducting them from the revenues results in the gross margin. The gross margin can also be presented as a percentage: the higher this percentage is, the more revenue is left for covering costs that are not directly related to production. Cost of goods sold also impacts the balance sheet as they define accounts payable and inventory.
• Operating expenses show up in the profit and loss statement as well. Deducting operating expenses and cost of goods sold from the revenues results in EBITDA (earnings before interest, taxes, depreciation and amortization).
• Personnel either shows up in the profit and loss statement as a separate line or it is included in the cost of goods sold or operating expenses. Personnel involved in delivering services or producing goods end up in cost of goods sold. All other personnel is part of operating expenses.
• Investments in assets (capital expenditures) do not show up in the profit and loss statement because, accounting-wise, they are not seen as costs or expenses. They are investments and can be capitalized, meaning a company can leverage their value for several years. Therefore, they show up as something a company owns in the assets side of the balance sheet. Their value is depreciated (reduced in value) over their lifetime which is shown as depreciation in the profit and loss statement. Even though investments do not show up as a cost or expense, investing in something does mean there is a cash outflow for your company (you have to pay, right?). Therefore investments also show up in the cash flow statement as investment cash flow.
• Financing impacts the financial statements in two ways. Firstly, new financing and changes in debt shows up in the cash flow statement as financing cash flow. Secondly, interest paid on debts end up in the profit and loss statement.

The financial statements themselves are also interrelated (see image below). For that reason it could be wise to have an experienced person supporting you building your model if you do not have this experience yourself, especially if you are looking for a more complex model including supporting schemes such as the ones mentioned in the next section.

Interdependencies in the financial statements (source: EY, 2018)

If you do not want to worry about all the calculations and the interdependencies in a financial model, you could try out our financial planning software for startups, which does all the thinking for you.

Other supporting elements of a startup’s financial model

What other elements are essential for your financial model?

As you might have noticed already, some of the elements mentioned above include some tweaking of the numbers before you get to the right information that is presented in the financial statements. Supporting schemes such as working capital, depreciation and taxes might be needed.

Moreover, when you build a financial model you automatically structure a whole lot of data which you can also use for other purposes, such as a company valuation. Therefore, below we present four elements that support a startup’s financial model.

1. Working capital

Working capital is the capital that you need in order to sustain your daily operations. Technically speaking working capital is a comparison of the value of your current assets compared to your current liabilities.

In other words: the value of the things your company owns and that can be converted to cash on the short term (in less than one year) compared to the value of the things your company owes to others that are due on the short term (less than one year as well). Current assets include cash, accounts receivable and inventory. Current liabilities for instance include accounts payable.

Working capital is extremely important for startups, because it is a measure of both a company's efficiency and its short-term financial health. Working capital can significantly affect cash flow, so if a company's current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy.

Working capital can be impacted by payment terms. In order to assess your working capital position you should therefore not only steer your company based on revenue targets, but also on your cash flows. Forecasting for cash flow provides you with an overview of the timing of incoming and outgoing cash flows. How to do this is discussed in section ‘Operational cash flow overview’.

Why is this important? Well, when you focus only on costs and revenues and not on the timing of receiving and sending payments you could end up in serious trouble.

Consider that a large firm orders one hundred 3D printers at a startup producing a new type of 3D printers. The client expects the printers to be delivered within one month. As large firms often use long payment terms it might take up to 90 days before the startup receives the actual payment for the order.

This means that our 3D printer startup needs to finance the raw materials and production process itself. After all, the company has to deliver within 30 days, but still has to wait for 90 days before the payment is received.

If the funds required for production are not available for the startup then the order might be cancelled leaving both parties unsatisfied. If this happens consistently, the startup could go bankrupt even though orders are coming in.

Working capital is calculated based on the number of days your sales and payables are outstanding and the number of days you hold inventory before selling it. It shows up in the balance sheet. Therefore, a financial model might need a separate scheme that calculates working capital based on revenues, cost of goods sold and days outstanding.

See for instance the example of the calculation of accounts receivable below. With revenues being €100,000 in year one and payment terms of 15 days for outgoing invoices the accounts receivable position at the end of the year is €4,110.

Accounts receivable calculation example in Excel (source: EY, 2018)

2. depreciation.

Deprecation indicates the value reduction of assets a company owns. Based on the value of an asset and its useful lifetime depreciation is calculated. Depreciation is part of the profit and loss statement and impacts the value of assets on your balance sheet.

As an example, let’s say you want to buy some computers for your company. They cost you €20,000 and you can use them for four years. This means you will write off the total investment of €20,000 over a period of four years, which means you will depreciate their value with €5,000 every year for the coming four years (if they do not have any residual value left after that).

 A financial model needs a separate scheme that calculates depreciation based on investments and their related useful lifetime. Below you can find an example calculation of depreciation.

As you can see, in year one €20,000 was invested in computers, software and equipment and in year two €30,000. Both are depreciated over four years, resulting in the total depreciation per year; being €5,000 for year one, €12,500 for year 2-4 and €7.500 for year five.

Depreciation calculation example in Excel (source: EY, 2018)

Every company that is incorporated and registered at the Chamber of Commerce has to pay yearly taxes over its financial results: the corporate income tax. Taxes are deducted from your results in the profit and loss statement. Here you can find a list of corporate income tax rates per country.

If you want to include tax carryforwards in your financial model, you likely need a separate tax scheme as part of your model. A tax carryforward works as follows. As an entrepreneur it is likely that you have negative results in the first couple of years of operations. If you have negative results this basically means you have expenses that exceed revenues (more costs than income) leading to an operating loss. If you have a loss, there is obviously no income to be taxed by the tax authorities. This loss can be leveraged in future tax reporting periods to offset taxable income (you can ‘carry it forward’), which reduce the amount of tax you will pay in that specific tax reporting period.

Below you can find an example of a tax carryforward calculation based on a corporate income tax rate of 23%. As you will notice, year one had a negative result of -€50,000 which is settled with the positive result of €230,589 for year two resulting in a taxable profit of €180,589, resulting in a lower tax burden for that year.

Tax carryforward calculation example in Excel (source: EY, 2018)

4. valuation.

Many startups build a financial model for the purpose of raising funding. Part of the fundraising process are negotiations with an investor about the valuation of the company to be invested in. The good news is that when you have built a financial model for your company, all the ingredients are there to perform a valuation on your company as well by means of the discounted cash flow (DCF) method.

The main advantage of the discounted cash flow method is that it values a firm on the basis of future performance. This is perfect for a startup that might not have realized any historical performance yet, but expects large future earnings. During the (pre-)seed stage it is not uncommon for startups to not generate any revenues at all yet, while discussions with investors regarding ownership percentages and the accompanying valuation already take place. The discounted cash flow method is very suitable in that case, as it weighs future performance more than current performance.

The main downside of the DCF method when valuing startups is that the DCF is nothing more than a formula, a mathematical operation. This means that the quality of the valuation is extremely sensitive to the input variables of the formulas used to calculate the valuation. Moreover, it largely depends on your ability to create an accurate forecast of your firm’s future performance. After all, the future earnings are the foundation of the valuation.

A deep dive into discounted cash flow valuation is out of scope for this article. The main steps of performing a discounted cash flow valuation are presented below, but we have also written a deep dive into startup valuation:

• Step 1: create financial projections for your firm (tick in the box!).
• Step 2: determine the projected free cash flows.
• Step 3: determine the discount factor.
• Step 4: calculate the net present value of your free cash flows and terminal value by using the discount factor.
• Step 5: sum up all results of step 4.

Below you can find an example of a discounted cash flow valuation.

DCF valuation example in Excel (source: EY, 2018)

Depending on the desired outcomes and the corresponding complexity of your financial model you can decide whether or not to add additional schemes such as working capital, depreciation and tax carryforwards. You can look for a financial model template including these elements on the web. If you do not want to worry about these elements at all, our financial planning software for startups does all the calculations for you.

Scenarios and sanity checks

We have taken a look at all the different elements of a startup’s financial model. That means we are done! Right…? Not quite yet! For the pros there are some additional steps to take.

Firstly, it could be worth it to spend some time creating different versions (called scenarios) of your financial model. Entrepreneurs tend to be optimistic people, which is a good characteristic to have to keep up the energy and push through where others might quit.

Unfortunately, in many cases, the life of an entrepreneur tends to be a bit more disappointing in practice than it is on paper (at least from a financial perspective, don’t get too depressed now). Therefore, next to your default financial plan (called your ‘base case scenario’) you might want to prepare a scenario which is a bit less optimistic (your ‘worst case scenario’).

What if you launch six months later? What if sales do not ramp up as expected? What if your costs turn out to be double of what you expected? Answering such questions helps you anticipate how your cash flow, profitability and funding need are impacted in a less optimistic scenario.

Do not forget to create a ‘best case’ scenario as well. Why? You can give potential investors a sneak preview of the upside potential of your company and most importantly: it is fun to see the financial impact of aiming for the moon!

Secondly, it might be wise to perform some sanity check on your financial model to make sure you avoid common pitfalls in the financial models of startups. You can find ten common errors below:

• A mismatch between the financial model and the business plan: a financial model should resonate with the overall business strategy
• Overoptimistic or very pessimistic revenue projections: check out section ‘Revenues’ on how to forecast sales
• A funding need that is not adequately explained: make sure you include a breakdown of costs
• Underlying assumptions that are not clearly defined: you should be able to provide clarification or proof to the numbers
• Not enough employees as part of the personnel forecast: do not underestimate the number (and costs) of employees you need to build a fast-growing company
• Revenue projections which are not aligned with the market size: by definition revenues cannot be larger than the size of the market
• Operational expenses that are being left out: make sure expenses are aligned to your strategy
• Operational expenses which are misaligned with the forecasted revenues: make sure expenses resonate with revenues
• No realistic view of the gross, EBITDA and net margins: when speaking with investors, always be prepared to answer questions on your current and expected margins
• Disregarding the importance of working capital: do not underestimate the effect of payment terms on your funding need

How to raise money for your startup?

Many startups create a financial model because they are looking to raise external funding. Whether you are applying for a loan at a bank, trying to convince an investor of the potential of your firm or are applying for a subsidy or grant; in most if not all cases you will need to provide your counterparty with a financial plan.

There are different ways of raising money for your startup and these can be categorized into two main categories.

Financing via debt: an example of financing via debt can be a loan which you receive from a bank, a business or an individual where you agree on specific terms regarding payback and interest. For startups it can be difficult to receive a loan from a bank as they often do not meet the minimum criteria in terms of revenue generation and offering collateral.

Some advantages of using debt are as follows:

• The control of your company remains with you and your current shareholders.
• Interest on debt can be deducted from your tax.
• Debt often has a disciplining effect on a management team, as the resulting cash flows are limited so the management will be encouraged to be more efficient and create value.

Financing via equity: an example of financing via equity is funding you would raise from an angel investor or a VC in return for shares of your startup. For startups, financing via equity is more common than debt financing, because receiving a loan can be difficult (banks are in general more risk averse).

Equity investors take more risk by investing money in a company in exchange for shares, meaning they could lose it all. Since an equity investor becomes a shareholder when he/she invests in your company you will (partly) lose control of the firm. Moreover, you will need to share your profits with your new shareholders and sometimes they might want to be actively involved in the management of your company as well.

Of course there are other ways to fund your startup, such as crowdfunding, convertible notes and subsidies. If you want to learn about even more types of funding, we have listed 12 sources of finance for entrepreneurs . Make sure you pick the right one!

Why you should always engage in financial modeling as a startup

There are different reasons why to engage in financial modeling as a startup. You might need a financial model to build an economically viable business, to be better prepared for the future, to communicate your company’s performance to potential shareholders or new investors, or to set targets for your company you can work towards.

The two main approaches towards financial modeling are the top down method (leveraging market size data to build a forecast for your company) and the bottom up approach (using internal company specific data such as sales data or data on the internal capacity).

It could be useful to combine both methods as it allows you to substantiate short term targets on a detailed level and it allows you to demonstrate the long term desired market share and the ambition an investor is looking for. No matter what approach is used, a forecast stands or falls based on its underlying assumptions.

Typically, the outputs of a startup’s financial model consist of a three to five (sometimes 10) year forecast of the financial statements on a yearly basis (profit and loss statement, balance sheet, cash flow statement), an operational cash flow overview for the coming 12 months ahead, and an overview of the company or sector specific key performance indicators (KPIs).

These outputs are the results of the calculations taking place in the background of a financial model, based on the data entered into different input pages of the financial model. These input pages consist of, for instance, forecasts of: revenues, cost of goods sold, operating expenses, personnel, investments in assets (capital expenditures) and financing.

For some of the outputs supporting calculations and schemes are required. These include, for example, working capital, depreciation and taxes. Using the data that is typically part of a financial model you are also able of creating a valuation of your startup using the discounted cash flow method.

It can be worthwhile to create several scenarios of a financial model (worst vs. base vs. best case) and to check for common pitfalls in financial modeling for startups. Creating multiple scenarios and performing sanity checks helps you get closer to a realistic case, instead of presenting an overly optimistic or an unattractive case.

Having a financial model can help in the fundraising process, as external financers typically require you to provide a forecast. This makes sense, considering the fact you are asking them to put their money in your company.

There are different sources of funding, the main ones being debt and equity financing. However, more and more sources of funding emerge, such as: convertible notes, crowdfunding, initial coin offerings and, of course, subsidies and grants.

If you have made it all the way to the end of this article: well done! With the information we have shared you are well equipped to start forecasting, maybe even build your own financial model and make sense out of the metrics and data that are presented by your model.

As mentioned earlier there are tons of financial model templates for startups to be found on the web. If you need more support, feel free to reach out to us here!

Financial modeling is an important topic especially when you founded your own company. We have written everything you need to know and all the best practices available around financial modeling for starting businesses. If you need help, reach out for us here .

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6 Elements of a Successful Financial Plan for a Small Business

Table of Contents

Many small businesses lack a full financial plan, even though evidence shows that it is essential to the long-term success and growth of any business. 

For example, a study in the New England Journal of Entrepreneurship found that entrepreneurs with a business plan are more successful than those without one. If you’re not sure how to get started, read on to learn the six key elements of a successful small business financial plan.

What is a business financial plan, and why is it important? 

A business financial plan is an overview of a business’s financial situation and a forward-looking projection for growth. A business financial plan typically has six parts: sales forecasting, expense outlay, a statement of financial position, a cash flow projection, a break-even analysis and an operations plan.

A good financial plan helps you manage cash flow and accounts for months when revenue might be lower than expected. It also helps you budget for daily and monthly expenses and plan for taxes each year.

Importantly, a financial plan helps you focus on the long-term growth of your business. That way, you don’t get so caught up in the day-to-day activities that you lose sight of your goals. Focusing on the long-term vision helps you prioritize your financial resources. 

The 6 components of a successful financial plan for business

1. sales forecasting.

You should have an estimate of your sales revenue for every month, quarter and year. Identifying any patterns in your sales cycles helps you better understand your business, and this knowledge is invaluable as you plan marketing initiatives and growth strategies . 

For instance, a seasonal business can aim to improve sales in the off-season to eventually become a year-round venture. Another business might become better prepared by understanding how upticks and downturns in business relate to factors such as the weather or the economy.

Sales forecasting is also the foundation for setting company growth goals. For instance, you could aim to improve your sales by 10 percent over each previous period.

2. Expense outlay

A full expense plan includes regular expenses, expected future expenses and associated expenses. Regular expenses are the current ongoing costs of your business, including operational costs such as rent, utilities and payroll. 

Regular expenses relate to standard business activities that occur each year, such as conference attendance, advertising and marketing, and the office holiday party. It’s a good idea to distinguish essential expenses from expenses that can be reduced or eliminated if needed.

Expected future expenses are known future costs, such as tax rate increases, minimum wage increases or maintenance needs. Generally, a part of the budget should also be allocated to unexpected future expenses, such as damage to your business caused by fire, flood or other unexpected disasters. Planning for future expenses ensures your business is financially prepared via budget reduction, increases in sales or financial assistance.

Associated expenses are the estimated costs of various initiatives, such as acquiring and training new hires, opening a new store or expanding delivery to a new territory. An accurate estimate of associated expenses helps you properly manage growth and prevents your business from exceeding your cost capabilities. 

As with expected future expenses, understanding how much capital is required to accomplish various growth goals helps you make the right decision about financing options.

3. Statement of financial position (assets and liabilities)

Assets and liabilities are the foundation of your business’s balance sheet and the primary determinants of your business’s net worth. Tracking both allows you to maximize your business’s potential value. 

Small businesses frequently undervalue their assets (such as machinery, property or inventory) and fail to properly account for outstanding bills. Your balance sheet offers a more complete view of your business’s health than a profit-and-loss statement or a cash flow report. 

A profit-and-loss statement shows how the business performed over a specific time period, while a balance sheet shows the financial position of the business on any given day.

4. Cash flow projection

You should be able to predict your cash flow on a monthly, quarterly and annual basis. Projecting cash flow for the full year allows you to get ahead of any financial struggles or challenges. 

It can also help you identify a cash flow problem before it hurts your business. You can set the most appropriate payment terms, such as how much you charge upfront or how many days after invoicing you expect payment .

A cash flow projection gives you a clear look at how much money is expected to be left at the end of each month so you can plan a possible expansion or other investments. It also helps you budget, such as by spending less one month for the anticipated cash needs of another month.

5. Break-even analysis

A break-even analysis evaluates fixed costs relative to the profit earned by each additional unit you produce and sell. This analysis is essential to understanding your business’s revenue and potential costs versus profits of expansion or growth of your output. 

Having your expenses fully fleshed out, as described above, makes your break-even analysis more accurate and useful. A break-even analysis is also the best way to determine your pricing.

In addition, a break-even analysis can tell you how many units you need to sell at various prices to cover your costs. You should aim to set a price that gives you a comfortable margin over your expenses while allowing your business to remain competitive.

6. Operations plan

To run your business as efficiently as possible, craft a detailed overview of your operational needs. Understanding what roles are required for you to operate your business at various volumes of output, how much output or work each employee can handle, and the costs of each stage of your supply chain will aid you in making informed decisions for your business’s growth and efficiency.

It’s important to tightly control expenses, such as payroll or supply chain costs, relative to growth. An operations plan can also make it easier to determine if there is room to optimize your operations or supply chain via automation, new technology or superior supply chain vendors.

For this reason, it is imperative for a business owner to conduct due diligence and become knowledgeable about merchant services before acquiring an account. Once the owner signs a contract, it cannot be changed, unless the business owner breaks the contract and acquires a new account with a new merchant services provider. 

Tips on writing a business financial plan

Business owners should create a financial plan annually to ensure they have a clear and accurate picture of their business’s finances and a realistic view for future growth or expansion. A financial plan helps the business’s leaders make informed decisions about purchases, debt, hiring, expense control and overall operations for the year ahead. 

A business financial plan is essential if a business owner is looking to sell their business, attract investors or enter a partnership with another business. Here are some tips for writing a business financial plan.

Review the previous year’s plan.

It’s a good idea to compare the previous year’s plan against actual performance and finances to see how accurate the previous plan and forecast were. That way, you can address any discrepancies or overlooked elements in next year’s plan.

Collaborate with other departments.

A business owner or other individual charged with creating the business financial plan should collaborate with the finance department, human resources department, sales team , operations leader, and those in charge of machinery, vehicles or other significant business tools. 

Each division should provide the necessary data about projections, value and expenses. All of these elements come together to create a comprehensive financial picture of the business.

Use available resources.

The Small Business Administration (SBA) and SCORE, the SBA’s nonprofit partner, are two excellent resources for learning about financial plans. Both can teach you the elements of a comprehensive plan and how best to work with the different departments in your business to collect the necessary information. Many websites, including business.com , and service providers, such as Intuit, offer advice on this matter. 

If you have questions or encounter challenges while creating your business financial plan, seek advice from your accountant or other small business owners in your network. Your city or state has a small business office that you can contact for help.

Business financial plan templates

Many business organizations offer free information that small business owners can use to create their financial plan. For example, the SBA’s Learning Platform offers a course on how to create a business plan. It also offers worksheets and templates to help you get started. You can seek additional help and more personalized service from your local office.

SCORE is the largest volunteer network of business mentors. It began as a group of retired executives (SCORE stands for “Service Corps of Retired Executives”) but has expanded to include business owners and executives from many industries. Advice is free and available online, and there are SBA district offices in every U.S. state. In addition to participating in group or at-home learning, you can be paired with a mentor for individualized help. 

SCORE offers templates and tips for creating a small business financial plan. SCORE is an excellent resource because it addresses different levels of experience and offers individualized help.

Other templates can be found in Microsoft Office’s template library, QuickBooks’ online resources, Shopify’s blog and other places. You can also ask your accountant for guidance, since many accountants provide financial planning services in addition to their usual tax services.

Diana Wertz contributed to the writing and research in this article.

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Financial Assumptions and Your Business Plan

Written by Dave Lavinsky

Financial assumptions are an integral part of a well-written business plan. You can’t accurately forecast the future without them. Invest the time to write solid assumptions so you have a good foundation for your financial forecast.

Download our Ultimate Business Plan Template here

What are Financial Assumptions?

Financial assumptions are the guidelines you give your business plan to follow. They can range from financial forecasts about costs, revenue, return on investment, and operating and startup expenses. Basically, financial assumptions serve as a forecast of what your business will do in the future. You need to include them so that anyone reading your plan will have some idea of how accurate its projections may be.

Of course, your financial assumptions should accurately reflect the information you’ve given in your business plan and they should be reasonably accurate. You need to keep this in mind when you make them because if you make outlandish claims, it will make people less likely to believe any part of your business plan including other financial projections that may be accurate.

That’s why you always want to err on the side of caution when it comes to financial assumptions for your business plan. The more conservative your assumptions are the more likely you’ll be able to hit them, and the less likely you’ll be off by so much that people will ignore everything in your plan.

Why are Financial Assumptions Important?

Many investors skip straight to the financial section of your business plan. It is critical that your assumptions and projections in this section be realistic. Plans that show penetration, operating margin, and revenues per employee figures that are poorly reasoned; internally inconsistent, or simply unrealistic greatly damage the credibility of the entire business plan. In contrast, sober, well-reasoned financial assumptions and projections communicate operational maturity and credibility.

For instance, if the company is categorized as a networking infrastructure firm, and the business plan projects 80% operating margins, investors will raise a red flag. This is because investors can readily access the operating margins of publicly-traded networking infrastructure firms and find that none have operating margins this high.

As much as possible, the financial assumptions should be based on actual results from your or other firms. As the example above indicates, it is fairly easy to look at a public company’s operating margins and use these margins to approximate your own. Likewise, the business plan should base revenue growth on other firms. 

Many firms find this impossible, since they believe they have a breakthrough product in their market, and no other company compares. In such a case, base revenue growth on companies in other industries that have had breakthrough products. If you expect to grow even faster than they did (maybe because of new technologies that those firms weren’t able to employ), you can include more aggressive assumptions in your business plan as long as you explain them in the text.

The financial assumptions can either enhance or significantly harm your business plan’s chances of assisting you in the capital-raising process. By doing the research to develop realistic assumptions, based on actual results of your or other companies, the financials can bolster your firm’s chances of winning investors. As importantly, the more realistic financials will also provide a better roadmap for your company’s success.

    Finish Your Business Plan Today!

Financial assumptions vs projections.

Financial Assumptions – Estimates of future financial results that are based on historical data, an understanding of the business, and a company’s operational strategy.

Financial Projections – Estimates of future financial results that are calculated from the assumptions factored into the financial model.

The assumptions are your best guesses of what the future holds; the financial projections are numerical versions of those assumptions. 

Key Assumptions By Financial Statement

Below you will find a list of the key business assumptions by the financial statement:

Income Statement

The income statement assumptions should include revenue, cost of goods sold, operating expenses, and depreciation/amortization, as well as any other line items that will impact the income statement.

When you are projecting future operating expenses, you should project these figures based on historical information and then adjust them as necessary with the intent to optimize and/or minimize them.

Balance Sheet

The balance sheet assumptions should include assets, liabilities, and owner’s equity, as well as any other line items that will impact the balance sheet. One of the most common mistakes is not including all cash inflows and outflows.

Cash Flow Statement

Cash flow assumptions should be made, but they do not impact the balance sheet or income statement until actually received or paid. You can include the cumulative cash flow assumption on the financial model to be sure it is included with each year’s projections. 

The cumulative cash flow assumption is useful for showing your investors and potential investors how you will spend the money raised. This line item indicates how much of the initial investment will be spent each year, which allows you to control your spending over time.

Notes to Financial Statements

The notes to financial statements should explain assumptions made by management regarding accounting policies, carrying value of long-lived assets, goodwill impairment testing, contingencies, and income taxes. It is important not only to list these items within the notes but also to provide a brief explanation.

What are the Assumptions Needed in Preparing a Financial Model?

In our article on “ How to Create Financial Projections for Your Business Plan ,” we list the 25+ most common assumptions to include in your financial model. Below are a few of them:

For EACH key product or service you offer:

• What is the number of units you expect to sell each month?
• What is your expected monthly sales growth rate?

For EACH subscription/membership you offer:

• What is the monthly/quarterly/annual price of your membership?
• How many members do you have now or how many members do you expect to gain in the first month/quarter/year?

Cost Assumptions

• What is your monthly salary? What is the annual growth rate in your salary?
• What is your monthly salary for the rest of your team? What is the expected annual growth rate in your team’s salaries?
• What is your initial monthly marketing expense? What is the expected annual growth rate in your marketing expense?

Assumptions related to Capital Expenditures, Funding, Tax and Balance Sheet Items

• How much money do you need for capital expenditures in your first year  (to buy computers, desks, equipment, space build-out, etc.)
• How much other funding do you need right now?
• What is the number of years in which your debt (loan) must be paid back

Properly Preparing Your Financial Assumptions

So how do you prepare your financial assumptions? It’s recommended that you use a spreadsheet program like Microsoft Excel. You’ll need to create separate columns for each line item and then fill in the cells with the example information described below.

Part 1 – Current Financials

Year to date (YTD) units sold and units forecast for next year. This is the same as YTD revenue, but you divide by the number of days in the period to get an average daily amount. If your plan includes a pro forma financial section, your financial assumptions will be projections that are consistent with the pro forma numbers.

Part 2 – Financial Assumptions

Estimated sales forecasts for next year by product or service line, along with the associated margin. List all major items in this section, not just products. For instance, you might include “Professional Services” as a separate item, with revenue and margin information.

List the number of employees needed to support this level of business, including yourself or key managers, along with your cost assumptions for compensation, equipment leasing (if applicable), professional services (accounting/legal/consultants), and other line items.

Part 3 – Projected Cash Flow Statement and Balance Sheet

List all key assumptions like: sources and uses of cash, capital expenditures, Planned and Unplanned D&A (depreciation & amortization), changes in operating assets and liabilities, along with those for investing activities. For example, you might list the assumptions as follows:

• Increases in accounts receivable from customers based on assumed sales levels
• Decreases in inventory due to increased sales
• Increases in accounts payable due to higher expenses for the year
• Decrease in unearned revenue as evidenced by billings received compared with those projected (if there is no change, enter 0)
• Increase/decrease in other current assets due to changes in business conditions
• Increase/decrease in other current liabilities due to changes in business conditions
• Increases in long term debt (if necessary)
• Cash acquired from financing activities (interest expense, dividends paid, etc.)

You make many of these assumptions based on your own experience. It is also helpful to look at the numbers for public companies and use those as a benchmark.

Part 4 – Future Financials

This section is for more aggressive financial projections that can be part of your plan, but which you cannot necessarily prove at the present time. This could include:

• A projection of earnings per share (EPS) using the assumptions above and additional information such as new products, new customer acquisition, expansion into new markets
• New product lines or services to be added in the second year. List the projected amount of revenue and margin associated with these items
• A change in your gross margins due to a specific initiative you are planning, such as moving from a high volume/low margin business to a low volume/high margin business

Part 5 – Calculations

Calculate all critical financial numbers like:

• Cash flow from operating activities (CFO)
• Operating income or loss (EBITDA)  (earnings before interest, taxes, depreciation, and amortization)
• EBITDA margin (gross profits divided by revenue less cost of goods sold)
• Adjusted EBITDA (CFO plus other cash changes like capital expenditure, deferred taxes, non-cash stock compensation, and other items)
• Net income or loss before tax  (EBT)
• Cash from financing activities (increase/decrease in debt and equity)

Part 6 – Sensitivity Analysis

If your assumptions are reasonably accurate, you will have a column for “base case” and a column for “worst case.”  If you have a lot of variables with different possible outcomes, just list the potential range in one cell.

Calculate both EBITDA margins and EPS ranges at each level.

Part 7 – Section Highlights

Just list the two or three key points you want to make. If it is hard to distill them down, you need to go back and work on Part 3 until it makes sense.

Part 8 – Financial Summary

Include all the key numbers from your assumptions, section highlights, and calculations. In one place, you can add up CFO, EPS at different levels, and EBITDA margins under both base case and worst-case scenarios to give a complete range for each assumption.

The key to a successful business plan is being able to clearly communicate your financial assumptions. Be sure to include your assumptions in the narrative of your plan so you can clearly explain why you are making them. If you are using the business plan for financing or other purposes, it may also be helpful to include a separate “financials” section so people unfamiliar with your industry can quickly find and understand key information.

How to Finish Your Business Plan in 1 Day!

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With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

It includes a full financial model. It lists all the key financial assumptions and you simply need to plug in answers to the assumptions and your complete financial projections (income statement, balance sheet, cash flow statement, charts and graphs) are automatically generated!

Click here to see how Growthink’s professional business plan consulting services can create your business plan for you.

OR, Let Us Develop Your Plan For You

Since 1999, Growthink has developed business plans for thousands of companies who have gone on to achieve tremendous success.

Click here to see how our professional business plan writers can create your business plan for you.

If you just need a financial model for your business plan, learn more about our financial modeling services .  

Other Resources for Writing Your Business Plan

• How to Write an Executive Summary
• How to Expertly Write the Company Description in Your Business Plan
• How to Write the Market Analysis Section of a Business Plan
• The Customer Analysis Section of Your Business Plan
• Completing the Competitive Analysis Section of Your Business Plan
• How to Write the Management Team Section of a Business Plan + Examples
• How to Create Financial Projections for Your Business Plan
• Everything You Need to Know about the Business Plan Appendix
• Business Plan Conclusion: Summary & Recap

Other Helpful Business Plan Articles & Templates

Startup Financial Models

Numbers that Explain Your Startup’s Potential

Use our free startup financial models and free templates, or work with our experts to build a customized model for your company!

Get our free templates

Startups create financial models to raise capital, sell to an acquirer or to manage the team’s budget. On this page, you’ll find financial models that you can download and use on your own, tips on how to build a financial model and information on how to work with an outsourced financial modeling firm like Kruze Consulting.

We’ve build financial models for startups that have raised billions in VC funding and gotten acquired by companies like Apple - scroll down to access our free templates and read best practices.

Free Financial Model Templates

Click here to jump to our free financial model templates that you can use on your own. If your company hasn’t raised funding yet, we recommend you use one of our templates vs. spending money on an outsourced financial modeling service. Our free Excel templates are designed to be used by founders who have some Excel experience - but who don’t need to be Excel savants. Of course, if you are an expert modeler, you should 100% customize our models for your company’s particular needs - they are designed to be easy to modify. 

Free Model Templates

Work with Kruze

Kruze Consulting clients have raised over $10 billion in venture capital funding. Many of them were able to DIY their projections using either one of our templates or one provided by their venture investor, but many worked with our financial modeling team to either proof their files or build them from scratch. If you don’t know how to build a financial model for your startup, click here to schedule a time to speak with Kruze about a modeling project.

Talk with an Expert

Why Build a Startup Financial Model?

A financial model is the numerical expression of your startup’s goals - how many customers you’ll have, how many people you’ll hire, how your margins will improve. The creation of a financial model should tease out the key metrics and assumptions that you will test as you execute your business plan. The best startup financial models are usually not “right” - but the differences between the projections and the actual results can drive insight into the company’s potential and the targeted industry’s dynamics. Understanding the difference between your projections and your actual results can also help your executive team make important business decisions.

Free Financial Models and Templates

We have created several financial models and model templates that you can use for free. These are Excel spreadsheets that will help you create projections for your startup, provide the information you need to your 409A valuation firm, think through your cash burn and more. You’ll find helpful modeling tips, how-to instructions and videos below on this page - click here to jump to the modeling help section below. Simply click on the financial model template you want to download to get started - they are free! And if you need help with your modeling project, reach out to us at Kruze Consulting and we’ll see if it makes sense to work with us on a consulting project.

Simple Startup Projection Model

Simple and easy to use financial model for technology startups looking to project revenue and expenses.

Free to download

Depreciation Schedule

Straight-line, Sum-of-Years and Declining Value - all in the same model.

Startup Budget Template

Designed for a startup with multiple departments; use to budget for hiring and non-FTE spend.

SaaS Income Projection Model

This is as user-friendly and adaptable as possible to suit most SaaS businesses.

Employee Stock Options - VC Negotiation Model

This startup financial model is used to negotiate the size of the option pool needed at a venture round.

What is a Financial Model for Startups

For startups, a financial modeling  is a finance tool that should be the numerical representation of the startup’s strategy and vision. It communicates and forecasts the company’s revenues, customers, KPIs, expenses, employee headcount and cash position. 

More sophisticated companies will use the financial model as a budget, informing the different divisions within the organization of their projected hiring, major expenses and financial goals. For early-stage businesses, or simple ‘ideas,’ the financial model is a business plan that outlines the near-term expenses and goals for the company, and longer-term illustrates the startup’s growth potential. Companies raising venture capital funding will use the projections as a tool to communicate with the VCs, and it will often be an important part of finance due diligence. 

What goes into a startup model template?

Most projections that investors and experienced founders are expecting to see are pretty much the same template - revenue and expense projections, and a net cash position. Some templates have the three most important financial statements (the income statement, cash flow statement and balance sheet), but many templates simplify to just the income statement and a projected cash position. We tend to recommend that founders use a template  without the balance sheet and cash flow statement, unless they are working with a professional like us. This is because the balance sheet can be tricky to model correctly - an unbalanced balance sheet is embarrassing, and can cause investors to lose faith in the modeling exercise. Since most early-stage companies don’t have complicated working capital, capex or loans, the balance sheet adds less to the analysis that you’d think. Thus, we recommend that founders DIYing their projections use a template that doesn’t bother with the balance sheet and cash flow statement. Although, when we produce projections our templates and outputs always have these statements - but again, we do this everyday, so it doesn’t take us meaningfully longer to get them right. 

Forecasting Best Practices for Your Startup

Let’s talk about forecasting best practices, that’s building a three-year model that’s dynamic.

You want your model to easily change assumptions for each year, and you want to include a waterfall throughout the entire sales funnel, that’s going to include conversion rates and unit economics.

This is a best practice that the best CEOs do, because it provides an understanding of resources and effort required to close a sale. You also want to remember to include delays due to sales cycle and customer collections. This is going to affect your cash flows.

Next, you want to stress test your model, conversion rates, growth rates and see what the impacts are. When these start to go sideways, you’re going to be prepared. If not, it can kill your cash. Next, your model should include a balance sheet, income statement, and cash flows. Finally, be honest with yourself in building your model.

How to Create a Financial Model

We’ve outlined the steps to create a financial model for your startup.

Determine the goal of the model

Understand the goal of the model so that you can decide how complicated to make the project. In general, if you are market sizing or doing back of the envelope estimates, less complicated is better. The next level of complication is if you are raising capital - too detailed, and your conversations with investors will get bogged down in minutiae. But have enough detail to show that you understand the market. Finally, for a detailed cash flow model for an operating business, it is typical to have very detailed analysis.

Determine the KPIs for your company

Understanding - and organizing - your KPIs helps you prepare to organize your key assumptions and outputs. Ideally, these KPIs are numerical factors and assumptions that you will be able to track - KPIs in a model a useless if you can’t track how you perform against them! Use industry standard KPIs as a starting point. Understanding your KPIs and how you track against them is one of the most important reasons to build a financial model for a startup - so don’t skip this step. 

Get a financial model template

Existing templates almost ALWAYS make sense. Don’t start from nothing; building a working piece of Excel is time consuming and a waste of time. Use one of the many free templates - like the ones on this page.

Merge actual results into the template

Don’t forget your actual financial results. If you have an operating business, merge your actual results into your projections. It’s best to start with reality, so you can level set. Strange ‘kinks’ in the model where actual results meet projections is a sign that there is something off with your projections.

Start forecasting revenue

Work your way down the income statement, starting with revenue. When you think about how much revenue you’ll have, make sure you understand what’s driving that revenue. Is there a particular number of customers or sales people or marketing spend/activities that will cause that revenue growth? You’ll also want to think about your cost of goods sold as you project your revenue. Note that this does NOT make sense if you are projecting a hardware or biotech company with a long time to revenue. Instead, for those, map out the effort you’ll need to reach critical product development milestones.

Project headcount needs

For most startups, headcount is the biggest expense (at least until marketing kicks in!) How many people will you need to achieve your goals, and how much will each cost? Don’t forget recruiting costs; even if you have a deep network, you’ll will likely need to hire in the out years.

Estimate other expenses

You can use examples from other successful companies to see how they’ve scaled their expenses. Remember to add in additional expenses as the company grows - this should also apply to your headcount expenses. Very few companies have over a 50% pre-tax profit margin, so make sure you are adding in expenses!

Model working capital

Working capital can be a surprisingly large driver of your model’s cash position. Read our section below. Basically, understand when your clients will pay you, and when you’ll need to pay big vendors.

Review your projections

Do a sanity check!  Startup financial projections . Take a look at the summary. Does it make sense? Is the model telling the story that you envisioned? A sanity check is always a good idea.

How to Format Financial Models

When it comes to building a financial model for your startup, formatting matters. A well-structured financial model is more than just a collection of numbers and projections; it’s a tool for storytelling and strategic planning. Proper formatting ensures that your model is not only easy for others to understand but also straightforward for you to update and manage. The best founders think of the numbers in the same way that they think about their pitch deck - it’s a means to explaining the strategy. 

Think of your financial model as a map guiding investors, team members, and other stakeholders through the financial landscape of your business. You don’t want to get bogged down in the minutiae of explaining how each formula works or where to find specific data. Instead, you want to focus on the bigger picture: discussing the implications of your financial data and the strategic direction of your business.

By investing time in properly formatting your financial model, you’re essentially streamlining future discussions and analyses. This approach saves valuable time and effort, allowing you and your stakeholders to concentrate on what truly matters - the growth, potential, and strategic decisions driving your startup. Let’s delve into how you can format your financial model for maximum clarity and impact.

Financial model formatting tips

• Organize with Tabs or Top to Bottom
• Use Cell Colors for Inputs and Assumptions
• Maintain Consistent Formatting
• Keep Naming Consistent
• Include a Standard Income Statement Output
• Output Key Performance Indicators (KPIs)
• Consider Including Charts

Organize with Tabs or Top to Bottom Effective Organization: Structure your model so that it’s easy to follow and find specific sections. One way to do this is with tabs for each major section. Another is by always having top-to-bottom layouts within any single sheet. Tabs can provide clear segmentation, while a vertical structure offers an easy scroll-through experience.  Benefits: This organization aids in navigating through different financial aspects smoothly, whether you’re dealing with income statements, balance sheets, headcount planning, etc..

Use Cell Colors for Inputs and Assumptions Color Coding: Assign specific colors to cells where inputs and assumptions can be modified. For example, blue cell fill with yellow text is a very common format for input cells.  Visual Guidance: This technique visually guides users to areas where they can interact with the model, reducing the risk of unintended alterations in fixed data areas. You don’t want someone manually overwriting an important formula! 

Maintain Consistent Formatting Uniform Styling: Use the same fonts, text sizes, and colors throughout the model. This consistency not only looks professional but also makes the model easier to read.  Cohesive Appearance: Consistent formatting helps in maintaining a cohesive look across all sections, enhancing overall user experience.

Keep Naming Consistent Uniform Terminology: Ensure that terms and labels are consistently used. For instance, if you use “R&D Expense” in one section, the same term should be used throughout the model.  Clarity and Continuity: This consistency in naming prevents confusion and makes it easier for users to follow and understand the model’s structure and data. You don’t want someone trying to understand if “people” and “headcount” numbers are same thing, or if they are different topics. 

Include a Standard Income Statement Output Familiar Format: Design your income statement in a standard, easily recognizable format. This familiarity allows users, especially investors, to quickly understand your financial position.  Yearly Summaries: Include a high-level summary by year to provide a snapshot of the long-term impact of assumption changes. This is the place you can go when you make a major assumption change to see the long-term implications. 

Output Key Performance Indicators (KPIs) KPI Display: Place critical KPIs, such as headcount, cash position, etc. below the yearly income statement output. This positioning aligns operational metrics directly with financial results. Strategic Insights: These KPIs offer valuable insights into business performance and operational efficiency, crucial for strategic decision-making. Putting them right next to your yearly income statement summary makes it easy to diagnose what is causing major changes to the income statement. 

Incorporate Charts Alongside Numbers Visual Representation: Use charts and graphs to complement numerical tables. This visual representation can make complex data more accessible and understandable. Engagement and Clarity: Charts can engage users more effectively and provide a clear visual interpretation of trends, patterns, and key metrics in your financial data. Putting them all onto a single page makes the model tabs cleaner, so consider having the outputs to models in their own section of the spreadsheet.

Startup Financial Models - Tips and Terms

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Deferred revenue, also called unearned revenue, matters to startups that get paid up front for service that they will deliver over time. Deferred revenue hits the balance sheet, and slowly converts to revenue, so really matters when creating a startup’s financial model.

A very important thing to know about deferred revenue is that, since balance sheets balance, the asset that goes on the balance sheet to balance out a new deferred revenue liability is cash.

So, why is deferred revenue a liability? If a company gets a payment in advance of delivering a service, you owe the service to the client. So it’s a liability because you owe that service to them. Let’s do a pretty simple deferred revenue example. Let’s say you’re a software as a service startup. A SAAS startup Your service is one hundred dollars a month and a client prepays for the full year, all 12 months.

The clients pays the startup twelve hundred dollars. In month one, the startup is able to recognize 100 dollars’ worth of revenue. so they deliver one hundred dollars’ worth of their service to that client. Now the deferred revenue balance was that full cash amount that they received the twelve hundred dollars. And then the recognized revenue of $100 is deducted. At the end of that first month, there is an eleven hundred dollar deferred revenue balance for this client. And this will continue over the life of the contract until the last month when the last one hundred dollars is recognized and this startup has a zero-dollar balance in their deferred revenue account.

Deferred revenue can cause some confusing impacts to a startup’s cash position. This video will help explain deferred revenue, and how to model it into your startup’s financial forecast.

Top 3 considerations when building your startup’s first financial model: Know the goal to the model, as in, why are you building a model? Are you doing a back of the envelope financial validation of your idea? Or are you raising venture capital? Or does your team need to know their budget? Each of these requires different levels of detail. What are your business’ KPIs, as in what are the key performance indicators that will show you if your company is on the right track. These don’t just have to be accounting related, they could be about the product release schedule, the number of clients, etc. Don’t start from scratch, use an existing spreadsheet template. The act of connecting the cells and putting in the basic formulas is not going to help your startup grow - don’t spend the time on it. Take an existing, free model - like the one we offer, and use it.

This is a model that we’ve created and we provide for free on our website. We’re giving this away because there are a number of startup executives who want to build a simple financial model for their startup and who are comfortable enough with Excel to do this on their own.

And we also know that there are a large number of very early stage startups for whom hiring somebody like a Kruze Consulting to build a model just doesn’t make sense. This model is a very simplified version of one of the model templates that we use when we create financial models for our clients.

This free financial model has three main tabs. There’s a summary tab, there’s a graph tab, and there’s a model tab.

The summary tab is a high-level output that shows the income statement in cash and some of the KPI’s of the startup. We’ve seen that CEOs really like to use this to try to understand the macro level growth and expenses of their startups. And this is also the output that a number of our clients have used in their pitch decks when they go on to raise venture capital. We know this-this output works well because our clients have raised over 10 billion dollars in seed and venture capital. So, this is something that we really do believe resonates well during the fundraising process.

The graphs page is a graphical representation of some of the KPI’s of the startup like revenue growth headcount growth. Cash burn. It’s a really nice way to visually show what’s happening and the impact of the financial projections.

Finally, the model tab is the tab where all the magic happens. It’s in here that you can enter your projections, your headcount, your expenses, for things like marketing. It will output your cash and your cash balance in the cash balance section which is down at the bottom of this tab. Use the instructions tab for the detailed instructions and how to run the model tab.

We hope this free resource is helpful. We do offer financial modeling as a service to startup executives who are looking to get help when they’re putting together their financial model. So, contact us if that’s something you’d like to learn more about and to find out if engagement with Kruze makes sense.

Having a solid budget helps your startup hit its goals without prematurely running out of cash. A number of us here at Kruze Consulting have worked in fast-growing startups and we’ve compiled our tips on how to make this budgeting process work. The most important thing is you need to understand or have a vision of what your long-term strategy is and what you need to do to achieve those goals. You’ll want to bake your budget around what your strategy is, and the budget is actually the financial representation of that strategy. You got to make sure your team knows what the strategy is - what your financial goals are in terms of the revenue that you need to hit and the cash need to burn. Or what features need to be built and then you’ll want to start to pay careful attention to the key parts of the budget. So, for most early-stage startups, the biggest part of burn is headcount. So, you want to pay careful attention to your headcount projections over the coming year and because you’ll put this together with your team and your team will have their headcount projections. It will really help them manage their team in a particular know when they need to start recruiting so they’ll know when they

should be able to bring on additional heads. You should have a very strong opinion on what the revenue should be over the next year. So for example, if you’re a SAAS company you should know what your next milestone needs to be in terms of recurring revenue so that you can successfully raise your next round. And then you’ll want to build your plan and your budget around what it takes to get there. You want to be very careful around your burn rate. So you want to know how much money you’re burning so that you don’t prematurely run out of money. And then you’ll want to know what your monthly burn is at the end of the year like the burn of the exit with at the end of the year so that you can project your cash out date.

You want to make sure you’re not… You want to make sure that you run out of cash when you expect to run out of cash which hopefully aligns with you being worth more and raising more capital. Once you’ve got all this put together you can make sure that it’s carefully shared with your department leaders so they can come back and build their detailed budgeting plans with you. And also, they can very clearly understand what their goals are.

There are two ways that startups might want to record equity investments that they get, like venture capital rounds, on their balance sheet.

1) The Official GAAP way - probably overkill for most startups 2) The way investors like to see it

The GAAP way wants your equity section to have three accounts, Common Stock, Preferred Stock, and Additional Paid-in Capital. The hardest part of this is to calculate the Additional Paid in Capital is like the (Issue Price – Par Value) * Basic Shares Outstanding. Financing Costs are netted against this account.

Investors prefer to see each new fundraising round as a new equity account. If you use this method, you’ll have Common Stock, Seed Series Stock, Series A, Series B, etc. You’ll subtract your financing costs against each rounds amount. In this method, if you haven’t really calculated APIC, don’t include it on your Balance Sheet - you don’t want to give the impression that you are doing things on a GAAP basis when you are not. Notice that once fundraising round is closed, new funds aren’t added to it. New funds are placed in a new fundraising Equity account.

Why do venture capitalists prefer to see the Equity section in the non-GAAP, simpler method? Because it’s cost effective (from a cash-burn spent on accountants perspective) and it’s easy for them to understand how much the company has raised at each round of financing.

Here are a few tips for you as you’re building a budget for your startup.

• Headcount is going to be your primary expense in most cases, so this is the place to focus the most. Understanding why your different team members get hired, and how they help you get to the next milestone, is very important.
• You should have a really strong opinion on the amount of revenue and the amount of cash burn that you’ll have in the coming years. Don’t ask your department heads what they want to spend - tell them how much is available and ask them to work within the constraints.
• Match the amount of cash you need with the size opportunity of the company that you’re trying to build. If you are building a company with modest potential, don’t burn millions of dollars!

So you’ve got the great idea, and maybe even have the team put together. Heck, maybe you even have a client or two! Now you want to put together a financial model to figure out if you can raise capital, or how long you can last with your existing investment. How do you start that model? There is no single answer to the best way to get going, but here are a few places to think about at first:

• How big is the market, and if you capture a small amount of it, do you have enough revenue to have a real business? VCs often ask this question - and it’s a good one for you as you try to decide how to formulate your business. Are you looking at a $100 million revenue opportunity in 3, 5 or 7 years? Or if you get a meaningful percent of the addressable market, will you only have a $5 or $10 million business? This will help you size how much venture funding you should think about raising (and how much you should burn in the near term).
• How many people do you need on the team to get to your first milestones? If you need a developer or engineer, is that you or one of the other founders? Or will you need to have cash on the balance sheet to afford to pay a salary for an engineer? You’ll want to model out and project the salary requirements for the business in the first few years pretty carefully, as this is usually the majority of a startup’s cash burn at first.
• Understand your product’s unit economics. How much will your clients pay, and what will your costs to deliver it be at first, then at scale? The goal is to understand when the company has a viable cash flow positive product. It’s totally OK, and normal, for a company to lose money on every sale at first, but you do eventually want to have positive cash contributions from your sales.

SaaS companies have specific financial modeling needs. In particular, a SaaS company wants to have a strong understanding of its user metrics. This includes how many users are acquired, churned, upgraded in a given period (we usually model it monthly.) Secondly, the length of time of contracts, and how your company is paid, matter for SaaS companies. Annual contracts that are paid up front can create deferred revenue, which is great for cash flow but does present some challenges from a modeling perspective. Finally, many SaaS models that we create have different pricing tiers to help the SaaS company understand the influence and impact of different pricing plans on the company’s top line growth and profitability.

What are Customer Acquisition Costs and how do you model them? CAC looks, on a per new unit (i.e. customer basis) how much you pay to get a new customer. So, if you spend $10,000 on sales and marketing and get 100 new customers, your CAC is $10,000 / 100, or $100. The costs that go into CAC usually have two components, fixed costs, and variable costs. Examples of fixed costs would be costs that don’t increase as your company grows. The salary for your demand generation team would be a clear example of a fixed cost - if they are scalable, then you can acquire 1 user or 100 in a period and still have the same salary cost. Some software costs don’t vary much as the company grows, such as the cost of SEO software. Variable costs move up as the company acquires more customers. Clear examples of variable costs include some online marketing costs, such cost per click advertising. The cost of a sales team can also be variable, as you likely need to hire an ever increasingly large sales team to help your company close more and more new clients.

Managing a company’s burn and the runway is a constant challenge for an early-stage, funded company. Having helped hundreds of companies manage their burn, Kruze Consulting’s view is that the companies who have a well-developed budget are the ones who best manage their runway.

You need to have a vision of what your long-term strategy is and what you need to do to achieve those goals so that you can build a budget to manage your burn and optimize your runway.

Why do you need a budget? Because knowing where you want to spend, and how those choices impact your burn, is critical to managing your runway. Plus, you need something against which to measure your burn - and that’s called your budget!!

Your budget may have money coming in - other than venture capital money, that would be from revenue. Revenue may or may not be an important part of your projections. If you are something like a SaaS company, you’ll likely need a particular set of revenue and revenue growth numbers to raise your next round. Build your budget based on the targets you need to hit - and then you can modify your hiring and other burn based on how closely you hit your spending.

Money goes out of your company’s expenses. Every very early-stage startup spends >80% of their money on 3 things: Payroll, Rent, and Contractors. You may also have some large legal expenses from your recent fundraise, so ask your attorney if you haven’t already. Controlling these expenses give you levers you need to manage your runway.

Payroll: people are expensive. Hire the very best people that you can and pay them well. Always take the quality of people over quantity. As David Barrett highlights in this article, more people does not equal more output, it means more overhead.

Rent: Rent is expensive, so consider having some remote people, using a WeWork or headquartering in a city other than San Francisco or New York.

Contractors: Contractors are expensive… but less so than employees. You don’t have to manage additional rent/desk space, equipment, or training. You will also feel less likely flexing their hours/spend, although, in turn, they may give you less loyalty.

Working Capital is effectively the delta between a startup is paid by its clients and when it needs to pay its vendors. A more technical definition of working capital is the difference between current assets and current liabilities on a company’s balance sheet.

Working capital matters for startup financial models because understanding working capital becomes important for being able to project cash flows. Not all clients will pay immediately. Not all vendors need to be paid immediately (although some may be paid ahead of time).

Critical factors to think through when modeling the impact of working capital in a startup’s financial model include: how long it takes to get paid (especially if selling into the enterprise); if any revenue will be collected up front (creating deferred revenue and putting cash onto the balance sheet); which vendors are being pre-paid; how long the payment will be on other vendors.

If you are modeling a very early stage startup, it’s OK to assume you pay your vendors in the same month and defer your revenue collection 30 to 60 days. Later stage companies will likely need to have a more detailed working capital model built into their balance sheet and cash flow projections.

When you are analyzing the cash flow of each new employee, you need to look beyond their core salary. Things like benefits, commissions, computer setup and more should be taken into account. Roughly these costs add on about 33% to the employee’s base salary, although with the huge amount of international hiring that we’ve seen, this can be lower in some non-US locations.

Another important metric to add to the cost of an employee in your model is wage inflation. We are seeing wages go up 10% to 25% a year at the moment for many technology employees, so don’t forget to include a salary increase annually. Our free templates have an assumption area where you can easily input this wage increase. 

All startup projections should have an income statement and a running cash balance. You can also have the three, traditional financial statements in your model if you’d like; those are:

• Income statement
• Balance sheet
• Cash flow statement

Having all three does increase the complexity of your projection work - remember, the balance sheet should balance, the cash flow’s ending cash amount should equal the cash position on the balance sheet, and the cash flow statement and the income statement are intricately linked! So we don’t recommend that level of complexity for your seed stage model - just the IS and the cash position (maybe working capital or inventory).

Silicon Valley-style technology and biotech startups, by their very nature, have extreme financial projections. No venture capitalist wants to invest in a highly-risky company where the management has modest projections! But how should a founding team set up realistic projections that are still aggressive enough to explain the massive opportunity and get VC’s interested in investing?

Step 1: make sure the projections capture the size of the market; bigger markets lend themselves to bigger projections and estimates, higher growth, etc.

Step 2: if you are projecting big growth/big top-line revenue numbers, don’t forget to have big expenses to go along with them. In particular, we see time and time again founders who have projections of reaching $50 million or more in revenue with just a handful of employees. It would be very unusual to not have a lot of headcount growth to reach a huge revenue size. And VCs will doubt your credibility if you show them a company that has 80% pre-tax margins at scale - this is, generally, pretty unrealistic. So scale up your expense projections alongside your revenue growth.

Step 3: Focus on the assumptions behind your unit economics. Make sure these make sense from your target customers’ point of view. The average consumer can’t pay $50,000 per year for a new product; the average small business can’t either. So, understand the customers’ willingness to pay, and then how that impacts your margins and growth.

Step 4: Research similar companies’ business models and financial statements. For example, if you are in the social media space, look at Facebook and Twitter - see how their financial statements changed over time. The same is true if you are an eCommerce business - plenty of eCommerce companies have gone public and shared their data.

Step 5: Don’t model yourself out of a deal! If you are truly focusing on a huge market opportunity with tons of potential customers willing to pay for your product, don’t be so conservative that your projections don’t look interesting to potential investors, co-founders and employees.

There are two types of standard financials that are needed in a VC pitch deck. and they can usually be shared in the same summary slide.

The first is for companies that already have real operations, so a pure “startup” with no operating history doesn’t really need this. But if your company is in business, you’ll want to show the historical financials in a summary format. And these should “roll” into the projections, which is the second thing you’ll need to show. Note that it makes sense to do this either quarterly or yearly - too much detail isn’t helpful in a deck.

The second is that the best pitch decks also have financial projections. Again, you’ll want to integrate these into the historical projections, and in most cases show them all on one slide. Keep in mind that the VC is trying to understand 1) what the company will look like when it raises the next round of funding; 2) how “big” the founders think the business can get; 3) how much capital the business will need; and 4) do the founders have a good grasp of the financial implications of their business model.

Budget versus actuals is one of the best tools in your tool belt. Budget vs actuals is when you take your financial model or projections and compare them every month to your actual results. The reason why this is so powerful is it brings a lot of scrutiny and discipline to your company. Especially as a founder, you need to know what your expectations are and how you’re doing against your expectations.

If you spend a couple of hours a month doing budget to actuals, it’ll pay for itself ten-fold.

Benefits of Budget VS Actuals:

• Brings real accountability and scrutiny to your organization
• Measures how you’re really doing vs. expectations
• Gives visibility to where you are leaking money by coming in over budget
• Displays where spend is not that effective
• Ensures you’re hiring correctly

You will always want to know your startup’s cash out date. Your cash out date is the day your startup will run out of money in your bank account and you essentially will no longer be able to run the company. It is a day all startup founders fear and it is a day you should work toward never getting too close to.

How to Calculate Your Startup’s Cash Out Date

• Average Cash Burn Rate / Cash on your Balance Sheet = # of Months to Cash Out Date
• For “average cash burn rate”, use a 3 or 6-month average
• You must know, there are different versions of restricted cash and things like that.
• So if you have a lot of cash tied up with your landlord that you’re not going to be able to access, then don’t include that in your cash on your balance sheet
• Because it can give you a false sense of security that maybe you have more cash than you actually do.

Cash Out Date Tips:

• Ideally, you always have 12 months of cash in the bank
• When fundraising, we recommend startups raise 18-24 months of cash
• Provide Cash Out Date to investors… Don’t surprise your investors. Be visible and always communicate this number with your BOD. You don’t want them to have a confidence issue with you, the founder.

Burn rate is one of the most important metrics you can actually calculate or monitor at your startup and it is effectively the amount of money you are spending every month. There are a couple of different ways or metrics in this. There’s also a couple of different time periods that you will want to think through when you’re calculating your startup’s average burn rate. We’ve also got a burn rate calculator you can use based on your recent bank account balances to estimate your startup’s burn rate.

2 Burn Rate Accounting Treatments:

• Income Statement Burn Rate
• Net Income on Income Statement is your burn rate
• Cash Flow Burn Rate
• Important for companies with alot of capital expenses
• Operating Cash Flow + Investing Cash Flow = true cash flow burn
• Then Think about the Average Time Period to Use To Calculate thesenumbers?
• We recommend calculating a 6 month burn rate
• Some founders prefer a 3 month burn rate

PROTIP: Look at your burn rate every month & share this in investor meetings. This builds confidence with your BOD.

Yes, startups need to have a coherent financial model. Not only can a financial model help keep a startup from prematurely running out of cash, it is a useful device for managing an early-stage company’s cash, burn and progress against important KPIs. If your startup is going to raise venture capital funding - or even seed financing - you need a financial model to explain to the investors how much capital you’ll need, what you will spend the investment on, and the position that the company will be in at its next fundraise.

• Determine model’s primary goal (fundraising, managing cash, etc) 2. Determine the KPIs for your company 3. Grab a template off the internet, like ours 4. Merge actual results into the template 5. Start with revenue 6. Project headcount needs 7. Estimate other expenses 8. Model working capital 9. Review your projections

Looking for free financial models for your startup? Look no further - we’ve got free model templates available above for your download. Look for files that do the bulk for the infrastructure work for you - you don’t need to spend time building fancy formulas, let the template do that for you.

Option pools are one of the most important items a founder needs to project and model, but many founders don’t understand the importance of this exercise.

Option decrease the founder’s ownership - every extra point of option pool comes at the cost of existing shareholders, most of which will be the founder(s)!

And venture capitalists will ask founders to eat that dilution before they invest - in effect, reducing the pre-money valuation they offering at a financing round.

So understanding how many options will be needed prior to a fundraise is important.

The right way to project a pool is to build out a robust hiring plan as part of the overall financial planning exercise. Once you’ve built out your overall hiring plan, you can use our template above to right-size the employee stock option pool. We’ve written an entire article on how to model an option pool here . So download that free template above and protect your ownership!!

Zero-based budgeting can be a useful tool for organizations that are looking to improve their financial performance and increase their efficiency. It can help them to identify and eliminate waste, and to allocate their resources in the most effective manner. 

Zero-based budgeting is a method of budgeting that starts from a “zero base” and involves analyzing the needs and costs of every function within an organization. One key advantage of zero-based budgeting is that it can help to identify and eliminate waste. By thoroughly reviewing all activities and expenses, an organization can identify areas where resources are being used inefficiently and take steps to reduce or eliminate these expenses. This can help to improve the organization’s financial performance and increase its efficiency. 

This makes it a particularly useful tool for startups experiencing a difficult economic environment. 

A key issue we’ve seen multiple times (and maybe even made once or twice early in our career) is when a founder simply asks the department leaders “what will you do next year” - essentially, giving them an open book to request huge hiring and expenses and now dictating what the company needs to do to survive. Establishing clear boundaries for cash burn rates and revenue objectives are critical starting points that should be communicated to all departments before a budgeting process begins.

A common pitfall occurs when CEOs consult each department—be it sales, marketing, or R&D—about their respective needs and plans without first setting financial limits. Summing up these requirements often leads to unsustainable cash burn rates, placing the company at risk.

The smarter approach is to begin with clearly defined financial parameters. This allows your go-to-market teams to know precisely what their revenue goals are and the budget they have to achieve them. Similarly, rather than granting your R&D department an open budget, allocate a specific annual spend to help them reach their milestones.

Basically, the CEO should know what revenue targets need to be for the startup to remain default fundable. And the CEO should also know how much capital the company can burn comfortably. Giving these constraints to the teams helps avoid painful rebudgeting exercises. 

By initiating the planning phase with financial constraints, startups are better positioned to create a strategy that minimizes cash burn and maximizes the likelihood of hitting revenue targets.

A financial model is an important step for most venture capital fundraises - however, the level of complexity and importance vary by the company’s stage. Very early stage companies can usually get by with a simple operating plan that says what the company will spend, how it expects revenue to grow and what it will look like at the two next fundraises. Later stage companies - starting with the Series B, but sometimes at an A if the round is large enough, will require more detail projections that have information on expected customer count, CAC, and headcount projections and more.

NO! A 409A valuation is an essential part of a startup’s financial framework. This valuation, provided by a third-party accredited valuation provider, establishes the strike price for employees’ stock options. It is crucial to maintain a conservative 409A financial model to prevent overpricing and to ensure employees are motivated by fair stock option pricing. Founders often use the same financial models for their 409A valuation as they do for their venture capital pitches, which can lead to problems as these models are typically more aggressive and optimistic to attract investors. However, third-party 409A providers cannot discount these optimistic projections, resulting in potentially inflated valuations. Therefore, founders should develop realistic financial projections for their 409A valuations to avoid overvaluing their company and overpricing employee stock options. Use a more conservative, easier to attain set of projections for your 409A projections. 

If you are a SaaS business, download the free startup revenue model template on this page! What typically goes into a revenue model depends on the stage of the company that you are modeling. Companies already generating meaningful revenue, with multiple clients, can start to get pretty sophisticated with their pricing projections, average revenue per client and client retention, reorder, basket size, etc. Pre-revenue startups, or early-stage companies that don’t yet have a deep understanding of how they will charge clients, what pricing will be, retention/basket sizes, etc. should typically opt to be more extrapolated in their revenue modeling. For example, instead of having multiple features that result in dozens of possible pricing permutations, go higher level and estimate the number of clients you expect to have at one or two average price points.

What is the difference between a financial plan vs. a financial model? Venture capitalists tend to use these two terms interchangeably. Just like any good plan, when putting together a financial plan for an early-stage startup, a founder needs to have a clear vision of the company’s long-term strategy and goals. Fundraising needs should be part of that vision. 

We highly recommend you start with a financial model template instead of starting from scratch. While it can be tempting to start with a blank slate, most founders will benefit from using a model that already flows correctly and that doesn’t require a lot of basic infrastructure to get up and running.

As a founder, you have a million things to do - making a balance sheet balance, or changing a gross profit margin cell to a percentage format isn’t one of them. Many, many of the startup founders we work with can easily build their projections starting from a blank spreadsheet. But the best don’t, because they know that they get no ‘points’ for starting from scratch. Save the time, and use an existing financial model template like the ones we have for free on this page!

Kruze has helped over one thousand startups with their accounting and finances, and we offer an exclusive collection of free financial model templates tailored to meet the diverse needs of emerging companies. Navigate through our suite of templates designed to empower startups with the tools necessary for solid financial planning and analysis.

The Kruze Simple Startup Projection Model is a battle tested template for technology startups aiming to streamline their financial planning process or impress a VC with thoughtful projections. This model is designed to be straightforward, enabling startups to effortlessly project their revenue and expenses. It’s an ideal starting point for founders who require a no-frills approach to financial forecasting.

Key Features:

• User-friendly interface
• Customizable revenue and expense categories
• Ideal for early-stage technology startups

The Startup Budget Template is crafted to accommodate the complexity of managing finances across multiple departments within a startup. We built this based on a financial model template that we used to help a client that had several departments, each spending several million a year - and that client eventually got acquired by one of the largest tech companies in the world! This comprehensive tool assists in budgeting for both hiring and non-FTE (Full-Time Equivalent) expenditures, ensuring that financial planning encompasses all facets of your growing business.

• Department-wise budget allocation Integrated hiring plan
• Suitable for startups with diverse operational units

Over 60% of our clients are SaaS businesses. This adaptable template is engineered to aid SaaS startups in forecasting revenue based on user count and other critical metrics, offering a robust framework for revenue projection and financial planning.

• Scalable user count projections
• Monthly and annual revenue forecasts
• Tailored for SaaS startups seeking flexibility and precision 

Why Choose Our Templates?

• Expertise-Driven Design: Developed by a team with deep insights into the VC funding landscape, including former VCs and seasoned CPAs.
• Customization and Flexibility: Templates designed to be easily adaptable to the unique financial landscapes of different startup models.
• Comprehensive Financial Planning Tools: From budgeting to equity management, our templates cover all critical aspects of startup financial planning.

When choosing a startup financial model template, there are a few key elements that founders should keep in mind:

• Free Financial Model Templates : The internet offers a plethora of free startup financial model templates. Don’t feel compelled to pay for one when there are high-quality, free options available. Ensure to choose a template from a reliable source to ensure accuracy.
• Excel and Google Sheets Based Templates : Excel and Google Sheets are universally used and recognized software. Choosing a financial model template compatible with these platforms ensures accessibility and ease of use for you and potential investors. VCs really expect to be able to play with your assumptions and model, and are likely to want to copy paste your numbers into their own template or into a section on their investment memo. So make it easy for them by providing a file format that they are familiar with.
• Income Statement and Cash Position Focused Templates : Select a template that emphasizes the income statement and projected cash position. These elements are critical for investors to understand the potential profitability and liquidity of your startup. The income statement shows how you’ll generate revenue and what your expenses will be, and then a simplified cash position will let the investor know when you need to fundraise again. In the earliest stages of companies, so pre-seed, seed, and even Series A, the balance sheet and cash flow statement often introduce unnecessary complexity, so we advise founders that are DIY’ing their startup’s financial model to just focus on the income statement and cash projection. 
• Customizable Financial Model Template s: Each startup is unique. Ensure the template you choose is easily customizable to reflect your startup’s specific circumstances and business model. But, it’s ideal if you can start with one that is focused around your specific business model - check out our SaaS financial model template, for example. 
• Easy to Get to Startup KPIs and Metrics : Look for a template that makes it easy to track key KPIs. The template may not actually produce these metrics, but it should make it easy for you to either add them in or let a VC back into them on their own. Remember, if you put in metrics that you can’t actually measure/track, it’s going to be hard to keep the model updated!

Some other tips for getting the most out of a startup financial model template include picking one that is easy to update - ideally, you can simply copy and paste you historical results into the template to update it. 

When building a financial model for a startup, it’s crucial to accurately forecast the Cost of Goods Sold (COGS). Not only will investors focus on the profitability of delivering revenue, you, as a founder, should care deeply about how much of the company’s revenue creates gross profit, which is used to fund the rest of the business’ activities.

For product-based startups, forecasting COGS involves calculating direct material, labor, and overhead costs, considering economies of scale and vendor relations, and accounting for inventory management. Software and SaaS startups, on the other hand, should focus on server and infrastructure costs, third-party services, support staff, and possibly allocate a portion of development costs to COGS, reflecting the direct costs of service delivery.

In any financial model, COGS forecasting should be based on historical data, align with industry benchmarks, and be adaptable to changing business conditions. Regular updates and variance analysis are vital for maintaining accuracy. Understanding the relationship between COGS, pricing strategies, and cash flow is essential, especially for startups looking to scale. An accurate COGS forecast not only informs pricing but also provides investors with a clear picture of operational efficiency and potential profitability. 

How Working Capital Can Impact a Startup’s Cash Flow

Functionally, in a startup’s financial model, working capital is the difference between when the company collects revenue from when it pays its vendors. Technically, the definition is the difference between current assets minus current liabilities.

For many companies, clients do not pay immediately. Sometimes it can take 30, 60, 90 days - or even more - to collect payment for goods and services already delivered. Startups selling into Fortune 500 or large enterprises (or governments!) need to be aware when generating their cash projections that revenue can take quite some time to collect. 

Make sure to consider what type of organizations your startup will be selling to when modeling your cash flows!

Information for Every Startup

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Recent Blog Posts on Financial Models and Startup Finance

The Kruze team of CPAs, CFOs, CFAs and venture capitalists regularly post new content on financial models and other aspects of early-stage finance. Read some of our recent posts! 

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At Kruze Consulting, we get tons of questions about the difference between bookings, ARR and revenue.

Experts in Financial Modeling

This is our team who wrote the information on this page and who authored the financial models share on the page.

Healy Jones helps run the finance team at Kruze Consulting, and love helping founders explain their vision through financial models. His clients have raised over $1B in VC funding.

Healy Jones blends his venture capital experience with operational knowledge to support startup financial strategies. With a background in investing in over 50 startups and holding executive roles in VC-backed companies, Healy has been featured in major publications like the New York Times, Wall Street Journal, and TechCrunch. His efforts at Kruze have been crucial in helping startups collectively secure over $1 billion in VC funding, showcasing his ability to effectively navigate financial challenges and support startup growth.

Scott Orn is Kruze Consulting’s COO, and he is a CFA. A former VC, he has invested in and worked with clients that have gone public and that have exited for hundreds of millions via M&A to public tech companies.

Scott Orn leverages his extensive venture capital experience from Lighthouse Capital and Hambrecht & Quist. With a track record of over 100 investments ranging from seed to Series A and beyond in startups, including notable deals with Angie’s List and Impossible Foods, Scott brings invaluable insights into financing strategies for emerging companies. His strategic role in scaling Kruze Consulting across major U.S. startup hubs underscores his expertise in guiding startups through complex financial landscapes.

Client testimonials

We're huge fans of Vanessa and the folks at Kruze Consulting. They set up our books, finances, and other operations, and are constantly organized and on top of things. As a startup, you have to focus on your product and customers, and Kruze takes care of everything else (which is a massive sigh of relief). I highly highly highly recommend working with Vanessa and her team.

Vivek Sodera

Co-Founder @ Superhuman

Prior to Kruze, as a remote-first team, we were weighed down by a lot of the bureaucracy involved with having a distributed workforce. Kruze has supported us above and beyond basic accounting needs by ensuring we have everything we need to expand and support our team wherever they may be located

Pequity's Head of Operations & Legal

Avochato has been growing rapidly in the past year – in fact, too quickly for us to keep up with books, taxes, and budgeting for growth. Partnering with Kruze Consulting has been fantastic to manage, track, and analyze our finances while we continue focusing on building our customer base. Kruze’s team knows what startups need.

Alex De Simone

CEO @ Avochato

Everybody, go to Kruze Consulting. They do a great job. I personally can tell you, they've done a great job for our companies, including Calm.com. I'm sure they’ll do a great job for you.

Jason Calacanis

Angel investor

A CPA Firm Specialized in Startup Accounting & Finance

Startups are our niche, and our passion. Our clients have raised over $15 billion in VC funding. We are one of only a few outsourced accounting firms that specialize in funded early-stage companies - we only offer financial and tax services to fast growing startups in the Pre-Seed, Seed, Series A, Series B and Series C stages.

The Right Accounting Partner for Your Startup’s Next Round

We know how to de-risk your startup’s next venture capital round. Our team makes sure you are ready to fly through your next VC’s accounting, HR and tax due diligence. And when you use us as your bookkeeper, we set up and keep up-to-date a due diligence folder so you can get that next round of fundraising.

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Our practice is built on best of breed cloud accounting software like QuickBooks, Netsuite, Gusto, Rippling, Taxbit, Avalara, Brex, Ramp and Deel. Technology makes us more efficient, saving our clients money and letting us offer higher value services like FP&A modeling, 409A valuation, and treasury advice. Startups deserve to work with CPAs using modern software.

Trusted by Top Venture Investors

Top angel investors and VCs refer Kruze because they trust us to give the right advice. Our clients are portfolio companies of top technology and Silicon Valley investors, including Y-Combinator, Kleiner, Sequoia, Khsola, Launch, Techstars and more. With us, your books and taxes are in order when it’s time to raise another round of venture financing.

What types of startups does Kruze Consulting usually work with?

Kruze Consulting works with funded Delaware C-Corps. Our clients have secured Pre-Seed to Series C or Series D funding. We look to partner with our clients, going beyond the typical outsourced accounting relationship and seeking to provide a higher level advisory role. We feel honored to be a part of making the world a better place, even if it’s one debit and credit at a time.

Accounting, Finance, Taxes, & Payroll all in one solution

Startup CFO services , startup accounting and bookkeeping services, startup annual taxes, expense reports, payroll, state sales taxes: we've got you covered. Our software provides custom tailored dashboards that can be provided weekly or monthly, depending on your preference and plan. Founders are often so busy building their company that they don’t have time to take care of their finances. Traditionally, these companies have had to work with a basket of people to get their work done, including bookkeepers, accountants, AP clerks, CFOs, consultants, and tax accountants. At Kruze Consulting, our founders have one point person, saving time and money.

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We are the experts at helping seed/VC-backed Delaware C-Corps with their accounting and finances!

Talk to an experienced accountant, not a generic sales person

$250M+ VC Funding Raised

"I had a great experience working with Kruze Consulting when we raised Series A. They know what VCs need to see, and how to present a startup’s books and finances. If you are going to raise venture capital, you need experts like Kruze."

Chris Mansi

Startup Venture Capital Assistance

With former venture capitalists on staff, our team is here to help you navigate the fundraising process and manage your board of directors

Scale Remote Operations & Team

"Kruze has supported us above and beyond basic accounting needs by ensuring we have everything we need to expand and support our team wherever they may be located"

Head of Operations & Legal

Clients who have worked with Kruze have collectively raised over $15 billion in VC funding.

We set startups up for fundrising success, and know how to work with the top VCs.

Experienced team helping you

Our account management team is staffed by CPAs and accountants who have, on average, 11 years of experience.

Grew from a 2-person startup to a NASDAQ listed public company.

"The Kruze team helped us grow from a 2-person startup to a NASDAQ listed public company in 2 years. We wouldn’t have gotten public without Kruze’s support. Anyone thinking of launching a startup should make Vanessa their first call!"

Jesse Shefferman

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Simple, Clean, Clear

As a finance consultant and professional, this model and all of the others on the website hold their own against VC's, PE Firms, and other funding sources. Henry and his team produce simple to use content that covers everything for your specific business. I utilized this model to guide an investment through scaling.

Very satisfied as always!

Business startup lifesaver

This excel sheet is extremely comprehensive. Not only does it show projections for 5 years, but it is customizable to whatever your situation needs. All data is shown graphically, giving you an instant snapshot of every aspect of the business, whether it is sales growth over time or asset depreciation. We would not have received funding from our lending institution without it!

A MUST-HAVE tool!!

A Must-have tool for anyone having anything to do with finances!! An easy-to-use, no-fuss spreadsheet that you don't need to spend hours on creating!! Just click, fill in the relevant figures & voila!!! Hours, or even days of valuable work time saved. Absolutely FANTASTIC

Amazing work!

In just minutes I had the elements to underwrite a very sophisticated transaction! very satisfied with the purchase!

Great model

Great model, easy to understand and navigate. If you are building your own restaurant business it’s a great base to start with and customize for future growth.

Great product and great team

The template look impressive from the first impressions.

Support was very quick to assist with a query regarding some modifications on the template.

Industry-specific Financial Model & Business Plan Templates

Proper financial modeling relies on methods and tools that bring rigor to the forecasting process. Oversimplifying the forecasting process can create forecasts that ignore business cycles and lead to missed investor expectations, excess inventory buildup, and overstaffing. Financial analysts need processes and tools that help them provide management with forecasts in which management can have confidence. Financial analysts can create stronger forecasts by building thorough forecasts from the ground up. Analysts often face similar problems when developing forecasts. Learning to avoid these pitfalls can help you strengthen your forecasts. Forecasting can play a key role in the budgeting process. Companies can benefit by creating flexible budgets that they can adapt to changing business conditions.

What Is a Financial Model?

A financial model is a mathematical representation of how a company works. It is used to forecast the business’ financial performance, provide direction, and give context to uncertainty. Imagine it as a machine: We insert fuel in the form of assumptions, such as salaries and customer acquisition costs, which produces the output regarding projections of the company’s performance (e.g., future revenues and cash flows). Deciding which assumptions to use and understanding how to project accurately can be a difficult undertaking, although it’s well worth the cost, as sophisticated models end up serving as powerful decision-making and forecasting tools for management. Why else is modeling important? What are the different types of financial models, and how do we go about building a financial model?

Financial models are tools used to inform decision-making and arrive at projections. Financial models come into play at many stages in a company’s lifecycle, such as when the company seeks to raise capital, make acquisitions, budget, or simply understand how changes to any of the business’ drivers will impact overall performance. Given the importance of models at these critical junctions, it is essential that an experienced professional who can accurately capture the specifics of your business is behind the financial model.

Why Is Financial Modeling so Important?

The possibility of a financial model’s outputs perfectly matching reality is very low. After all, financial models are based upon a narrow set of assumptions from a range of possible inputs. With so much uncertainty, why should business owners bother themselves with building a financial model? And why do investors care so much about it?

Improved finance skills can lead to significantly increased opportunities of success and thus founders should invest in improving these skills. There are several reasons why founders should devote significant resources to building their model, which can be perceived as a manifestation of finance skills. Two of these reasons include:

A financial model gives direction on where the company is going.  In other words, it can reveal the main business drivers and, in the case of significant deviation, provides insight on where the company should focus in order to manage or hedge risks.

It is a strong indication to investors that the founders know what they are doing and that they understand the business.   The various assumptions and reasoning behind the financial model demonstrate whether the founders are reasonable thinkers or not, meanwhile providing a necessary tool for the company’s valuation.

For these reasons,  management should not just try to find a readily available financial model template to fill out . A template can provide an idea of how a model is built and indications of missing elements, but no more than this. After all, a financial model template represents a different business with different needs and characteristics. Instead, a proper financial model should be built from scratch. Custom models show that founders understand the nuances of their business and should demonstrate sharp business acumen. Given that the financial model is the analytical tool driving many of the projections and outputs in investor presentations, a well-built, sophisticated financial model increases investor confidence and the possibility of receiving funding. Thus, it can be a great investment to cooperate with a top financial modeling expert that can help you to create a robust model and help you manage and fully understand it.

Main Financial Forecast Methods

There are two main methods to build a startup financial model:  top down  and  bottom up .

In a top-down approach, we start with the big picture and then work backwards; we define the milestones that we need to achieve in order to reach the target. For instance, if we have a mobile nutrition startup, we begin by saying that the market in 2017 is worth $27 billion and from starting at zero, by year 2, we will capture 7% of it. In this way, we just defined the revenue and then we calculated the costs associated with this target and so on.

On the other hand, in a bottom-up approach, we start with basic assumptions (e.g., sales people needed and the cost thereof, attractiveness of our business, traffic) in order to build the financial model. Subsequently, we can create scenarios in order to check how the assumptions have to change (e.g., how many more salespeople we need) in order to achieve our goals.

Which Approach Should We Take?

A top-down approach, particularly in the case of a startup, can be rather opaque and based upon subjective, overly-optimistic predictions or even desires. This can put more value on a bottom-up approach towards leading to a better understanding of the model. On the other hand, the top-down approach can ignore today’s situation and provide useful inputs regarding milestones to be achieved.  Thus, for financial modeling purposes,  the bottom-up approach can give a more structured, realistic perspective, which can be complemented from a strategic perspective with some top-down analysis.

Frequently Asked Questions

Of course! Yes. All our templates are fully editable . All formulas, cells and sheets are completely unlocked, so you can edit anything to your liking. Each row on every sheet has a note about what that row’s calculations are trying to do, and many of the components are explained in the help files, so that you can see how I did it - and help you figure out how to change it to your liking.

This financial model is perfect for entrepreneurs to quickly build financial projections for fundraising decks or business modeling.

With this all-in-1 model, you’ll be able to forecast your sales, profits, and cash flow in seconds. Plus, you’ll have all the data, metrics and reports you’ll need to effectively present your business plan to investors & prospects. This financial model was crafted in Excel by expert analysts with 15-years consulting background to assist entrepreneurs with forecasting efforts.

Take advantage of this Excel model to effortlessly forecast your financials, create investor-friendly reports, and build a better business!

You don’t have to be an expert to model your Profit and Loss Statement (P&L) with this straightforward financial model excel template. Our financial projection makes that easy for even the most novice finance background. Just enter your financials and our sophisticated financial model will do all the work, giving you a clear view of your company’s current state, predictions for future performance, and an action plan for scaling revenue. With financial projections that can be easily updated as assumptions change, you’ll have all the information you need to project your company’s future & pitch investors!

Yes. Our financial model excel templates are fully editable, you can change many assumptions including the currency of your business.

You may change currency inputs and currency outputs by applying the exchange rate.

All our financial model templates are Microsoft Excel™ files, and they are available for download immediately after purchase. Can be imported into the Google Sheets™ for editing and customizations. I recommend using Excel or Google Sheets™ for financial modeling, both in general and for our templates specifically. In practice, I use Excel to build and edit models, and Google Sheets to share or collaborate with users. Excel is usually a faster platform for building models, but Google Sheets can be easier for sharing models with people. My models can be used in both Excel and Google Sheets interchangeably; simply upload the Microsoft Excel model template from FinancialModelExcel.com into Google Sheets, and everything will work fine.

Unfortunately no. Unlike a physical product where you can send it back to the seller, because it is a digital product you can still use it after refund. This makes it quite difficult for us to manage honest refund requests. If you have any questions about the financial model excel templates, please contact us so we can guide you and answer any questions you have.

Yes. We accept all major credit cards, debit cards and PayPal. Payments are powered by Stripe and PayPal via our payment processing provider. All transactions are secured and your card payment information encrypted and sent directly to Stripe and PayPal, no payment details are stored on our website.

Yes. Of course! Every financial model excel template has a button to download immediately a DEMO version of the particular template. With the Demo version you will get the read-only financial model template.

By purchasing the template on our website, you will receive an email from us including the link to download your template. Additionally, you should see the download links right after the payment at the checkout page.

Yes, we provide free email support via email at [email protected]. We are in the Europe time zone hence please bear with us and we will catch up as soon as we are back online!

500+ business plans and financial models

Construction Contractor Business Plan PDF Example

• May 10, 2024
• Business Plan

Creating a comprehensive business plan is crucial for launching and running a successful construction contractor business. This plan serves as your roadmap, detailing your vision, operational strategies, and financial plan. It helps establish your construction contractor business’s identity, navigate the competitive market, and secure funding for growth.

This article not only breaks down the critical components of a construction contractor business plan, but also provides an example of a business plan to help you craft your own.

Whether you’re an experienced entrepreneur or new to the service industry, this guide, complete with a business plan example, lays the groundwork for turning your construction contractor business concept into reality. Let’s dive in!

Our construction contractor business plan is meticulously structured to include all essential aspects necessary for a robust strategy. It outlines the company’s operations, marketing strategy , market environment, competitors, management team, and financial projections.

• Executive Summary : Presents an overview of your construction contractor business concept, including market analysis , management structure, and financial strategies.
• Company Information: Describes the company’s foundation, areas of expertise in the construction industry, and the operational standards that define the business.
• Services : Details the comprehensive range of construction services offered, from residential building to commercial projects, including any specialized services such as eco-friendly constructions or renovations.
• Target Market : Outlines the specific demographic and geographic segments the company aims to serve, emphasizing any particular needs of these markets like affordability, durability, or luxury finishes.
• Key Stats: Provides statistics on the construction industry’s size and growth trends relevant to your market area.
• Key Trends: Identifies significant trends affecting the construction sector.
• Key Competitors : Evaluates primary competitors in the area and outlines your competitive advantages.
• SWOT : Conducts a Strengths, Weaknesses, Opportunities, and Threats analysis.
• Marketing Plan : Outlines effective strategies for attracting and retaining clients.
• Timeline : Lists key milestones and objectives from the start-up through the initial years of operation.
• Management: Shares information about the management team, detailing who manages the company and their respective roles.
• Financial Plan: Forecasts the company’s 5-year financial performance, including revenue, profits, and significant expenses.

Construction Contractor Business Plan

Fully editable 30+ slides Powerpoint presentation business plan template.

Download an expert-built 30+ slides Powerpoint business plan template

Executive Summary

The Executive Summary introduces your construction contractor’s business plan, offering a concise overview of your company and its services. It should detail your market positioning, the range of construction and remodeling services you offer, its location, size, and an outline of day-to-day operations.

This section should also explore how your construction business will integrate into the local market, including the number of direct competitors within the area, identifying who they are, along with your company’s unique selling points that differentiate it from these competitors.

Furthermore, you should include information about the management and co-founding team, detailing their roles and contributions to the company’s success. Additionally, a summary of your financial projections, including revenue and profits over the next five years, should be presented here to provide a clear picture of your construction business’s financial plan.

Make sure to cover here _ Business Overview _ Market Overview _ Management Team _ Financial Plan

Dive deeper into Executive Summary

Business Overview

For a construction contractor, the Business Overview section can be concisely divided into 3 main slides:

Company Information & Location

Our construction company specializes in handling diverse projects, including residential, commercial, and industrial builds. Located strategically near major transport hubs, our headquarters offer easy access to key construction sites, providing logistical benefits and enhanced service delivery to our clientele.

Services & Specialization

We offer a comprehensive range of services from general contracting to specialized projects like energy-efficient constructions. Our expertise in custom designs and turnkey solutions sets us apart in the industry, ensuring high-quality project management and client satisfaction.

Target Market

Our target market includes homeowners, real estate developers, and public sector contracts. We cater to clients seeking reliable, high-quality construction services, with a focus on innovation and efficiency to meet the unique needs of each segment, ensuring we are the go-to contractor for diverse construction demands.

Make sure to cover here _ Company Information & Information _ Services & Specialization _ Target Market

Market Overview

Industry size & growth.

In the Market Overview of your construction contractor business plan, start by examining the size of the construction industry and its growth potential. This analysis is crucial for understanding the market’s scope and identifying expansion opportunities.

Key Market Trends

Proceed to discuss recent market trends , such as the increasing consumer interest in sustainable building practices, energy-efficient homes, and smart technology integration in construction. For example, highlight the demand for green building certifications and the rising popularity of renovations that focus on improving energy efficiency.

Key Competitors

Then, consider the competitive landscape, which includes a range of construction firms from large-scale contractors to local small businesses, as well as the trend toward DIY home improvements. For example, emphasize what makes your company distinctive, whether it’s through advanced project management techniques, specialization in sustainable construction, or exceptional client relations.

Make sure to cover here _ Industry size & growth _ Key competitors _ Key market trends

Dive deeper into Key competitors

First, conduct a SWOT analysis for the construction contractor , highlighting Strengths (such as advanced project management skills and a wide array of building services), Weaknesses (including dependency on the economic cycle and market competition), Opportunities (for example, growing trends in sustainable construction and smart home technologies), and Threats (such as potential economic recessions that may reduce investment in new construction projects).

Marketing Plan

Next, develop a marketing strategy that outlines how to attract and retain clients through targeted advertising, promotional discounts, strong online presence, and community involvement. Focus on showcasing your company’s unique capabilities and successful project completions to build trust and credibility in the market.

Finally, create a detailed timeline that outlines critical milestones for the construction business’s project completions, marketing initiatives, client relationship building, and expansion objectives, ensuring the business progresses with clear direction and purpose.

Make sure to cover here _ SWOT _ Marketing Plan _ Timeline

Dive deeper into SWOT

Dive deeper into Marketing Plan

The Management section focuses on the construction contractor business’s management and their direct roles in daily operations and strategic direction. This part is crucial for understanding who is responsible for making key decisions and driving the construction contractor business toward its financial and operational goals.

For your construction contractor business plan, list the core team members, their specific responsibilities, and how their expertise supports the business.

Financial Plan

The Financial Plan section is a comprehensive analysis of your financial projections for revenue, expenses, and profitability. It lays out your construction contractor business’s approach to securing funding, managing cash flow, and achieving breakeven.

This section typically includes detailed forecasts for the first 5 years of operation, highlighting expected revenue, operating costs and capital expenditures.

For your construction contractor business plan, provide a snapshot of your financial statement (profit and loss, balance sheet, cash flow statement), as well as your key assumptions (e.g. number of customers and prices, expenses, etc.).

Make sure to cover here _ Profit and Loss _ Cash Flow Statement _ Balance Sheet _ Use of Funds

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