Financial model

A spreadsheet that projects revenue, costs and cash forward from a small set of stated assumptions.

Example

New customers per month, price, churn, gross margin and hiring plan — driving out revenue, burn and runway for eighteen months.

Important

Its value is in the assumptions, not the projections. A model whose inputs you cannot defend is decoration; one built on three honest drivers is a decision tool.

Related terms

• Runway — How many months your company can keep operating before it runs out of money, at its current rate of spending.
• Burn rate — How much cash the company spends per month. Gross burn is everything going out; net burn is what goes out after revenue comes in.
• Reporting pack — The standard monthly set you produce and circulate: P&L, cash position and runway, key metrics, and a short commentary.

Lessons that explain it

• Bookkeeper, accountant, CFO — when to hand off — What each one actually does, the order to hire them in, and the parts you should never hand over however big you get. (11 min)
• Building a financial model that is worth having — Three drivers, eighteen months, one page. The value is in the assumptions you can defend, not the projections you cannot. (14 min)

All 176 terms in the Founder glossary