Startups create financial models to raise capital, sell to an acquirer or to manage the teams budget. On this page, you’ll find financial models that you can download and use on your own, tips on how to build a financial model and information on how to work with an outsourced financial modeling firm like Kruze Consulting.
Click here to jump to our free financial model templates that you can use on your own. If your company hasn’t raised funding yet, we recommend you use one of our templates vs. spending money on an outsourced financial modeling service. Our free Excel templates are designed to be used by founders who have some Excel experience - but who don’t need to be Excel savants. Of course, if you are an expert modeler, you should 100% customize our models for your company’s particular needs - they are designed to be easy to modify.
Kruze Consulting clients have raised over $10 billion in venture capital funding. Many of them were able to DIY their projections using either one of our templates or one provided by their venture investor, but many worked with our financial modeling team to either proof their files or build them from scratch. If you don’t know how to build a financial model for your startup, click here to schedule a time to speak with Kruze about a modeling project.
A financial model is the numerical expression of your startup’s goals - how many customers you’ll have, how many people you’ll hire, how your margins will improve. The creation of a financial model should tease out the key metrics and assumptions that you will test as you execute your business plan. The best startup financial models are usually not “right” - but the differences between the projections and the actual results can drive insight into the company’s potential and the targeted industry’s dynamics. Understanding the difference between your projections and your actual results can also help your executive team make important business decisions.
We have created several financial models that you can use for free. These are Excel spreadsheets that will help you create projections for your startup, provide the information you need to your 409A valuation firm, think through your cash burn and more. You’ll find helpful modeling tips, how-to instructions and videos below on this page - click here to jump to the modeling help section below. Simply click on the financial model template you want to download to get started - they are free! And if you need help with your modeling project, reach out to us at Kruze Consulting and we’ll see if it makes sense to work with us on a consulting project.
For startups, a financial modeling is a finance tool that should be the numerical representation of the startup’s strategy and vision. It communicates and forecasts the company’s revenues, customers, KPIs, expenses, employee headcount and cash position.
More sophisticated companies will use the financial model as a budget, informing the different divisions within the organization of their projected hiring, major expenses and financial goals. For early-stage businesses, or simple ‘ideas,’ the financial model is a business plan that outlines the near-term expenses and goals for the company, and longer-term illustrates the startup’s growth potential. Companies raising venture capital funding will use the projections as a tool to communicate with the VCs, and it will often be an important part of finance due diligence.
Most projections that investors and experienced founders are expecting to see are pretty much the same template - revenue and expense projections, and a net cash position. Some templates have the three most important financial statements (the income statement, cash flow statement and balance sheet), but many templates simplify to just the income statement and a projected cash position. We tend to recommend that founders use a template without the balance sheet and cash flow statement, unless they are working with a professional like us. This is because the balance sheet can be tricky to model correctly - an unbalanced balance sheet is embarrassing, and can cause investors to lose faith in the modeling exercise. Since most early-stage companies don’t have complicated working capital, capex or loans, the balance sheet adds less to the analysis that you’d think. Thus, we recommend that founders DIYing their projections use a template that doesn’t bother with the balance sheet and cash flow statement. Although, when we produce projections our templates and outputs always have these statements - but again, we do this everyday, so it doesn’t take us meaningfully longer to get them right.
Let’s talk about forecasting best practices, that’s building a three-year model that’s dynamic.
You want your model to easily change assumptions for each year, and you want to include a waterfall throughout the entire sales funnel, that’s going to include conversion rates and unit economics.
This is a best practice that the best CEOs do, because it provides an understanding of resources and effort required to close a sale. You also want to remember to include delays due to sales cycle and customer collections. This is going to affect your cash flows.
Next, you want to stress test your model, conversion rates, growth rates and see what the impacts are. When these start to go sideways, you’re going to be prepared. If not, it can kill your cash. Next, your model should include a balance sheet, income statement, and cash flows. Finally, be honest with yourself in building your model.
We’ve outlined the steps to create a financial model for your startup.
Determine the goal of the model
Understand the goal of the model so that you can decide how complicated to make the project. In general, if you are market sizing or doing back of the envelope estimates, less complicated is better. The next level of complication is if you are raising capital - too detailed, and your conversations with investors will get bogged down in minutiae. But have enough detail to show that you understand the market. Finally, for a detailed cash flow model for an operating business, it is typical to have very detailed analysis.
Determine the KPIs for your company
Understanding - and organizing - your KPIs helps you prepare to organize your key assumptions and outputs. Ideally, these KPIs are numerical factors and assumptions that you will be able to track - KPIs in a model a useless if you can’t track how you perform against them! Use industry standard KPIs as a starting point.
Get a financial model template
Existing templates almost ALWAYS make sense. Don’t start from nothing; building a working piece of Excel is time consuming and a waste of time. Use one of the many free templates - like the ones on this page.
Merge actual results into the template
Don’t forget your actual financial results. If you have an operating business, merge your actual results into your projections. It’s best to start with reality, so you can level set. Strange ‘kinks’ in the model where actual results meet projections is a sign that there is something off with your projections.
Start forecasting revenue
Work your way down the income statement, starting with revenue. When you think about how much revenue you’ll have, make sure you understand what’s driving that revenue. Is there a particular number of customers or sales people or marketing spend/activities that will cause that revenue growth? You’ll also want to think about your cost of goods sold as you project your revenue. Note that this does NOT make sense if you are projecting a hardware or biotech company with a long time to revenue. Instead, for those, map out the effort you’ll need to reach critical product development milestones.
Project headcount needs
For most startups, headcount is the biggest expense (at least until marketing kicks in!) How many people will you need to achieve your goals, and how much will each cost? Don’t forget recruiting costs; even if you have a deep network, you’ll will likely need to hire in the out years.
Estimate other expenses
You can use examples from other successful companies to see how they’ve scaled their expenses. Remember to add in additional expenses as the company grows - this should also apply to your headcount expenses. Very few companies have over a 50% pre-tax profit margin, so make sure you are adding in expenses!
Model working capital
Working capital can be a surprisingly large driver of your model’s cash position. Read our section below. Basically, understand when your clients will pay you, and when you’ll need to pay big vendors.
Review your projections
Do a sanity check! Startup financial projections. Take a look at the summary. Does it make sense? Is the model telling the story that you envisioned? A sanity check is always a good idea.
Deferred revenue, also called unearned revenue, matters to startups that get paid up front for service that they will deliver over time. Deferred revenue hits the balance sheet, and slowly converts to revenue, so really matters when creating a startup’s financial model.
A very important thing to know about deferred revenue is that, since balance sheets balance, the asset that goes on the balance sheet to balance out a new deferred revenue liability is cash.
So, why is deferred revenue a liability? If a company gets a payment in advance of delivering a service, you owe the service to the client. So it’s a liability because you owe that service to them. Let’s do a pretty simple deferred revenue example. Let’s say you’re a software as a service startup. A SAAS startup Your service is one hundred dollars a month and a client prepays for the full year, all 12 months.
The clients pays the startup twelve hundred dollars. In month one, the startup is able to recognize 100 dollars’ worth of revenue. so they deliver one hundred dollars’ worth of their service to that client. Now the deferred revenue balance was that full cash amount that they received the twelve hundred dollars. And then the recognized revenue of $100 is deducted. At the end of that first month, there is an eleven hundred dollar deferred revenue balance for this client. And this will continue over the life of the contract until the last month when the last one hundred dollars is recognized and this startup has a zero-dollar balance in their deferred revenue account.
Deferred revenue can cause some confusing impacts to a startup’s cash position. This video will help explain deferred revenue, and how to model it into your startup’s financial forecast.
Top 3 considerations when building your startup’s first financial model: Know the goal to the model, as in, why are you building a model? Are you doing a back of the envelope financial validation of your idea? Or are you raising venture capital? Or does your team need to know their budget? Each of these requires different levels of detail. What are your business’ KPIs, as in what are the key performance indicators that will show you if your company is on the right track. These don’t just have to be accounting related, they could be about the product release schedule, the number of clients, etc. Don’t start from scratch, use an existing spreadsheet template. The act of connecting the cells and putting in the basic formulas is not going to help your startup grow - don’t spend the time on it. Take an existing, free model - like the one we offer, and use it.
This is a model that we’ve created and we provide for free on our website. We’re giving this away because there are a number of startup executives who want to build a simple financial model for their startup and who are comfortable enough with Excel to do this on their own.
And we also know that there are a large number of very early stage startups for whom hiring somebody like a Kruze Consulting to build a model just doesn’t make sense. This model is a very simplified version of one of the model templates that we use when we create financial models for our clients.
This free financial model has three main tabs. There’s a summary tab, there’s a graph tab, and there’s a model tab.
The summary tab is a high-level output that shows the income statement in cash and some of the KPI’s of the startup. We’ve seen that CEOs really like to use this to try to understand the macro level growth and expenses of their startups. And this is also the output that a number of our clients have used in their pitch decks when they go on to raise venture capital. We know this-this output works well because our clients have raised over 10 billion dollars in seed and venture capital. So, this is something that we really do believe resonates well during the fundraising process.
The graphs page is a graphical representation of some of the KPI’s of the startup like revenue growth headcount growth. Cash burn. It’s a really nice way to visually show what’s happening and the impact of the financial projections.
Finally, the model tab is the tab where all the magic happens. It’s in here that you can enter your projections, your headcount, your expenses, for things like marketing. It will output your cash and your cash balance in the cash balance section which is down at the bottom of this tab. Use the instructions tab for the detailed instructions and how to run the model tab.
We hope this free resource is helpful. We do offer financial modeling as a service to startup executives who are looking to get help when they’re putting together their financial model. So, contact us if that’s something you’d like to learn more about and to find out if engagement with Kruze makes sense.
Having a solid budget helps your startup hit its goals without prematurely running out of cash. A number of us here at Kruze Consulting have worked in fast-growing startups and we’ve compiled our tips on how to make this budgeting process work. The most important thing is you need to understand or have a vision of what your long-term strategy is and what you need to do to achieve those goals. You’ll want to bake your budget around what your strategy is, and the budget is actually the financial representation of that strategy. You got to make sure your team knows what the strategy is - what your financial goals are in terms of the revenue that you need to hit and the cash need to burn. Or what features need to be built and then you’ll want to start to pay careful attention to the key parts of the budget. So, for most early-stage startups, the biggest part of burn is headcount. So, you want to pay careful attention to your headcount projections over the coming year and because you’ll put this together with your team and your team will have their headcount projections. It will really help them manage their team in a particular know when they need to start recruiting so they’ll know when they
should be able to bring on additional heads. You should have a very strong opinion on what the revenue should be over the next year. So for example, if you’re a SAAS company you should know what your next milestone needs to be in terms of recurring revenue so that you can successfully raise your next round. And then you’ll want to build your plan and your budget around what it takes to get there. You want to be very careful around your burn rate. So you want to know how much money you’re burning so that you don’t prematurely run out of money. And then you’ll want to know what your monthly burn is at the end of the year like the burn of the exit with at the end of the year so that you can project your cash out date.
You want to make sure you’re not… You want to make sure that you run out of cash when you expect to run out of cash which hopefully aligns with you being worth more and raising more capital. Once you’ve got all this put together you can make sure that it’s carefully shared with your department leaders so they can come back and build their detailed budgeting plans with you. And also, they can very clearly understand what their goals are.
There are two ways that startups might want to record equity investments that they get, like venture capital rounds, on their balance sheet.
1) The Official GAAP way - probably overkill for most startups 2) The way investors like to see it
The GAAP way wants your equity section to have three accounts, Common Stock, Preferred Stock, and Additional Paid-in Capital. The hardest part of this is to calculate the Additional Paid in Capital is like the (Issue Price – Par Value) * Basic Shares Outstanding. Financing Costs are netted against this account.
Investors prefer to see each new fundraising round as a new equity account. If you use this method, you’ll have Common Stock, Seed Series Stock, Series A, Series B, etc. You’ll subtract your financing costs against each rounds amount. In this method, if you haven’t really calculated APIC, don’t include it on your Balance Sheet - you don’t want to give the impression that you are doing things on a GAAP basis when you are not. Notice that once fundraising round is closed, new funds aren’t added to it. New funds are placed in a new fundraising Equity account.
Why do venture capitalists prefer to see the Equity section in the non-GAAP, simpler method? Because it’s cost effective (from a cash-burn spent on accountants perspective) and it’s easy for them to understand how much the company has raised at each round of financing.
Here are a few tips for you as you’re building a budget for your startup.
So you’ve got the great idea, and maybe even have the team put together. Heck, maybe you even have a client or two! Now you want to put together a financial model to figure out if you can raise capital, or how long you can last with your existing investment. How do you start that model? There is no single answer to the best way to get going, but here are a few places to think about at first:
SaaS companies have specific financial modeling needs. In particular, a SaaS company wants to have a strong understanding of its user metrics. This includes how many users are acquired, churned, upgraded in a given period (we usually model it monthly.) Secondly, the length of time of contracts, and how your company is paid, matter for SaaS companies. Annual contracts that are paid up front can create deferred revenue, which is great for cash flow but does present some challenges from a modeling perspective. Finally, many SaaS models that we create have different pricing tiers to help the SaaS company understand the influence and impact of different pricing plans on the company’s top line growth and profitability.
What are Customer Acquisition Costs and how do you model them? CAC looks, on a per new unit (i.e. customer basis) how much you pay to get a new customer. So, if you spend $10,000 on sales and marketing and get 100 new customers, your CAC is $10,000 / 100, or $100. The costs that go into CAC usually have two components, fixed costs, and variable costs. Examples of fixed costs would be costs that don’t increase as your company grows. The salary for your demand generation team would be a clear example of a fixed cost - if they are scalable, then you can acquire 1 user or 100 in a period and still have the same salary cost. Some software costs don’t vary much as the company grows, such as the cost of SEO software. Variable costs move up as the company acquires more customers. Clear examples of variable costs include some online marketing costs, such cost per click advertising. The cost of a sales team can also be variable, as you likely need to hire an ever increasingly large sales team to help your company close more and more new clients.
Managing a company’s burn and the runway is a constant challenge for an early-stage, funded company. Having helped hundreds of companies manage their burn, Kruze Consulting’s view is that the companies who have a well-developed budget are the ones who best manage their runway.
You need to have a vision of what your long-term strategy is and what you need to do to achieve those goals so that you can build a budget to manage your burn and optimize your runway.
Why do you need a budget? Because knowing where you want to spend, and how those choices impact your burn, is critical to managing your runway. Plus, you need something against which to measure your burn - and that’s called your budget!!
Your budget may have money coming in - other than venture capital money, that would be from revenue. Revenue may or may not be an important part of your projections. If you are something like a SaaS company, you’ll likely need a particular set of revenue and revenue growth numbers to raise your next round. Build your budget based on the targets you need to hit - and then you can modify your hiring and other burn based on how closely you hit your spending.
Money goes out of your company’s expenses. Every very early-stage startup spends >80% of their money on 3 things: Payroll, Rent, and Contractors. You may also have some large legal expenses from your recent fundraise, so ask your attorney if you haven’t already. Controlling these expenses give you levers you need to manage your runway.
Payroll: people are expensive. Hire the very best people that you can and pay them well. Always take the quality of people over quantity. As David Barrett highlights in this article, more people does not equal more output, it means more overhead.
Rent: Rent is expensive, so consider having some remote people, using a WeWork or headquartering in a city other than San Francisco or New York.
Contractors: Contractors are expensive… but less so than employees. You don’t have to manage additional rent/desk space, equipment, or training. You will also feel less likely flexing their hours/spend, although, in turn, they may give you less loyalty.
Working Capital is effectively the delta between a startup is paid by its clients and when it needs to pay its vendors. A more technical definition of working capital is the difference between current assets and current liabilities on a company’s balance sheet.
Working capital matters for startup financial models because understanding working capital becomes important for being able to project cash flows. Not all clients will pay immediately. Not all vendors need to be paid immediately (although some may be paid ahead of time).
Critical factors to think through when modeling the impact of working capital in a startup’s financial model include: how long it takes to get paid (especially if selling into the enterprise); if any revenue will be collected up front (creating deferred revenue and putting cash onto the balance sheet); which vendors are being pre-paid; how long the payment will be on other vendors.
If you are modeling a very early stage startup, it’s OK to assume you pay your vendors in the same month and defer your revenue collection 30 to 60 days. Later stage companies will likely need to have a more detailed working capital model built into their balance sheet and cash flow projections.
When you are analyzing the cash flow of each new employee, you need to look beyond their core salary. Things like benefits, commissions, computer setup and more should be taken into account. Roughly these costs add on about 33% to the employee’s base salary, although with the huge amount of international hiring that we’ve seen, this can be lower in some non-US locations.
Another important metric to add to the cost of an employee in your model is wage inflation. We are seeing wages go up 10% to 25% a year at the moment for many technology employees, so don’t forget to include a salary increase annually. Our free templates have an assumption area where you can easily input this wage increase.
All startup projections should have an income statement and a running cash balance. You can also have the three, traditional financial statements in your model if you’d like; those are:
Having all three does increase the complexity of your projection work - remember, the balance sheet should balance, the cash flow’s ending cash amount should equal the cash position on the balance sheet, and the cash flow statement and the income statement are intricately linked! So we don’t recommend that level of complexity for your seed stage model - just the IS and the cash position (maybe working capital or inventory).
Silicon Valley-style technology and biotech startups, by their very nature, have extreme financial projections. No venture capitalist wants to invest in a highly-risky company where the management has modest projections! But how should a founding team set up realistic projections that are still aggressive enough to explain the massive opportunity and get VC’s interested in investing?
Step 1: make sure the projections capture the size of the market; bigger markets lend themselves to bigger projections and estimates, higher growth, etc.
Step 2: if you are projecting big growth/big top-line revenue numbers, don’t forget to have big expenses to go along with them. In particular, we see time and time again founders who have projections of reaching $50 million or more in revenue with just a handful of employees. It would be very unusual to not have a lot of headcount growth to reach a huge revenue size. And VCs will doubt your credibility if you show them a company that has 80% pre-tax margins at scale - this is, generally, pretty unrealistic. So scale up your expense projections alongside your revenue growth.
Step 3: Focus on the assumptions behind your unit economics. Make sure these make sense from your target customers’ point of view. The average consumer can’t pay $50,000 per year for a new product; the average small business can’t either. So, understand the customers’ willingness to pay, and then how that impacts your margins and growth.
Step 4: Research similar companies’ business models and financial statements. For example, if you are in the social media space, look at Facebook and Twitter - see how their financial statements changed over time. The same is true if you are an eCommerce business - plenty of eCommerce companies have gone public and shared their data.
Step 5: Don’t model yourself out of a deal! If you are truly focusing on a huge market opportunity with tons of potential customers willing to pay for your product, don’t be so conservative that your projections don’t look interesting to potential investors, co-founders and employees.
There are two types of standard financials that are needed in a VC pitch deck. and they can usually be shared in the same summary slide.
The first is for companies that already have real operations, so a pure “startup” with no operating history doesn’t really need this. But if your company is in business, you’ll want to show the historical financials in a summary format. And these should “roll” into the projections, which is the second thing you’ll need to show. Note that it makes sense to do this either quarterly or yearly - too much detail isn’t helpful in a deck.
The second is that the best pitch decks also have financial projections. Again, you’ll want to integrate these into the historical projections, and in most cases show them all on one slide. Keep in mind that the VC is trying to understand 1) what the company will look like when it raises the next round of funding; 2) how “big” the founders think the business can get; 3) how much capital the business will need; and 4) do the founders have a good grasp of the financial implications of their business model.
Budget versus actuals is one of the best tools in your tool belt. Budget vs actuals is when you take your financial model or projections and compare them every month to your actual results. The reason why this is so powerful is it brings a lot of scrutiny and discipline to your company. Especially as a founder, you need to know what your expectations are and how you’re doing against your expectations.
If you spend a couple of hours a month doing budget to actuals, it’ll pay for itself ten-fold.
Benefits of Budget VS Actuals:
You will always want to know your startup’s cash out date. Your cash out date is the day your startup will run out of money in your bank account and you essentially will no longer be able to run the company. It is a day all startup founders fear and it is a day you should work toward never getting too close to.
How to Calculate Your Startup’s Cash Out Date
Cash Out Date Tips:
Burn rate is one of the most important metrics you can actually calculate or monitor at your startup and it is effectively the amount of money you are spending every month. There’s a couple of different ways or metrics in this. There’s also a couple of different time periods that you will want to think through when you’re calculating your startup’s average burn rate.
2 Burn Rate Accounting Treatments:
PROTIP: Look at your burn rate every month & share this in investor meetings. This builds confidence with your BOD.
Yes, startups need to have a coherent financial model. Not only can a financial model help keep a startup from prematurely running out of cash, it is a useful device for managing an early-stage company’s cash, burn and progress against important KPIs. If your startup is going to raise venture capital funding - or even seed financing - you need a financial model to explain to the investors how much capital you’ll need, what you will spend the investment on, and the position that the company will be in at its next fundraise.
Looking for free financial models for your startup? Look no further - we’ve got free model templates available above for your download. Look for files that do the bulk for the infrastructure work for you - you don’t need to spend time building fancy formulas, let the template do that for you.
A financial model is an important step for most venture capital fundraises - however, the level of complexity and importance vary by the company’s stage. Very early stage companies can usually get by with a simple operating plan that says what the company will spend, how it expects revenue to grow and what it will look like at the two next fundraises. Later stage companies - starting with the Series B, but sometimes at an A if the round is large enough, will require more detail projections that have information on expected customer count, CAC, and headcount projections and more.
If you are a SaaS business, download the free startup revenue model template on this page! What typically goes into a revenue model depends on the stage of the company that you are modeling. Companies already generating meaningful revenue, with multiple clients, can start to get pretty sophisticated with their pricing projections, average revenue per client and client retention, reorder, basket size, etc. Pre-revenue startups, or early-stage companies that don’t yet have a deep understanding of how they will charge clients, what pricing will be, retention/basket sizes, etc. should typically opt to be more extrapolated in their revenue modeling. For example, instead of having multiple features that result in dozens of possible pricing permutations, go higher level and estimate the number of clients you expect to have at one or two average price points.
What is the difference between a financial plan vs. a financial model? Venture capitalists tend to use these two terms interchangeably. Just like any good plan, when putting together a financial plan for an early-stage startup, a founder needs to have a clear vision of the company’s long-term strategy and goals. Fundraising needs should be part of that vision.
We highly recommend you start with a financial model template instead of starting from scratch. While it can be tempting to start with a blank slate, most founders will benefit from using a model that already flows correctly and that doesn’t require a lot of basic infrastructure to get up and running.
As a founder, you have a million things to do - making a balance sheet balance, or changing a gross profit margin cell to a percentage format isn’t one of them. Many, many of the startup founders we work with can easily build their projections starting from a blank spreadsheet. But the best don’t, because they know that they get no ‘points’ for starting from scratch. Save the time, and use an existing financial model template like the ones we have for free on this page!
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The Kruze team of CPAs, CFOs, CFAs and venture capitalists regularly post new content on financial models and other aspects of early-stage finance. Read some of our recent posts!
Brex vs Ramp - Which card is best for startups?
Posted on Thu, 24 November 2022
Our CPA team compares Brex and Ramp. Which offers the best card for startups? We look at points, expense management features and more.
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With former venture capitalists on staff, our team is here to help you navigate the fundraising process and manage your board of directors
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"
Head of Operations & Legal
Clients who have worked with Kruze have collectively raised over $10 billion in VC funding.
We set startups up for fundrising success, and know how to work with the top VCs.
Experienced team helping you
Our US-based account management team is staffed by CPAs and accountants who have, on average, 11 years of experience.
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!"
Functionally, in a startup’s financial model, working capital is the difference between when the company collects revenue from when it pays its vendors. Technically, the definition is the difference between current assets minus current liabilities.
For many companies, clients do not pay immediately. Sometimes it can take 30, 60, 90 days - or even more - to collect payment for goods and services already delivered. Startups selling into Fortune 500 or large enterprises (or governments!) need to be aware when generating their cash projections that revenue can take quite some time to collect.
Make sure to consider what type of organizations your startup will be selling to when modeling your cash flows!