Wondering how much your VC-backed startup's tax return will cost?   Check out our startup tax cost calculator to get an estimate now!
Q&A icon

Startup Q&A

Back to questions

How do I create financial projections for a startup?

Vanessa Kruze, CPA, is a leading expert in startup taxes and tax compliance. Her team at Kruze Consulting has filed thousands of tax returns for companies that have raised billions in VC funding, and her work has been diligenced by leading VCs, attorneys, and M&A teams at the largest technology companies.
Vanessa Kruze, a highly-experienced CPA, brings valuable tax expertise to startups, drawing from her rich background at Deloitte Tax and as a financial controller for a $20 million startup. As the leader of Kruze Consulting, recognized multiple times in the Inc 5000 list, she specializes in navigating the complex tax landscape for startups. Her firm is known for delivering precise and strategic tax solutions, delivering tax credits utilizing advanced tools to ensure compliance and optimize tax benefits for startups throughout the United States.

Table of contents

How do I create financial projections for a startup?

Creating financial projections for your startup will depend on your industry, where you are in your financing, and where you plan to take the business. You also need to take into account the purpose of the financial projections - are the going to be used to raise capital, manage your cash flow or napkin-test the assumptions you have for an idea? 

Our clients have raised billions in venture capital funding, and our team has helped companies create all levels of startup financial projections. Let’s dive into how we suggest most founders produce projections. And we have many free, downloadable models that you are free to use

The Steps to Create Startup Financial Projections

  1. Determine the goal of the projections
  2. Determine the KPIs for your company that will drive, and be outputs, of the spreadsheet
  3. Get a startup financial projections template
  4. Drop your historical financial results into the template, if you have them
  5. Start by projecting revenue
  6. Project headcount needs
  7. Estimate other expenses
  8. Model working capital
  9. Review your work

1. What is the goal of the exercise? If you are raising capital or back-of-the-enveloping a startup idea. more extrapolated with less detail is better. But if you are carefully trying to manage the cash in an existing business, detail matters. 

2. Your KPIs will vary by industry. You won’t need to start from scratch if you’re working with a professional (whether that be your VC firm, your CFO, or a seasoned angel investor/advisor in your industry): they’ll know the important metrics and average costs. Ask!

3. Even if you really know Excel or Google Sheets, why waste time building from scratch? Get one of our free Excel templates here

4. If your business is already running, add in the results first. This gives you a basis from which to develop your startup’s financial projections. 

5. What are the key drivers in your startup’s revenue? (We understand that many biotech/hardware companies won’t have revenue for while, so skip that step if that’s you.) Investors really care about revenue drivers, so nail down the assumptions, and be sure to cleanly add in existing, historical drivers if you are already generating revenue.

6. Headcount is most likely going to be the largest expense for your startup. This is where you need to get the numbers right, or at least directionally close. Back into how many employees you’ll need to achieve your goals. 

7. For starters on creating the projected expenses, begin outlining what your key expenses will be. For example: payroll, rent, COGS in some cases, M&E, etc. While you may have a good idea of what these categories will cost, ask around to your network to make sure that you’re in the ballpark. Rents and salaries can vary widely depending on your metro. Understanding the common startup statistics for your industry will help you make reasonable assumptions. 

8. If your company has working capital, you’ll want to model it in. However, many startups don’t have this level of complexity, at least in the early days. If you don’t know what working capital is, read this description to figure out if your startup’s projections will need them.

9. Review your projections! Are they telling the story that you want to? Do they match up with your business model and ultimate market size? Are you burning a reasonable amount of cash to achieve your end objectives?

Here are some common points that you’ll want to include in your startup financial projections:

  • 3 Years of Projections. Occasionally, investors will ask for more/less, but start with 3 years. Some companies, like hardware companies, will want to go further out, as the revenue opportunity doesn’t become obvious until the later years. 

  • 3 Statement Model. Include a Profit & Loss Statement, Balance Sheet, and Statement of Cash Flows. Each should balance and tie back to each other (this gets tricky).

  • Your KPI’s should be your Drivers. Every company has a dashboard of metrics that they track growth and success by. A few examples include number of users, customers, margin, customer acquisition cost, Twitter followers, website traffic, etc. Look to the past and show that there is a correlation between X (could be # of Sales Reps) and Y (could be your revenue), then use this as a driver towards the future projections.

  • Churn. Customers will leave. Account for this.

  • Waterfalls. Your financial model should be dynamic. Waterfalls show how you actually performed against your projection and then resets the future accordingly.

Startup Financial Projections Tips

Solid startup financial projections that convey the assumptions and that builds excitement in the business is a key to getting VCs to engage in your fund raise. Here are some tips to help you make solid startup financial projections that resonate with venture investors.

Startup Financial Projection Tips

  1. Align the projections to the actual business drivers
  2. Identify KPIs that drive revenue
  3. Explain your gross margin
  4. Identify and understand your operating expenses
  5. Project your balance sheet
  6. Match the startup projections to your actual results
  7. Understand the forecast’s trendlines

Tip #1: Match the numbers to the actual business drivers

The most important piece of advice that you can takeaway is that you want to align your financial model with your actual business. That means the business goals, or the key performance indicators, otherwise known as KPIs, are what you want to use to drive your projections. There are the assumptions, drivers or metrics that will communicate your core business assumptions to the investors. 

Tip #2: Identify KPIs that drive revenue

The most important drivers are usually for revenue. Many times that can be average selling price per customer, or deal, customer acquisition cost, churn rate, things like that, that all feed into lifetime value of the customer. Those are the big variables that are going to drive your business. Start with your KPIs, write them down, even before you start working in Excel or Google Sheets. Start by writing down your key performance indicators, isolate four or five of them. Don’t do too many, because then it gets too complicated to explain. 

Tip #3: Explain your gross margin 

Work downwards from revenue to the gross margin. What costs are required to provide the service? A lot of times Amazon web services, or hosting, things like that, or software that’s built into your product that you always have to pay and subscribe to every month. Investors tend to really focus on your gross margin. Everyone wants to invest in companies that have a higher gross margin because high gross margins allow you to spend more money on operating expenses, like marketing, advertising, headcount, things like that. 

Tip #4: Identify and understand your operating expenses

Then you’re going to work through your operating expenses. This is where you capture all your personnel spend, all your marketing, all your advertising, all what is called G&A or SG&A. (G&A = General and Administrative expenses; SG&A = Sales, General and Administrative expenses). like rent, healthcare benefits, all that stuff. You’re going to have line items for all that in your financial model so it’s very obvious to you. One of the best parts about doing this on a line-by-line basis, is you really start to understand the costs inherent in the business. We’ve had companies paying way too much in rent and they didn’t realize that was going to material impact their ability to be profitable. It’s always better for your business to identify these before you start talking to investors.

Bonus modeling tip: Early stage startups need to pay special attention to payroll costs. It is not uncommon for a startup to invest too much in headcount, too early, and all of a sudden their burn will go crazy. Some CEOs don’t realize that, until they actually look at the line items and how many people they’re employing, what those salaries were and what the impact is on cash burn. It’s a great exercise to review payroll on a line-by-line basis. 

Tip #5: Project your balance sheet

Now, once you get your income statement done, you’re going to want to feed that into the balance sheet. Cash is really the most important item that you are forecasting in your startup financial projections. There’s going to be some working capital changes, which is part of the company’s cash flow that may require special attention. For example, when you invoice a customer you’re probably not going to get paid for 30 days or 60 days. That is a working capital cost and that’s going to be reflected on your balance sheet and cash flow statement. Just be aware of all the changes to working capital, all the prepaid expenses that you have to do, all the accrued expenses. Those are going to all get flushed out on the balance sheet and cash flow statement. 

Tip #6: Match the financial projections to your actual results

Now, once you’ve got your three statement model, the incomes statement, balance sheet, cash flow statement, you’ll need to layer in actuals. You’re going to want to show what you budgeted and what you’re actually doing, and do so in a way that explains how the company’s projections will grow over time. This is tremendously valuable to the CEO, because they can see if they’re underperforming financially, if they’re spending too much money, and this is very, very important to see if your runway is getting shortened, if you are materially outperforming your projections. Having the budget actuals is really important. 

Tip #7: Understand the trendlines

Finally, you’re going to want to analyze some of your basic trendlines. You’re going to want to analyze your expenses. You’re going to want to analyze your revenue ramp. You’re going to want to look at how much you’re spending on headcount every month. Some nice charts are really valuable. Those are charts you can show in your board meeting and say, “Look at our revenue ramp. Look at how we’re keeping costs very manageable. Look at how we haven’t ramped headcount too much.” Pay attention to the ramps, make sure they are either smooth, or that you can explain where massive changes happen. For example, if revenue growth is projected to jump, can you explain why that jump will occur? 

These are all tips that you can use as you create your startup’s financial projections. Using these tips can help you make your financial forecast a lot more informative for the company, for your board, and also just help you manage the business better. 

VC Funding - How to think about funding and your future numbers

VCs, at least the experienced ones, are always thinking ahead to the next fundraising round. They’ll want to know that you’ve got the right metrics to raise the next round of financing. For example, if you are raising a Series A, they will look ahead to the KPIs that you show at the Series B to back-check to make sure you’ll have the numbers that the market wants to see to write that next check. Do your model based on the metrics that you need to achieve to get that next round of financing. Then you can modify your hiring and other burn based on how closely you hit your spending. VCs will want to see:

  1. How much money you need to get to your next round (so how much you are raising NOW)
  2. What your run rate will be at the next round - so that you’ll have the metrics to raise the next round
  3. How much money you’ll raise in the next round (so they can make sure they’ll have the capital to support you + confirm you are rightsizing the capital needs of the company with the opportunity)

Another critical point that many founders miss when discussing their numbers with VCs is that the investors are likely to remember the metrics that were presenter earlier in the process. For example, if you meet with an investor and share a set of projections that show that you’ll have 150 live, paying customers in 3 months, and then meet with that investors in 3 months, they will want to know if you’ve hit that 150 customer count. 

That’s why it’s important to keep your numbers updated with recent historical results, and that’s why you’ll want to do budget-vs-actuals, especially during your fundraising process. The basic process is that you compare the major line items in your budget vs. what you actually achieved, and debug why there are differences - and figure out what’s working. Professionals call these “BVAs,” and the benefits of doing them are:

  • Brings accountability to your forecasted numbers
  • Qualitatively shows how you’re performing vs. expectations
  • Provides visibility to where you are over budget, so you can course correct
  • Displays where spend is not that effective
  • Ensures you’re hiring according to plan

Don’t show an investor a financial model that shows smooth growth “up and to the right.” No company’s growth is without bumps. These models take a lot of time to build and are highly personalized, so it really is best to consult with a professional. If you’re planning on raising $3M+ you should come prepared with well thought out financial projections.


Financial Modeling


We are the experts at helping seed/VC-backed Delaware C-Corps with their accounting and finances!

Talk to an experienced accountant, not a generic sales person

 Kruze Consulting
Alex Janeck
 Kruze Consulting
Edith Silva
 Kruze Consulting
Randy Hall
Viz AI

$250M+ VC Funding Raised

"I had a great experience working with Kruze Consulting when we raised Series A. They know what VCs need to see, and how to present a startup’s books and finances. If you are going to raise venture capital, you need experts like Kruze."
Chris Mansi

Chris Mansi


Startup Venture Capital Assistance

With former venture capitalists on staff, our team is here to help you navigate the fundraising process and manage your board of directors

 Kruze Consulting
Scott Orn
COO | Former VC
 Kruze Consulting
Healy Jones
VP FP&A | Former VC

Scale Remote Operations & Team

"Kruze has supported us above and beyond basic accounting needs by ensuring we have everything we need to expand and support our team wherever they may be located"
Zack Fisch

Zack Fisch

Head of Operations & Legal

Clients who have worked with Kruze have collectively raised over $15 billion in VC funding.

We set startups up for fundrising success, and know how to work with the top VCs.

 Kruze Consulting
Vanessa Kruze, CPA
Founder & CEO
Kruze Logo

Experienced team helping you

Our account management team is staffed by CPAs and accountants who have, on average, 11 years of experience.

 Kruze Consulting
Bill Hollowsky, CPA
VP of Accounting Services
 Kruze Consulting
Claudine Vantomme, CPA
 Kruze Consulting
Morgan Avery
SUT/R&D Sr. Tax Accountant
 Kruze Consulting
Beth Bassler
Controller, CPA
Protara Therapeutics

Grew from a 2-person startup to a NASDAQ listed public company.

"The Kruze team helped us grow from a 2-person startup to a NASDAQ listed public company in 2 years. We wouldn’t have gotten public without Kruze’s support. Anyone thinking of launching a startup should make Vanessa their first call!"
Jesse Shefferman

Jesse Shefferman


Kruze Logo

Get in Touch

Please help us connect with you

How can we reach you?

Our first response is typically via email, so please check your inbox.

Help us have a productive first consultation by providing some additional information.

What year was your startup incorporated?

What is your stage of funding?

(pick up from the list)

Approximately how much funding have you raised?

(please enter a dollar value such as 5000000)

Help us understand what you are looking for:

(Optional, click the ones you need)

Anything additional that you’d like to share?

Optional - if you’d like to share anything else to help us prepare for our consultation, please let us know. We are also happy to sign an NDA, just let us know.

  Talk to a leading startup CPA