startup-financial-modeling

Start by defining your business model and pricing, then build cohort-based revenue projections using customer acquisition, retention rates, and ARPU. Layer in cost structures by category, a hiring plan, and monthly cash flow to calculate burn rate and runway.

Monthly burn rate equals monthly revenue minus monthly expenses, and runway equals current cash balance divided by monthly burn. Model cash flow monthly since revenue collection often lags expenses due to payment terms.

Cohort-based modeling calculates MRR as the sum of each cohort's size multiplied by its retention rate and ARPU. Typical SaaS retention curves start at 100% in month one and decline to around 70-75% by months 12-24.

Investors focus on LTV/CAC ratio above 3, CAC payback under 12-18 months, burn multiple below 2.0, and gross margins of 75-85% for SaaS. They also check that revenue growth assumptions like 3x in year two are achievable.

Common pitfalls include overly optimistic revenue assumptions, underestimating costs without a 20% buffer, ignoring cash flow timing differences, static headcount plans that skip ramp time, and failing to model conservative scenarios.