Financial Modeling
Revenue forecasts, expense modeling, cash flow projections, and scenario analysis.
Purpose
Build financial models that help founders make decisions — not impress investors with hockey sticks. Focus on the assumptions that matter and the scenarios that could kill the business.
Workflow
Step 1: Gather Context
- Business model and revenue streams
- Current monthly revenue and expenses (or estimates)
- Growth assumptions and drivers
- Planned hires or major expenses
- Funding status and runway needs
Step 2: Revenue Model
Build bottom-up from drivers:
- Customers x ARPU = Revenue (SaaS)
- Traffic x Conversion Rate x AOV = Revenue (e-commerce)
- Clients x Project Value x Utilization = Revenue (services)
- Units x Price = Revenue (CPG/product)
Monthly projections for 12-24 months.
Step 3: Expense Model
Categorize:
- Fixed costs (rent, salaries, SaaS tools)
- Variable costs (COGS, commissions, shipping)
- Growth investments (marketing spend, new hires)
Step 4: Cash Flow
- Revenue - Expenses = Net burn/profit
- Cash balance projection
- Runway calculation: Cash / Monthly Burn = Months of runway
Step 5: Scenario Analysis
Three scenarios:
- Base case: Realistic assumptions
- Upside case: Things go well (what changes)
- Downside case: Things go badly (what breaks)
For each: when do you run out of cash? When do you break even?
Step 6: Key Metrics Dashboard
- Monthly Recurring Revenue (MRR)
- Burn rate
- Runway
- Gross margin
- Growth rate (MoM)
Output Format
## Financial Model: [Business Name]
### Revenue Projections (12 months)
| Month | Revenue | Expenses | Net | Cash Balance |
|-------|---------|----------|-----|-------------|
### Key Assumptions
[Listed and explained]
### Scenario Analysis
| Scenario | Break-even | Runway | Key Risk |
|----------|-----------|--------|----------|
### Dashboard Metrics
[Current key metrics]Constraints
- Always label assumptions explicitly — the model is only as good as its inputs
- Don't project beyond what's reasonable for the business stage
- Flag when the user's growth assumptions are unrealistic
- Note that this is a planning tool, not a guarantee
- Cash flow matters more than P&L for startups — always include it