startup-financial-modeling

Start by defining your business model and pricing, then project revenue using cohort-based acquisition and retention assumptions. Next, model costs by category (COGS, S&M, R&D, G&A), plan headcount, calculate monthly cash flow and runway, and create conservative, base, and optimistic scenarios.

Monthly burn rate 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 customer cohort's size multiplied by its retention rate and ARPU for each month. This approach captures churn and expansion more accurately than simple growth-rate projections.

Investors typically look for CAC, LTV, LTV/CAC ratio above 3, CAC payback under 12-18 months, burn multiple under 2.0, gross margin appropriate to the business model, and net revenue retention of 100-120% for SaaS companies.

Common pitfalls include overly optimistic revenue assumptions, underestimating costs by omitting fully-loaded compensation, ignoring cash flow timing differences, static headcount plans that skip hiring ramp time, and failing to model multiple scenarios.