startup-financial-modeling

Define your business model and pricing, then project revenue using cohort-based acquisition and retention, model costs across COGS, S&M, R&D, and G&A, plan headcount, and calculate monthly cash flow. Finish with scenario analysis and key metrics like CAC, LTV, and runway.

Monthly burn equals monthly revenue minus monthly expenses, and runway equals current cash balance divided by monthly burn. Model cash flow monthly, accounting for payment timing, since revenue collected often lags revenue recognized.

Cohort-based modeling calculates MRR as the sum of each month's acquired customers multiplied by their retention rate and ARPU over time. This produces more accurate projections than simple growth-rate extrapolation because it captures churn and expansion effects.

Investors focus on LTV/CAC ratio above 3, CAC payback under 12-18 months, burn multiple under 2.0, net retention of 100-120%, and gross margins appropriate to the business model (75-85% for SaaS). Growth rate and runway are also critical.

Common pitfalls include overly optimistic revenue assumptions, underestimating costs by 20% or more, ignoring cash flow timing differences, static headcount plans that skip hiring ramp time, and modeling only a single scenario instead of conservative, base, and optimistic cases.