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Startup Financial Model: Building a Startup Financial Model

by Mathew Gollow. Last updated on June 28, 2024

You’ve got a brilliant startup idea. Great! But no idea works without a plan.

The good news is that a startup financial model is the plan. This article will explain the goals of a financial model and how to build one that works for your business. 

Key Takeaways: 

  • A startup financial model can help you predict, plan for, and optimize future business goals and revenue
  • There are multiple financial forecasting models available, which you can leverage for diverse use cases
  • Financial forecasting models can help SaaS brands and startups predict revenue growth while considering historical data, market trends, and diverse scenarios 
  • Building a financial model requires accurate data, and the right financial modeling software can streamline the modeling process

What Is a Startup Financial Model?

For instance:

  • How many customers do you think you’ll have?
  • How many people should you hire?
  • How will you improve your margins over time?

Creating a startup financial model helps you organize and keep track of the assumptions you’ll test as you implement your plans. Even the best financial models aren’t always correct — but the figures you project compared to your actual numbers help guide you through the startup phase and beyond.

A good, functioning model illustrates your potential. It also helps you make good decisions when you understand why your projections and results differ.

You need numbers to get the insight you need. For that, you need a financial plan with proper metrics. Start a free trial of Baremetrics to get started on the right foot. 

SaaS Financial Forecasting vs. Actuals 

Financial models often make use of revenue forecasting, but it’s important to use an operating model that shows actual financial performance data compared with forecasted performance. 

We believe this is particularly important for SaaS financial models, as it gives you more insight into how accurate your forecasts are and how to interpret them moving forward. 

There are different types of financial forecasting models, and knowing which to use for your business is essential. The best types of startup and SaaS revenue forecasting, for example, include the following:

Lead-driven forecasting

 Use the number of leads, conversion rates, and average sales prices to estimate revenue from different lead sources.

Lifetime value forecasting

Estimate the value of the average customer to predict future revenue based on current performance and future projections.

Opportunity forecasting

Assess prospect conversions based on their stage in the sale cycle, giving you a better idea of your current pipeline conversion potential.

Historical forecasting

The most common and easiest method for predicting revenue, it assesses historical sales data to predict future business growth and revenue. 

Scenario forecasting

Particularly important for startups and SaaS companies, this forecasting method allows you to assess forecasts based on different scenarios. What would happen to your business if you opened a new location, for example? And what if your supply chain was disrupted?

Allowing businesses to view the best and worst case scenarios for their revenue, this method is an important element of data-driven decision making. 

Financial forecasting software typically has multiple models available. Check out these financial forecasting model examples.

Startup Financial Model: Getting Started

Ready to build a financial model? Here’s the basics on how to get started: 

  1. Determine the right KPIs. These are figures — including any assumptions — you can track, such as growth rate. Including any KPIs you’re unable to track is useless. Consider the industry’s standard KPIs and start there.
  2. Use a startup financial template. Starting from scratch isn’t suggested, and building a model in Excel can be time-consuming. You can use ours!
  3. If you’re in operation, merge actuals with projections. Your real numbers help keep you grounded. When compared with actual numbers, anything unrealistic in your model can offer insight into where your projections might be off. Take a look at conversion rates, customer acquisition costs, and overall financial performance.
  4. Start with revenue and work from the top to the bottom of your income statement. Revenue models can help — but when you consider potential revenue, you must understand where it comes from. What’s driving it? For instance, do you have a certain number of sales agents or current customers or a specific marketing activity planned? You also need to factor in COGS when making financial projections. Review your balance sheet, cash flow statement, and other financial statements.
  5. Factor in how many employees you have or plan to have. This is often your greatest expense when first starting out. You need to consider your goals and how many employees you need to reach them. How much will it cost to hire those employees? And don’t forget the costs of recruiting. Even if your network is large, it’s likely you’ll need to hire down the road.
  6. Estimate additional expenses. Take a look at other SaaS businesses and review your business plan. How did they scale their expenses as they grew? It’s vital for your cash flow — especially if you’re an early-stage startup — to factor in additional expenses as time goes on. There aren’t many companies that have greater than a 50% profit margin before taxes, so expenses are crucial to your numbers. Financial modeling or cash flow forecasting software is great for this.
  7. Working capital is important to your business model. Knowing when your customers will pay and when you owe your suppliers and vendors is crucial. This affects your cash flow and subsequent budgeting.
  8. Review your projections. Take another look at your startup financial summary. Is it sensible? Does it tell the same story you pictured? Perform a sanity check.

Learn more about the metrics that are most important for your financial model. Start a free trial of Baremetrics today.



How Do I Leverage Financial Models? 

As we’ve already discussed, there are multiple types of financial forecasting models. There are also plenty of ways to use them. You can read our full post about financial modeling use cases to learn more, but here are a few examples: 

Use top-down forecasting models to evaluate new growth opportunities, which relies heavily on the size of a new market.

Use bottom-up forecasting that use historical revenue data to predict long-term growth, given you stay on the current course.

Use correlation-based forecasting to identify correlating variables and how they impact your business growth and revenue.

Bonus Tips to Consider 

  • Know and understand your user metrics. Model monthly for such things as how many new users you gained, lost, or upgraded.

  • Annual contracts matter. How long are your contracts? How often do you receive payment? What’s your monthly recurring revenue (MRR)? Offering annual-only memberships paid upfront defers revenue — which is good — but it can pose certain modeling challenges, such as keeping tabs on churn.

  • Different membership tiers need their own model. If you offer more than one type of subscription, create a financial model for each pricing tier. This will help you understand how each user plan influences your growth and your overall profitability.

How Baremetrics Can Help

You can’t get the figures you need for ongoing modeling without tracking metrics.

That’s where Baremetrics comes into play.

We comprehensively understand your business with metrics like churn rate, customer lifetime value, and more. Try a free, 14-day trial of Baremetrics and see for yourself.

Mathew Gollow

Mathew spends his days bringing the brilliant ideas of the Baremetrics team to the blog. When Mathew’s not chasing after his team for more accurate and clear information, you can find him teaching voice at the local music academy.