financials start up business plan

Launching soon – Support us on Product Hunt 🐱 and get 50% off your first month!   Get 50% Off →

AI ASSISTANTS

Upmetrics AI Your go-to AI-powered business assistant

AI Writing Assist Write, translate, and refine your text with AI

AI Financial Assist Automated forecasts and AI recommendations

TOP FEATURES

AI Business Plan Generator Create business plans faster with AI

Financial Forecasting Make accurate financial forecasts faster

INTEGRATIONS

QuickBooks (Coming soon...) Sync and compare with your QuickBooks data

Strategic Planning Develop actionable strategic plans on-the-go

AI Pitch Deck Generator Use AI to generate your investor deck

Xero Sync and compare with your Xero data

See how easy it is to plan your business with Upmetrics: Take a Tour  →

AI-powered business planning software

Very useful business plan software connected to AI. Saved a lot of time, money and energy. Their team is highly skilled and always here to help.

- Julien López

BY USE CASE

Secure Funding, Loans, Grants Create plans that get you funded

Starting & Launching a Business Plan your business for launch and success

Validate Your Business Idea Discover the potential of your business idea

E2 Visa Business Plan Create a business plan to support your E2 - Visa

Business Consultant & Advisors Plan with your team members and clients

Incubators & Accelerators Empowering startups for growth

Business Schools & Educators Simplify business plan education for students

Students & Learners Your e-tutor for business planning

• Sample Plans

WHY UPMETRICS?

Reviews See why customers love Upmetrics

Customer Success Stories Read our customer success stories

Blogs Latest business planning tips and strategies

Strategic Planning Templates Ready-to-use strategic plan templates

Business Plan Course A step-by-step business planning course

Help Center Help & guides to plan your business

Ebooks & Guides A free resource hub on business planning

Business Tools Free business tools to help you grow

How to Prepare a Financial Plan for Startup Business (w/ example)

Free Financial Statements Template

Ajay Jagtap

• December 7, 2023

13 Min Read

If someone were to ask you about your business financials, could you give them a detailed answer?

Let’s say they ask—how do you allocate your operating expenses? What is your cash flow situation like? What is your exit strategy? And a series of similar other questions.

Instead of mumbling what to answer or shooting in the dark, as a founder, you must prepare yourself to answer this line of questioning—and creating a financial plan for your startup is the best way to do it.

A business plan’s financial plan section is no easy task—we get that.

But, you know what—this in-depth guide and financial plan example can make forecasting as simple as counting on your fingertips.

Ready to get started? Let’s begin by discussing startup financial planning.

What is Startup Financial Planning?

Startup financial planning, in simple terms, is a process of planning the financial aspects of a new business. It’s an integral part of a business plan and comprises its three major components: balance sheet, income statement, and cash-flow statement.

Apart from these statements, your financial section may also include revenue and sales forecasts, assets & liabilities, break-even analysis , and more. Your first financial plan may not be very detailed, but you can tweak and update it as your company grows.

Key Takeaways

• Realistic assumptions, thorough research, and a clear understanding of the market are the key to reliable financial projections.
• Cash flow projection, balance sheet, and income statement are three major components of a financial plan.
• Preparing a financial plan is easier and faster when you use a financial planning tool.
• Exploring “what-if” scenarios is an ideal method to understand the potential risks and opportunities involved in the business operations.

Why is Financial Planning Important to Your Startup?

Poor financial planning is one of the biggest reasons why most startups fail. In fact, a recent CNBC study reported that running out of cash was the reason behind 44% of startup failures in 2022.

A well-prepared financial plan provides a clear financial direction for your business, helps you set realistic financial objectives, create accurate forecasts, and shows your business is committed to its financial objectives.

It’s a key element of your business plan for winning potential investors. In fact, YC considered recent financial statements and projections to be critical elements of their Series A due diligence checklist .

Your financial plan demonstrates how your business manages expenses and generates revenue and helps them understand where your business stands today and in 5 years.

Makes sense why financial planning is important to your startup, doesn’t it? Let’s cut to the chase and discuss the key components of a startup’s financial plan.

Say goodbye to old-school excel sheets & templates

Make accurate financial plan faster with AI

Plans starting from $7/month

Key Components of a Startup Financial Plan

Whether creating a financial plan from scratch for a business venture or just modifying it for an existing one, here are the key components to consider including in your startup’s financial planning process.

Income Statement

An Income statement , also known as a profit-and-loss statement(P&L), shows your company’s income and expenditures. It also demonstrates how your business experienced any profit or loss over a given time.

Consider it as a snapshot of your business that shows the feasibility of your business idea. An income statement can be generated considering three scenarios: worst, expected, and best.

Your income or P&L statement must list the following:

• Cost of goods or cost of sale
• Gross margin
• Operating expenses
• Revenue streams
• EBITDA (Earnings before interest, tax, depreciation , & amortization )

Established businesses can prepare annual income statements, whereas new businesses and startups should consider preparing monthly statements.

Cash flow Statement

A cash flow statement is one of the most critical financial statements for startups that summarize your business’s cash in-and-out flows over a given time.

This section provides details on the cash position of your business and its ability to meet monetary commitments on a timely basis.

Your cash flow projection consists of the following three components:

✅ Cash revenue projection: Here, you must enter each month’s estimated or expected sales figures.

✅ Cash disbursements: List expenditures that you expect to pay in cash for each month over one year.

✅ Cash flow reconciliation: Cash flow reconciliation is a process used to ensure the accuracy of cash flow projections. The adjusted amount is the cash flow balance carried over to the next month.

Furthermore, a company’s cash flow projections can be crucial while assessing liquidity, its ability to generate positive cash flows and pay off debts, and invest in growth initiatives.

Balance Sheet

Your balance sheet is a financial statement that reports your company’s assets, liabilities, and shareholder equity at a given time.

Consider it as a snapshot of what your business owns and owes, as well as the amount invested by the shareholders.

This statement consists of three parts: assets , liabilities, and the balance calculated by the difference between the first two. The final numbers on this sheet reflect the business owner’s equity or value.

Balance sheets follow the following accounting equation with assets on one side and liabilities plus Owner’s equity on the other:

Here is what’s the core purpose of having a balance-sheet:

• Indicates the capital need of the business
• It helps to identify the allocation of resources
• It calculates the requirement of seed money you put up, and
• How much finance is required?

Since it helps investors understand the condition of your business on a given date, it’s a financial statement you can’t miss out on.

Break-even Analysis

Break-even analysis is a startup or small business accounting practice used to determine when a company, product, or service will become profitable.

For instance, a break-even analysis could help you understand how many candles you need to sell to cover your warehousing and manufacturing costs and start making profits.

Remember, anything you sell beyond the break-even point will result in profit.

You must be aware of your fixed and variable costs to accurately determine your startup’s break-even point.

• Fixed costs: fixed expenses that stay the same no matter what.
• Variable costs: expenses that fluctuate over time depending on production or sales.

A break-even point helps you smartly price your goods or services, cover fixed costs, catch missing expenses, and set sales targets while helping investors gain confidence in your business. No brainer—why it’s a key component of your startup’s financial plan.

Having covered all the key elements of a financial plan, let’s discuss how you can create a financial plan for your startup.

How to Create a Financial Section of a Startup Business Plan?

1. determine your financial needs.

You can’t start financial planning without understanding your financial requirements, can you? Get your notepad or simply open a notion doc; it’s time for some critical thinking.

Start by assessing your current situation by—calculating your income, expenses , assets, and liabilities, what the startup costs are, how much you have against them, and how much financing you need.

Assessing your current financial situation and health will help determine how much capital you need for your startup and help plan fundraising activities and outreach.

Furthermore, determining financial needs helps prioritize operational activities and expenses, effectively allocate resources, and increase the viability and sustainability of a business in the long run.

Having learned to determine financial needs, let’s head straight to setting financial goals.

2. Define Your Financial Goals

Setting realistic financial goals is fundamental in preparing an effective financial plan. So, it would help to outline your long-term strategies and goals at the beginning of your financial planning process.

Let’s understand it this way—if you are a SaaS startup pursuing VC financing rounds, you may ask investors about what matters to them the most and prepare your financial plan accordingly.

However, a coffee shop owner seeking a business loan may need to create a plan that appeals to banks, not investors. At the same time, an internal financial plan designed to offer financial direction and resource allocation may not be the same as previous examples, seeing its different use case.

Feeling overwhelmed? Just define your financial goals—you’ll be fine.

You can start by identifying your business KPIs (key performance indicators); it would be an ideal starting point.

3. Choose the Right Financial Planning Tool

Let’s face it—preparing a financial plan using Excel is no joke. One would only use this method if they had all the time in the world.

Having the right financial planning software will simplify and speed up the process and guide you through creating accurate financial forecasts.

Many financial planning software and tools claim to be the ideal solution, but it’s you who will identify and choose a tool that is best for your financial planning needs.

Create a Financial Plan with Upmetrics in no time

Enter your Financial Assumptions, and we’ll calculate your monthly/quarterly and yearly financial projections.

Start Forecasting

4. Make Assumptions Before Projecting Financials

Once you have a financial planning tool, you can move forward to the next step— making financial assumptions for your plan based on your company’s current performance and past financial records.

You’re just making predictions about your company’s financial future, so there’s no need to overthink or complicate the process.

You can gather your business’ historical financial data, market trends, and other relevant documents to help create a base for accurate financial projections.

After you have developed rough assumptions and a good understanding of your business finances, you can move forward to the next step—projecting financials.

5. Prepare Realistic Financial Projections

It’s a no-brainer—financial forecasting is the most critical yet challenging aspect of financial planning. However, it’s effortless if you’re using a financial planning software.

Upmetrics’ forecasting feature can help you project financials for up to 7 years. However, new startups usually consider planning for the next five years. Although it can be contradictory considering your financial goals and investor specifications.

Following are the two key aspects of your financial projections:

Revenue Projections

In simple terms, revenue projections help investors determine how much revenue your business plans to generate in years to come.

It generally involves conducting market research, determining pricing strategy , and cash flow analysis—which we’ve already discussed in the previous steps.

The following are the key components of an accurate revenue projection report:

• Market analysis
• Sales forecast
• Pricing strategy
• Growth assumptions
• Seasonal variations

This is a critical section for pre-revenue startups, so ensure your projections accurately align with your startup’s financial model and revenue goals.

Expense Projections

Both revenue and expense projections are correlated to each other. As revenue forecasts projected revenue assumptions, expense projections will estimate expenses associated with operating your business.

Accurately estimating your expenses will help in effective cash flow analysis and proper resource allocation.

These are the most common costs to consider while projecting expenses:

• Fixed costs
• Variable costs
• Employee costs or payroll expenses
• Operational expenses
• Marketing and advertising expenses
• Emergency fund

Remember, realistic assumptions, thorough research, and a clear understanding of your market are the key to reliable financial projections.

6. Consider “What if” Scenarios

After you project your financials, it’s time to test your assumptions with what-if analysis, also known as sensitivity analysis.

Using what-if analysis with different scenarios while projecting your financials will increase transparency and help investors better understand your startup’s future with its best, expected, and worst-case scenarios.

Exploring “what-if” scenarios is the best way to better understand the potential risks and opportunities involved in business operations. This proactive exercise will help you make strategic decisions and necessary adjustments to your financial plan.

7. Build a Visual Report

If you’ve closely followed the steps leading to this, you know how to research for financial projections, create a financial plan, and test assumptions using “what-if” scenarios.

Now, we’ll prepare visual reports to present your numbers in a visually appealing and easily digestible format.

Don’t worry—it’s no extra effort. You’ve already made a visual report while creating your financial plan and forecasting financials.

Check the dashboard to see the visual presentation of your projections and reports, and use the necessary financial data, diagrams, and graphs in the final draft of your financial plan.

Here’s what Upmetrics’ dashboard looks like:

8. Monitor and Adjust Your Financial Plan

Even though it’s not a primary step in creating a good financial plan, it’s quite essential to regularly monitor and adjust your financial plan to ensure the assumptions you made are still relevant, and you are heading in the right direction.

There are multiple ways to monitor your financial plan.

For instance, you can compare your assumptions with actual results to ensure accurate projections based on metrics like new customers acquired and acquisition costs, net profit, and gross margin.

Consider making necessary adjustments if your assumptions are not resonating with actual numbers.

Also, keep an eye on whether the changes you’ve identified are having the desired effect by monitoring their implementation.

And that was the last step in our financial planning guide. However, it’s not the end. Have a look at this financial plan example.

Startup Financial Plan Example

Having learned about financial planning, let’s quickly discuss a coffee shop startup financial plan example prepared using Upmetrics.

Important Assumptions

• The sales forecast is conservative and assumes a 5% increase in Year 2 and a 10% in Year 3.
• The analysis accounts for economic seasonality – wherein some months revenues peak (such as holidays ) and wanes in slower months.
• The analysis assumes the owner will not withdraw any salary till the 3rd year; at any time it is assumed that the owner’s withdrawal is available at his discretion.
• Sales are cash basis – nonaccrual accounting
• Moderate ramp- up in staff over the 5 years forecast
• Barista salary in the forecast is $36,000 in 2023.
• In general, most cafes have an 85% gross profit margin
• In general, most cafes have a 3% net profit margin

Projected Balance Sheet

Projected Cash-Flow Statement

Projected Profit & Loss Statement

Break Even Analysis

Start Preparing Your Financial Plan

We covered everything about financial planning in this guide, didn’t we? Although it doesn’t fulfill our objective to the fullest—we want you to finish your financial plan.

Sounds like a tough job? We have an easy way out for you—Upmetrics’ financial forecasting feature. Simply enter your financial assumptions, and let it do the rest.

So what are you waiting for? Try Upmetrics and create your financial plan in a snap.

Build your Business Plan Faster

with step-by-step Guidance & AI Assistance.

Frequently Asked Questions

How often should i update my financial projections.

Well, there is no particular rule about it. However, reviewing and updating your financial plan once a year is considered an ideal practice as it ensures that the financial aspirations you started and the projections you made are still relevant.

How do I estimate startup costs accurately?

You can estimate your startup costs by identifying and factoring various one-time, recurring, and hidden expenses. However, using a financial forecasting tool like Upmetrics will ensure accurate costs while speeding up the process.

What financial ratios should startups pay attention to?

Here’s a list of financial ratios every startup owner should keep an eye on:

• Net profit margin
• Current ratio
• Quick ratio
• Working capital
• Return on equity
• Debt-to-equity ratio
• Return on assets
• Debt-to-asset ratio

What are the 3 different scenarios in scenario analysis?

As discussed earlier, Scenario analysis is the process of ascertaining and analyzing possible events that can occur in the future. Startups or businesses often consider analyzing these three scenarios:

• base-case (expected) scenario
• Worst-case scenario
• best case scenario.

About the Author

Ajay is a SaaS writer and personal finance blogger who has been active in the space for over three years, writing about startups, business planning, budgeting, credit cards, and other topics related to personal finance. If not writing, he’s probably having a power nap. Read more

Reach Your Goals with Accurate Planning

4 Key Financial Statements For Your Startup Business Plan

• September 12, 2022
• Fundraising

If you’re preparing a business plan for your startup, chances are that investors (or a bank) have also asked you to produce financial projections for your business. That’s absolutely normal: any startup business plan should at least include forecasts of the 3 financial statements.

The financial projections need to be presented clearly with charts and tables so potential investors understand where you are going, and how much money you need to get there .

In this article we explain you what are the 4 financial statements you should include in the business plan for your startup. Let’s dive in!

Financial Statement #1: Profit & Loss

The profit and loss (P&L) , also referred to as “income statement”, is a summary of all your revenues and expenses over a given time period .

By subtracting expenses from revenues, it gives a clear picture of whether your business is profitable, or loss-making. With the balance sheet and the cash flow statement, it is one of the 3 consolidated financial statements every startup must produce every fiscal year .

Most small businesses produce a P&L on a yearly basis with the help of their accountant. Yet it is good practice to keep track of all revenues and expenses on a monthly or quarterly basis as part of your budget instead.

When projecting your financials as part of your business plan, you must do so on a monthly basis. Usually, most startups project 3 years hence 36 months. If you have some historical performance (for instance you started your business 2 years ago), project 5 years instead.

Expert-built financial model templates for tech startups

Financial Statement #2: Cash Flow

Whilst your P&L includes all your business’ revenues and expenses in a given period, the cash flow statement records all cash inflows and outflows over that same period.

Some expenses are not necessarily recorded in your P&L but should be included in your cash flow statement instead. Why is that? There are 2 main reasons:

• Your P&L shows a picture of all the revenues you generated over a given period as well as the expenses you incurred to generate these revenues . If you sell $100 worth of products in July 2021 and incurred $50 cost to source them from your supplier, your P&L shows $100 revenues minus $50 expenses for that month. But what about if you bought a $15,000 car to deliver these products to your customers? The $15,000 should not be recorded as an expense in your P&L, but a cash outflow instead. Indeed, the car will help you generate revenues, say over the next 5 years, not just in July 2021
• Some expenses in your P&L are not necessarily cash outflows. Think depreciation and amortization expenses for instance: they are pure artificial expenses and aren’t really “spent”. As such, whilst your P&L might include a $100 depreciation expense, your cash flow remains the same.

Financial Statement #3: Balance Sheet

Whilst the P&L and cash flow statement are a summary of your financial performance over a given time period, the balance sheet is a picture of your financials at a given time.

The balance sheet lists all your business’ assets and liabilities at a given time (at end of year for instance). As such, it includes things such as:

• Assets: patents, buildings, equipments, customer receivables, tax credits etc. Assets can be either tangible (e.g. buildings) or intangible (e.g. customer receivables ).
• Liabilities: debt, suppliers payables, etc.
• Equity : the paid-in capital invested to date in the company (from you and any other potential investors). Equity also includes the cumulative result of your P&L: the sum of your profits and losses to date

Whilst P&L and cash flow statement are fairly simple to build when preparing your business plan, you might need help for your balance sheet.

Financial Statement #4: Use of Funds

The use of funds is not a mandatory financial statement your accountant will need to prepare every year. Instead, you shall include it in your startup business plan, along with the 3 key financial statements.

Indeed, the use of funds tells investors where you will spend your money over a given time frame. For instance, if you are raising $500k to open a retail shop, you might need $250k for the first year lease and another $250k for the inventory.

Use of funds should not be an invention from you: instead it is the direct result of your cash flow statement . If you are raising for your first year of business, and your projected cash flow statement result in a $500k loss (including all revenues and expenses), you will need to raise $500k.

For instance, using the example above, if you need $500k over the next 12 months, raise $600k or so instead. Indeed, better be on the safe side in case things do not go as expected!

Related Posts

Pro One Janitorial Franchise Costs $9K – $76K (2024 Fees & Profits)

• July 5, 2024

Dance Studio Business Plan PDF Example

• June 17, 2024
• Business Plan

Carpet and Upholstery Cleaning Business Plan PDF Example

Privacy overview.

Free Financial Templates for a Business Plan

By Andy Marker | July 29, 2020

• Share on Facebook
• Share on LinkedIn

Link copied

In this article, we’ve rounded up expert-tested financial templates for your business plan, all of which are free to download in Excel, Google Sheets, and PDF formats.

Included on this page, you’ll find the essential financial statement templates, including income statement templates , cash flow statement templates , and balance sheet templates . Plus, we cover the key elements of the financial section of a business plan .

Financial Plan Templates

Download and prepare these financial plan templates to include in your business plan. Use historical data and future projections to produce an overview of the financial health of your organization to support your business plan and gain buy-in from stakeholders

Business Financial Plan Template

Use this financial plan template to organize and prepare the financial section of your business plan. This customizable template has room to provide a financial overview, any important assumptions, key financial indicators and ratios, a break-even analysis, and pro forma financial statements to share key financial data with potential investors.

Download Financial Plan Template

Word | PDF | Smartsheet

Financial Plan Projections Template for Startups

This financial plan projections template comes as a set of pro forma templates designed to help startups. The template set includes a 12-month profit and loss statement, a balance sheet, and a cash flow statement for you to detail the current and projected financial position of a business.

‌ Download Startup Financial Projections Template

Excel | Smartsheet

Income Statement Templates for Business Plan

Also called profit and loss statements , these income statement templates will empower you to make critical business decisions by providing insight into your company, as well as illustrating the projected profitability associated with business activities. The numbers prepared in your income statement directly influence the cash flow and balance sheet forecasts.

Pro Forma Income Statement/Profit and Loss Sample

Use this pro forma income statement template to project income and expenses over a three-year time period. Pro forma income statements consider historical or market analysis data to calculate the estimated sales, cost of sales, profits, and more.

‌ Download Pro Forma Income Statement Sample - Excel

Small Business Profit and Loss Statement

Small businesses can use this simple profit and loss statement template to project income and expenses for a specific time period. Enter expected income, cost of goods sold, and business expenses, and the built-in formulas will automatically calculate the net income.

‌ Download Small Business Profit and Loss Template - Excel

3-Year Income Statement Template

Use this income statement template to calculate and assess the profit and loss generated by your business over three years. This template provides room to enter revenue and expenses associated with operating your business and allows you to track performance over time.

Download 3-Year Income Statement Template

For additional resources, including how to use profit and loss statements, visit “ Download Free Profit and Loss Templates .”

Cash Flow Statement Templates for Business Plan

Use these free cash flow statement templates to convey how efficiently your company manages the inflow and outflow of money. Use a cash flow statement to analyze the availability of liquid assets and your company’s ability to grow and sustain itself long term.

Simple Cash Flow Template

Use this basic cash flow template to compare your business cash flows against different time periods. Enter the beginning balance of cash on hand, and then detail itemized cash receipts, payments, costs of goods sold, and expenses. Once you enter those values, the built-in formulas will calculate total cash payments, net cash change, and the month ending cash position.

Download Simple Cash Flow Template

12-Month Cash Flow Forecast Template

Use this cash flow forecast template, also called a pro forma cash flow template, to track and compare expected and actual cash flow outcomes on a monthly and yearly basis. Enter the cash on hand at the beginning of each month, and then add the cash receipts (from customers, issuance of stock, and other operations). Finally, add the cash paid out (purchases made, wage expenses, and other cash outflow). Once you enter those values, the built-in formulas will calculate your cash position for each month with.

‌ Download 12-Month Cash Flow Forecast

3-Year Cash Flow Statement Template Set

Use this cash flow statement template set to analyze the amount of cash your company has compared to its expenses and liabilities. This template set contains a tab to create a monthly cash flow statement, a yearly cash flow statement, and a three-year cash flow statement to track cash flow for the operating, investing, and financing activities of your business.

Download 3-Year Cash Flow Statement Template

For additional information on managing your cash flow, including how to create a cash flow forecast, visit “ Free Cash Flow Statement Templates .”

Balance Sheet Templates for a Business Plan

Use these free balance sheet templates to convey the financial position of your business during a specific time period to potential investors and stakeholders.

Small Business Pro Forma Balance Sheet

Small businesses can use this pro forma balance sheet template to project account balances for assets, liabilities, and equity for a designated period. Established businesses can use this template (and its built-in formulas) to calculate key financial ratios, including working capital.

Download Pro Forma Balance Sheet Template

Monthly and Quarterly Balance Sheet Template

Use this balance sheet template to evaluate your company’s financial health on a monthly, quarterly, and annual basis. You can also use this template to project your financial position for a specified time in the future. Once you complete the balance sheet, you can compare and analyze your assets, liabilities, and equity on a quarter-over-quarter or year-over-year basis.

Download Monthly/Quarterly Balance Sheet Template - Excel

Yearly Balance Sheet Template

Use this balance sheet template to compare your company’s short and long-term assets, liabilities, and equity year-over-year. This template also provides calculations for common financial ratios with built-in formulas, so you can use it to evaluate account balances annually.

Download Yearly Balance Sheet Template - Excel

For more downloadable resources for a wide range of organizations, visit “ Free Balance Sheet Templates .”

Sales Forecast Templates for Business Plan

Sales projections are a fundamental part of a business plan, and should support all other components of your plan, including your market analysis, product offerings, and marketing plan . Use these sales forecast templates to estimate future sales, and ensure the numbers align with the sales numbers provided in your income statement.

Basic Sales Forecast Sample Template

Use this basic forecast template to project the sales of a specific product. Gather historical and industry sales data to generate monthly and yearly estimates of the number of units sold and the price per unit. Then, the pre-built formulas will calculate percentages automatically. You’ll also find details about which months provide the highest sales percentage, and the percentage change in sales month-over-month. 

Download Basic Sales Forecast Sample Template

12-Month Sales Forecast Template for Multiple Products

Use this sales forecast template to project the future sales of a business across multiple products or services over the course of a year. Enter your estimated monthly sales, and the built-in formulas will calculate annual totals. There is also space to record and track year-over-year sales, so you can pinpoint sales trends.

Download 12-Month Sales Forecasting Template for Multiple Products

3-Year Sales Forecast Template for Multiple Products

Use this sales forecast template to estimate the monthly and yearly sales for multiple products over a three-year period. Enter the monthly units sold, unit costs, and unit price. Once you enter those values, built-in formulas will automatically calculate revenue, margin per unit, and gross profit. This template also provides bar charts and line graphs to visually display sales and gross profit year over year.

Download 3-Year Sales Forecast Template - Excel

For a wider selection of resources to project your sales, visit “ Free Sales Forecasting Templates .”

Break-Even Analysis Template for Business Plan

A break-even analysis will help you ascertain the point at which a business, product, or service will become profitable. This analysis uses a calculation to pinpoint the number of service or unit sales you need to make to cover costs and make a profit.

Break-Even Analysis Template

Use this break-even analysis template to calculate the number of sales needed to become profitable. Enter the product's selling price at the top of the template, and then add the fixed and variable costs. Once you enter those values, the built-in formulas will calculate the total variable cost, the contribution margin, and break-even units and sales values.

Download Break-Even Analysis Template

For additional resources, visit, “ Free Financial Planning Templates .”

Business Budget Templates for Business Plan

These business budget templates will help you track costs (e.g., fixed and variable) and expenses (e.g., one-time and recurring) associated with starting and running a business. Having a detailed budget enables you to make sound strategic decisions, and should align with the expense values listed on your income statement.

Startup Budget Template

Use this startup budget template to track estimated and actual costs and expenses for various business categories, including administrative, marketing, labor, and other office costs. There is also room to provide funding estimates from investors, banks, and other sources to get a detailed view of the resources you need to start and operate your business.

Download Startup Budget Template

Small Business Budget Template

This business budget template is ideal for small businesses that want to record estimated revenue and expenditures on a monthly and yearly basis. This customizable template comes with a tab to list income, expenses, and a cash flow recording to track cash transactions and balances.

Download Small Business Budget Template

Professional Business Budget Template

Established organizations will appreciate this customizable business budget template, which  contains a separate tab to track projected business expenses, actual business expenses, variances, and an expense analysis. Once you enter projected and actual expenses, the built-in formulas will automatically calculate expense variances and populate the included visual charts. 

‌ Download Professional Business Budget Template

For additional resources to plan and track your business costs and expenses, visit “ Free Business Budget Templates for Any Company .”

Other Financial Templates for Business Plan

In this section, you’ll find additional financial templates that you may want to include as part of your larger business plan.

Startup Funding Requirements Template

This simple startup funding requirements template is useful for startups and small businesses that require funding to get business off the ground. The numbers generated in this template should align with those in your financial projections, and should detail the allocation of acquired capital to various startup expenses.

Download Startup Funding Requirements Template - Excel

Personnel Plan Template

Use this customizable personnel plan template to map out the current and future staff needed to get — and keep — the business running. This information belongs in the personnel section of a business plan, and details the job title, amount of pay, and hiring timeline for each position. This template calculates the monthly and yearly expenses associated with each role using built-in formulas. Additionally, you can add an organizational chart to provide a visual overview of the company’s structure. 

Download Personnel Plan Template - Excel

Elements of the Financial Section of a Business Plan

Whether your organization is a startup, a small business, or an enterprise, the financial plan is the cornerstone of any business plan. The financial section should demonstrate the feasibility and profitability of your idea and should support all other aspects of the business plan. 

Below, you’ll find a quick overview of the components of a solid financial plan.

• Financial Overview: This section provides a brief summary of the financial section, and includes key takeaways of the financial statements. If you prefer, you can also add a brief description of each statement in the respective statement’s section.
• Key Assumptions: This component details the basis for your financial projections, including tax and interest rates, economic climate, and other critical, underlying factors.
• Break-Even Analysis: This calculation helps establish the selling price of a product or service, and determines when a product or service should become profitable.
• Pro Forma Income Statement: Also known as a profit and loss statement, this section details the sales, cost of sales, profitability, and other vital financial information to stakeholders.
• Pro Forma Cash Flow Statement: This area outlines the projected cash inflows and outflows the business expects to generate from operating, financing, and investing activities during a specific timeframe.
• Pro Forma Balance Sheet: This document conveys how your business plans to manage assets, including receivables and inventory.
• Key Financial Indicators and Ratios: In this section, highlight key financial indicators and ratios extracted from financial statements that bankers, analysts, and investors can use to evaluate the financial health and position of your business.

Need help putting together the rest of your business plan? Check out our free simple business plan templates to get started. You can learn how to write a successful simple business plan  here . 

Visit this  free non-profit business plan template roundup  or download a  fill-in-the-blank business plan template  to make things easy. If you are looking for a business plan template by file type, visit our pages dedicated specifically to  Microsoft Excel ,  Microsoft Word , and  Adobe PDF  business plan templates. Read our articles offering  startup business plan templates  or  free 30-60-90-day business plan templates  to find more tailored options.

Discover a Better Way to Manage Business Plan Financials and Finance Operations

Empower your people to go above and beyond with a flexible platform designed to match the needs of your team — and adapt as those needs change. 

The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed. 

When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.  Try Smartsheet for free, today.

Discover why over 90% of Fortune 100 companies trust Smartsheet to get work done.

No products in the cart.

Crafting Your Business Plan Financials: A Step-by-Step Guide

This guide is my way of taking you by the hand (figuratively, of course) and walking you through the process of building your business plan financials. Whether you’re scribbling your first ever business plan on a napkin or revisiting an existing one to adapt to the ever-evolving market landscape, this guide is for you.

We’ll dive into the nitty-gritty of financial statements without drowning in complexity, break down projections into bite-sized, manageable pieces, and maybe, just maybe, have a bit of fun along the way.

So, if you’re ready to tackle this beast with a blend of expertise, relatability, and a dash of humor, let’s get started. Together, we’ll demystify the world of business plan financials and empower you to take the reins of your financial future with confidence.

Key Takeaways

• Building business plan financials involves forecasting the three financial statements : income statement , balance sheet, and cash flow statement.
• Financial projections should be based on market research and industry trends, as well as your unique business model and goals.
• Business plan financials are essential in securing funding, guiding decision-making, setting benchmarks, managing cash flow , and identifying risks and opportunities.

Understanding the Basics of Business Plan Financials

Diving into the world of business plan financials can feel a bit like stepping onto a dance floor for the first time. You know you need to move, but figuring out how to not step on your own feet (or anyone else’s) is the real challenge.

So, let’s break down the dance floor, shall we? Picture your business plan’s financial section as a trio of critical financial statements performing the most pivotal routine of the night, consisting of the Income Statement, the Balance Sheet, and the Cash Flow Statement.

• The Income Statement : Also known as the profit and loss statement , this is your financial performance’s highlight reel over a specific period. It tells you whether your business is hitting the high notes or if it’s time to change the tune. By tracking revenues, costs, and expenses, the Income Statement gives you a clear picture of your net profit or loss. Think of it as your business’s scorecard, showing you if you’re leading the dance or stepping on toes.
• The Balance Sheet : Imagine this as a snapshot capturing a moment in your business’s dance routine. It’s all about balance (hence the name). On one side, you have your assets—everything your business owns. On the other, liabilities and equity—everything your business owes plus the ownership interest. The Balance Sheet tells you exactly where you stand at any given moment, making sure you’re poised and ready for the next move.
• The Cash Flow Statement : If the Income Statement is about the performance and the Balance Sheet is about the pose, then the Cash Flow Statement is all about the movement. It tracks the cash coming in and going out of your business. This statement is your choreography, showing you if you’ve got the liquidity to keep dancing or if you’re about to trip over a lack of cash.

Why Do You Need Business Plan Financials?

Let’s dive into the different uses for those business plan financials, shall we?

Securing Funding : This one’s pretty straightforward. When you’re pitching to investors or applying for a loan, your financials are the proof in the pudding. They show that you’re not just all talk—you’ve got a plan that’s expected to bring in real money.

Guiding Decision-Making : Your financials are a compass in the wild terrain of business decisions. Want to know if you can afford to increase operating expenses, launch a new product, or expand into a new market? Your financials hold the answers.

Setting Benchmarks : Without benchmarks, how do you measure success? Your financials set clear goals for revenue, profit margins, and growth trajectories.

Cash Flow Management : Ah, cash flow projection —the lifeblood of any business. Your financials help you predict when money will be coming in and going out, ensuring you have enough cash on hand to keep the lights on.

Identifying Risks and Opportunities : By analyzing your financials, you can spot potential risks and opportunities before they become glaring issues or missed chances.

Step 1: Laying the Groundwork with Market Research

Understanding your market is akin to understanding the latest viral dance craze. You need to know who’s dancing, why they’re dancing, and what moves are most popular. In business terms, this means getting to grips with who your customers are, what needs or desires they have, and how your product or service fits into that picture. This is where market research comes into play.

How to Gather Data for Market Research:

• Start with Secondary Research : This is like the pre-party research before you hit the dance floor. Look into existing studies, industry reports, and market analysis that give you a bird’s-eye view of your sector. It’s cheaper (often free), quicker, and a great way to start outlining your market landscape. Websites like Statista and Pew Research are a great resource for secondary research.
• Dive into Primary Research : Now, it’s time to mingle at the party yourself. Surveys, interviews, and focus groups with potential customers will give you insights straight from the horse’s mouth. Yes, it’s more time-consuming and can be costlier, but the firsthand data you gather is worth its weight in gold.
• Analyze Your Competitors : Think of this as knowing who else is on the dance floor with you. Understanding their moves can help you find your unique rhythm. Look at their offerings, pricing strategies, and customer feedback. What are they doing well? Where are they stumbling? This insight is invaluable.

My Experience With Market Research

Let me take you back to the early days of my own business venture, when the concept of “market research” was as foreign to me as quantum physics. My team and I were launching a new financial tool designed to simplify budgeting for freelancers—a noble cause, but we were shooting in the dark with our sales forecast .

So, we hit the books (and the streets) for some hardcore market research. We surveyed freelancers about their budgeting woes, dove into forums where they vented their frustrations, and analyzed competitors who were only partially addressing these pain points. What we found was a goldmine of information that not only validated our product idea but also helped us pinpoint exactly how to position our tool in the market.

Armed with this data, we crafted our revenue projections not on wishful thinking but on solid, research-backed insights. And guess what? Our initial sales outperformed our projections by 20%. It was a clear testament to the power of laying the groundwork with thorough market research.

Step 2: Crafting Your Income Statement

Crafting your profit and loss statement is akin to writing the script for the blockbuster movie of your business’s financial performance. It’s where the rubber meets the road of financial statements, blending the drama of revenue streams with the gritty realism of expenses, all leading up to that climactic figure: your net income.

Breaking Down Revenue Streams

Let’s start our financial projections by casting our stars: the revenue streams. Identifying and projecting these is like mapping out the plot points of our story. For my own venture, it was a mix of predictable box office hits (fixed revenue from long-term contracts) and surprise indie darlings (variable sales from new markets).

The key here is diversity; relying on a single revenue stream is like betting your entire budget on a rookie director. Exciting, sure, but risky. By understanding and forecasting different sources of income, you’re setting the stage for a financial narrative that holds up against unexpected twists.

Fixed vs. Variable Expenses: The Supporting Cast

Next up, we have our supporting characters: fixed and variable costs. Fixed expenses are those steadfast sidekicks that stick with you through thick and thin—rent, salaries, and subscriptions.

They’re your base crew, essential but predictable. Variable expenses, on the other hand, are like those special effects in big action sequences—they fluctuate depending on the production’s scale (or, in our case, the business operations). Materials cost, commission fees, and shipping charges can vary, adding dynamism and a bit of unpredictability to our financial plot.

EBITDA, and Why It’s Your Friend

Now, let’s talk about a concept that might sound like the latest tech gadget but is actually one of your best allies: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Imagine EBITDA as that veteran actor who brings depth and credibility to your movie.

It shows you how well your business is performing without getting bogged down by tax structures, financing decisions, or how much you’ve spent on those fancy ergonomic office chairs.

It is also a critical part of break even analysis. Break even analysis is like the climax of our financial story—it shows the point where your revenue and expenses are equal. It helps you determine how much you need to sell or how to adjust your costs to reach profitability.

Step 3: Building Your Balance Sheet

Think of your balance sheet as the ultimate snapshot of your business’s financial stability at any given moment. It’s like taking a selfie with your assets, liabilities, and equity—everything has to look just right.

Assets, Liabilities, and Equity: What Goes Where?

Imagine your business’s finances as a giant storage unit (stay with me here). On one side, you’ve got your assets—everything you own that has value. This includes cash in the bank, inventory, equipment, and even amounts owed to you by customers (receivables). These are like the treasures you’ve stored away, everything from the antique lamp (cash) to the boxes of unsold novels you swear will be collector’s items one day (inventory).

On the opposite side are your liabilities. Think of these as the IOUs taped to the door by your friends who’ve borrowed your stuff. These could be loans you need to pay back, money you owe to suppliers, or rent for the space your business occupies.

Balancing these two sides is your equity , which is essentially the net worth of your business. If you were to liquidate everything today—sell off all your treasures and pay back your friends—whatever cash you’re left holding is your equity. It’s what you truly “own” outright.

Maintaining a Healthy Balance Sheet Over Time

Here’s where things get personal. In the early days of my venture, our balance sheet was, to put it mildly, a bit of a fixer-upper. Our assets were like mismatched socks—present, but not exactly optimized. Meanwhile, our liabilities were like laundry piles—growing faster than we could manage. The turning point came when we started treating our balance sheet like our business’s health checkup, regularly reviewing and adjusting our financial strategies to ensure everything remained in healthy proportion.

We focused on bolstering our assets, not just by increasing sales but also by managing our receivables more effectively and making smart choices about what equipment to purchase or lease. Simultaneously, we worked on trimming down our liabilities, negotiating better terms with suppliers, and restructuring debt to more manageable levels.

Step 4: Forecasting Cash Flow

Forecasting cash flow—it’s like checking the weather before you head out on a road trip. You wouldn’t want to get caught in a storm without an umbrella, right? Similarly, in the world of finance and accounting, especially for us millennials hustling through our careers, understanding the ins and outs of cash flow is crucial for navigating the unpredictable journey of business operations without getting soaked.

Why Cash Flow is Your Business’s Weather Forecast

Cash flow is essentially the heartbeat of your business’s financial health—tracking the inflow and outflow of money. It’s what keeps the lights on, from paying your awesome team to ensuring the coffee machine (aka the real MVP) is always running. Without a keen eye on cash flow, even the most profitable business can find itself in a pinch when bills come due. It’s about timing, and just like you can’t download more time, you can’t magically create cash when you need it—unless you’ve planned ahead.

Step-by-Step Method for Creating a Cash Flow Forecast

• Start with the Basics : Gather data on all your cash inflows, like sales or accounts receivable , and outflows, including expenses, payroll, and loan payments. Think of it as setting up your playlist before the trip begins.
• Choose Your Time Frame : Decide if you’re mapping out the next month, quarter, or year. This is like deciding whether you’re road-tripping to the next town over or cross-country.
• Use Historical Data : Look back at past months or years to guide your predictions. It’s like knowing there’s always traffic at rush hour and planning your departure time accordingly.
• Factor in Seasonality : Just like packing an extra sweater for a chilly evening, remember that some months may have higher expenses or lower sales. Plan for these fluctuations.
• Keep It Updated : Your cash flow forecast isn’t a set-it-and-forget-it road map. Update it regularly with actual figures to stay on course. This is like checking your GPS for traffic updates in real-time.

My Great Cash Flow Mishap

Early in my career, I experienced what I affectionately call “The Great Cash Flow Mishap.” We were flying high, sales were up, and in my mind, we were invincible. I overlooked the importance of forecasting cash flow because, hey, money was coming in, right? Wrong. Sales being up didn’t mean cash in hand, thanks to generous payment terms we’d extended. When a large expense bill came due, we found ourselves in a financial thunderstorm without an umbrella.

It was a wake-up call. We scrambled, made it through, but learned a valuable lesson in the process: cash flow forecasting isn’t just a nice-to-have; it’s essential. It’s the difference between sailing smoothly and getting caught in a downpour. Since then, I’ve treated cash flow forecasting like my financial weather app, always checking it to ensure we’re prepared for whatever financial weather lies ahead.

Step 5: Bringing It All Together for Financial Analysis

So, you’ve danced through the steps of laying down your financial groundwork, from market research all the way to cash flow forecasting. Now, it’s time for what I like to call the “big reveal” in our financial saga—financial analysis. Think of it as the season finale where all the plotlines converge, and you finally get to see the full picture of your business’s financial health. Exciting, right?

How to Use Your Financials to Calculate Key Ratios

Financial ratios might sound like something out of a high school math class you’d rather forget, but they’re actually pretty cool once you get to know them. They’re like the secret codes that unlock the mysteries of your business’s financial narrative. Here are a few key players:

• Profit Margin : Sales are great, but what’s left after expenses? This ratio tells you exactly that. It’s like checking how much gas is left in the tank after a long trip.
• Current Ratio : This one measures whether you have enough assets to cover your liabilities. Imagine you’re planning a big party (i.e., a major business move). Do you have enough snacks (assets) for all the guests (liabilities)?
• Debt to Equity Ratio : It shows the balance between the money you’ve borrowed and the money you’ve personally invested in your business. Think of it as the ratio between the contributions to the potluck from you and those from your friends.

Innovative Tools and Techniques for Financial Analysis

Gone are the days of poring over spreadsheets until your eyes cross. Today, we have an arsenal of innovative tools at our disposal that make financial analysis not just bearable but actually kind of fun:

• Cloud-Based Accounting Software : These platforms are like having a financial wizard by your side, automating many of the tedious tasks involved in financial analysis.
• Data Visualization Tools : Imagine turning your financial data into a vibrant art gallery. These tools help you visualize trends, patterns, and anomalies in your data, making complex information digestible at a glance.
• AI and Machine Learning : The new kids on the block, these technologies offer predictive insights based on your financial data, helping you make informed decisions about the future.

Step 6: Planning for the Future: Scenarios and Projections

Planning for the future in the fast-paced world of finance and accounting is a bit like trying to pack for a vacation without knowing the destination. Will it be sunny beaches or snowy mountains? In business, just as in travel, the key to being well-prepared lies in anticipating a range of scenarios. This approach doesn’t just cushion you against the unexpected; it equips you to navigate the twists and turns of the market with confidence and agility.

The Importance of Creating Financial Scenarios

Imagine you’re at a crossroads, each path leading to a different outcome for your business. One might lead to rapid growth if a new product takes off, another to steady progress as you expand your customer base, and yet another to a challenging period if the market takes a downturn. Creating financial scenarios is like mapping out each of these paths in advance, complete with signposts (financial indicators) that help you recognize which path you’re on and what you need to do to stay on course—or change direction if necessary.

This practice isn’t about predicting the future with crystal ball accuracy; it’s about being prepared for whatever comes your way. By considering various “what ifs” and planning for them, you transform uncertainty from a source of anxiety into a strategic advantage.

Practical Advice on Long-Term Financial Planning

• Start with a Solid Foundation : Your current financial statements are the launching pad for any long-term planning. Ensure they’re accurate and up-to-date.
• Identify Key Drivers : Understand what factors most significantly impact your business’s financial health—be it sales volume, pricing strategies, or cost controls—and model your scenarios around these drivers.
• Embrace Technology : Leverage financial planning software that allows you to create and compare different scenarios with ease. These tools can provide invaluable insights and save you a heap of time.
• Regular Reviews : The only constant in business is change. Regularly review and adjust your scenarios and projections to reflect new information and market conditions.

How “Planning for the Worst” Saved My Business

There was a time when my business faced what I fondly refer to as “the perfect storm”—a combination of market downturn, rising costs, and a major client backing out last minute. It was every entrepreneur’s nightmare. But here’s the twist: we weathered the storm, not by luck, but by preparation.

During sunnier days, we’d developed a “worst-case scenario” plan . It felt a bit like rehearsing for a play we never wanted to perform, but when the storm hit, that script became our survival guide. We knew exactly which costs to cut, how to streamline operations, and where we could find alternative revenue streams. It wasn’t easy, but that plan gave us the clarity and confidence to make tough decisions quickly.

That experience taught me a valuable lesson: optimism is a fantastic quality, but it’s preparation that truly makes us resilient. Planning for the worst doesn’t mean expecting it to happen; it means ensuring that no matter what comes your way, you’re ready to face it head-on.

Have any questions? Are there other topics you would like us to cover? Leave a comment below and let us know! Also, remember to subscribe to our Newsletter to receive exclusive financial news in your inbox. Thanks for reading, and happy learning!

Related Posts

• How To Get A Heavy Equipment Loan
• The Ultimate Guide to 50+ Financial Modeling Resources
• Your Flux Analysis Step-By-Step Survival Guide
• How To Do Account Reconciliation Without Pulling Your Hair Out
• Taking Vertical Analysis To The Next Level
• Your Unconventional Guide To Managing Working Capital

FP&A Leader | Digital Finance Advocate | Small Business Founder

Mike Dion brings a wealth of knowledge in business finance to his writing, drawing on his background as a Senior FP&A Leader. Over more than a decade of finance experience, Mike has added tens of millions of dollars to businesses from the Fortune 100 to startups and from Entertainment to Telecom. Mike received his Bachelor of Science in Finance and a Master of International Business from the University of Florida, laying a solid foundation for his career in finance and accounting. His work, featured in leading finance publications such as Seeking Alpha, serves as a resource for industry professionals seeking to navigate the complexities of corporate finance, small business finance, and finance software with ease.

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

To provide the best experiences, we and our partners use technologies like cookies to store and/or access device information. Consenting to these technologies will allow us and our partners to process personal data such as browsing behavior or unique IDs on this site and show (non-) personalized ads. Not consenting or withdrawing consent, may adversely affect certain features and functions.

Click below to consent to the above or make granular choices. Your choices will be applied to this site only. You can change your settings at any time, including withdrawing your consent, by using the toggles on the Cookie Policy, or by clicking on the manage consent button at the bottom of the screen.

• Newsletters
• Best Industries
• Business Plans
• Home-Based Business
• The UPS Store
• Customer Service
• Black in Business
• Your Next Move
• Female Founders
• Best Workplaces
• Company Culture
• Public Speaking
• HR/Benefits
• Productivity
• All the Hats
• Digital Transformation
• Artificial Intelligence
• Bringing Innovation to Market
• Cloud Computing
• Social Media
• Data Detectives
• Exit Interview
• Bootstrapping
• Crowdfunding
• Venture Capital
• Business Models
• Personal Finance
• Founder-Friendly Investors
• Upcoming Events
• Inc. 5000 Vision Conference
• Become a Sponsor
• Cox Business
• Verizon Business
• Branded Content
• Apply Inc. 5000 US

Inc. Premium

How to Write the Financial Section of a Business Plan

An outline of your company's growth strategy is essential to a business plan, but it just isn't complete without the numbers to back it up. here's some advice on how to include things like a sales forecast, expense budget, and cash-flow statement..

A business plan is all conceptual until you start filling in the numbers and terms. The sections about your marketing plan and strategy are interesting to read, but they don't mean a thing if you can't justify your business with good figures on the bottom line. You do this in a distinct section of your business plan for financial forecasts and statements. The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan. Even if you don't need financing, you should compile a financial forecast in order to simply be successful in steering your business. "This is what will tell you whether the business will be viable or whether you are wasting your time and/or money," says Linda Pinson, author of Automate Your Business Plan for Windows  (Out of Your Mind 2008) and Anatomy of a Business Plan (Out of Your Mind 2008), who runs a publishing and software business Out of Your Mind and Into the Marketplace . "In many instances, it will tell you that you should not be going into this business." The following will cover what the financial section of a business plan is, what it should include, and how you should use it to not only win financing but to better manage your business.

Dig Deeper: Generating an Accurate Sales Forecast

Editor's Note: Looking for Business Loans for your company? If you would like information to help you choose the one that's right for you, use the questionnaire below to have our partner, BuyerZone, provide you with information for free:

How to Write the Financial Section of a Business Plan: The Purpose of the Financial Section Let's start by explaining what the financial section of a business plan is not. Realize that the financial section is not the same as accounting. Many people get confused about this because the financial projections that you include--profit and loss, balance sheet, and cash flow--look similar to accounting statements your business generates. But accounting looks back in time, starting today and taking a historical view. Business planning or forecasting is a forward-looking view, starting today and going into the future. "You don't do financials in a business plan the same way you calculate the details in your accounting reports," says Tim Berry, president and founder of Palo Alto Software, who blogs at Bplans.com and is writing a book, The Plan-As-You-Go Business Plan. "It's not tax reporting. It's an elaborate educated guess." What this means, says Berry, is that you summarize and aggregate more than you might with accounting, which deals more in detail. "You don't have to imagine all future asset purchases with hypothetical dates and hypothetical depreciation schedules to estimate future depreciation," he says. "You can just guess based on past results. And you don't spend a lot of time on minute details in a financial forecast that depends on an educated guess for sales." The purpose of the financial section of a business plan is two-fold. You're going to need it if you are seeking investment from venture capitalists, angel investors, or even smart family members. They are going to want to see numbers that say your business will grow--and quickly--and that there is an exit strategy for them on the horizon, during which they can make a profit. Any bank or lender will also ask to see these numbers as well to make sure you can repay your loan. But the most important reason to compile this financial forecast is for your own benefit, so you understand how you project your business will do. "This is an ongoing, living document. It should be a guide to running your business," Pinson says. "And at any particular time you feel you need funding or financing, then you are prepared to go with your documents." If there is a rule of thumb when filling in the numbers in the financial section of your business plan, it's this: Be realistic. "There is a tremendous problem with the hockey-stick forecast" that projects growth as steady until it shoots up like the end of a hockey stick, Berry says. "They really aren't credible." Berry, who acts as an angel investor with the Willamette Angel Conference, says that while a startling growth trajectory is something that would-be investors would love to see, it's most often not a believable growth forecast. "Everyone wants to get involved in the next Google or Twitter, but every plan seems to have this hockey stick forecast," he says. "Sales are going along flat, but six months from now there is a huge turn and everything gets amazing, assuming they get the investors' money."  The way you come up a credible financial section for your business plan is to demonstrate that it's realistic. One way, Berry says, is to break the figures into components, by sales channel or target market segment, and provide realistic estimates for sales and revenue. "It's not exactly data, because you're still guessing the future. But if you break the guess into component guesses and look at each one individually, it somehow feels better," Berry says. "Nobody wins by overly optimistic or overly pessimistic forecasts."

Dig Deeper: What Angel Investors Look For

How to Write the Financial Section of a Business Plan: The Components of a Financial Section

A financial forecast isn't necessarily compiled in sequence. And you most likely won't present it in the final document in the same sequence you compile the figures and documents. Berry says that it's typical to start in one place and jump back and forth. For example, what you see in the cash-flow plan might mean going back to change estimates for sales and expenses.  Still, he says that it's easier to explain in sequence, as long as you understand that you don't start at step one and go to step six without looking back--a lot--in between.

• Start with a sales forecast. Set up a spreadsheet projecting your sales over the course of three years. Set up different sections for different lines of sales and columns for every month for the first year and either on a monthly or quarterly basis for the second and third years. "Ideally you want to project in spreadsheet blocks that include one block for unit sales, one block for pricing, a third block that multiplies units times price to calculate sales, a fourth block that has unit costs, and a fifth that multiplies units times unit cost to calculate cost of sales (also called COGS or direct costs)," Berry says. "Why do you want cost of sales in a sales forecast? Because you want to calculate gross margin. Gross margin is sales less cost of sales, and it's a useful number for comparing with different standard industry ratios." If it's a new product or a new line of business, you have to make an educated guess. The best way to do that, Berry says, is to look at past results.
• Create an expenses budget. You're going to need to understand how much it's going to cost you to actually make the sales you have forecast. Berry likes to differentiate between fixed costs (i.e., rent and payroll) and variable costs (i.e., most advertising and promotional expenses), because it's a good thing for a business to know. "Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign," Berry says. "Most of your variable costs are in those direct costs that belong in your sales forecast, but there are also some variable expenses, like ads and rebates and such." Once again, this is a forecast, not accounting, and you're going to have to estimate things like interest and taxes. Berry recommends you go with simple math. He says multiply estimated profits times your best-guess tax percentage rate to estimate taxes. And then multiply your estimated debts balance times an estimated interest rate to estimate interest.
• Develop a cash-flow statement. This is the statement that shows physical dollars moving in and out of the business. "Cash flow is king," Pinson says. You base this partly on your sales forecasts, balance sheet items, and other assumptions. If you are operating an existing business, you should have historical documents, such as profit and loss statements and balance sheets from years past to base these forecasts on. If you are starting a new business and do not have these historical financial statements, you start by projecting a cash-flow statement broken down into 12 months. Pinson says that it's important to understand when compiling this cash-flow projection that you need to choose a realistic ratio for how many of your invoices will be paid in cash, 30 days, 60 days, 90 days and so on. You don't want to be surprised that you only collect 80 percent of your invoices in the first 30 days when you are counting on 100 percent to pay your expenses, she says. Some business planning software programs will have these formulas built in to help you make these projections.
• Income projections. This is your pro forma profit and loss statement, detailing forecasts for your business for the coming three years. Use the numbers that you put in your sales forecast, expense projections, and cash flow statement. "Sales, lest cost of sales, is gross margin," Berry says. "Gross margin, less expenses, interest, and taxes, is net profit."
• Deal with assets and liabilities. You also need a projected balance sheet. You have to deal with assets and liabilities that aren't in the profits and loss statement and project the net worth of your business at the end of the fiscal year. Some of those are obvious and affect you at only the beginning, like startup assets. A lot are not obvious. "Interest is in the profit and loss, but repayment of principle isn't," Berry says. "Taking out a loan, giving out a loan, and inventory show up only in assets--until you pay for them." So the way to compile this is to start with assets, and estimate what you'll have on hand, month by month for cash, accounts receivable (money owed to you), inventory if you have it, and substantial assets like land, buildings, and equipment. Then figure out what you have as liabilities--meaning debts. That's money you owe because you haven't paid bills (which is called accounts payable) and the debts you have because of outstanding loans.
• Breakeven analysis. The breakeven point, Pinson says, is when your business's expenses match your sales or service volume. The three-year income projection will enable you to undertake this analysis. "If your business is viable, at a certain period of time your overall revenue will exceed your overall expenses, including interest." This is an important analysis for potential investors, who want to know that they are investing in a fast-growing business with an exit strategy.

Dig Deeper: How to Price Business Services

How to Write the Financial Section of a Business Plan: How to Use the Financial Section One of the biggest mistakes business people make is to look at their business plan, and particularly the financial section, only once a year. "I like to quote former President Dwight D. Eisenhower," says Berry. "'The plan is useless, but planning is essential.' What people do wrong is focus on the plan, and once the plan is done, it's forgotten. It's really a shame, because they could have used it as a tool for managing the company." In fact, Berry recommends that business executives sit down with the business plan once a month and fill in the actual numbers in the profit and loss statement and compare those numbers with projections. And then use those comparisons to revise projections in the future. Pinson also recommends that you undertake a financial statement analysis to develop a study of relationships and compare items in your financial statements, compare financial statements over time, and even compare your statements to those of other businesses. Part of this is a ratio analysis. She recommends you do some homework and find out some of the prevailing ratios used in your industry for liquidity analysis, profitability analysis, and debt and compare those standard ratios with your own. "This is all for your benefit," she says. "That's what financial statements are for. You should be utilizing your financial statements to measure your business against what you did in prior years or to measure your business against another business like yours."  If you are using your business plan to attract investment or get a loan, you may also include a business financial history as part of the financial section. This is a summary of your business from its start to the present. Sometimes a bank might have a section like this on a loan application. If you are seeking a loan, you may need to add supplementary documents to the financial section, such as the owner's financial statements, listing assets and liabilities. All of the various calculations you need to assemble the financial section of a business plan are a good reason to look for business planning software, so you can have this on your computer and make sure you get this right. Software programs also let you use some of your projections in the financial section to create pie charts or bar graphs that you can use elsewhere in your business plan to highlight your financials, your sales history, or your projected income over three years. "It's a pretty well-known fact that if you are going to seek equity investment from venture capitalists or angel investors," Pinson says, "they do like visuals."

Dig Deeper: How to Protect Your Margins in a Downturn

Related Links: Making It All Add Up: The Financial Section of a Business Plan One of the major benefits of creating a business plan is that it forces entrepreneurs to confront their company's finances squarely. Persuasive Projections You can avoid some of the most common mistakes by following this list of dos and don'ts. Making Your Financials Add Up No business plan is complete until it contains a set of financial projections that are not only inspiring but also logical and defensible. How many years should my financial projections cover for a new business? Some guidelines on what to include. Recommended Resources: Bplans.com More than 100 free sample business plans, plus articles, tips, and tools for developing your plan. Planning, Startups, Stories: Basic Business Numbers An online video in author Tim Berry's blog, outlining what you really need to know about basic business numbers. Out of Your Mind and Into the Marketplace Linda Pinson's business selling books and software for business planning. Palo Alto Software Business-planning tools and information from the maker of the Business Plan Pro software. U.S. Small Business Administration Government-sponsored website aiding small and midsize businesses. Financial Statement Section of a Business Plan for Start-Ups A guide to writing the financial section of a business plan developed by SCORE of northeastern Massachusetts.

Editorial Disclosure: Inc. writes about products and services in this and other articles. These articles are editorially independent - that means editors and reporters research and write on these products free of any influence of any marketing or sales departments. In other words, no one is telling our reporters or editors what to write or to include any particular positive or negative information about these products or services in the article. The article's content is entirely at the discretion of the reporter and editor. You will notice, however, that sometimes we include links to these products and services in the articles. When readers click on these links, and buy these products or services, Inc may be compensated. This e-commerce based advertising model - like every other ad on our article pages - has no impact on our editorial coverage. Reporters and editors don't add those links, nor will they manage them. This advertising model, like others you see on Inc, supports the independent journalism you find on this site.

The Daily Digest for Entrepreneurs and Business Leaders

Privacy Policy

How to Write a Business Plan: Step-by-Step Guide + Examples

Noah Parsons

24 min. read

Updated July 29, 2024

Writing a business plan doesn’t have to be complicated. 

In this step-by-step guide, you’ll learn how to write a business plan that’s detailed enough to impress bankers and potential investors, while giving you the tools to start, run, and grow a successful business.

• The basics of business planning

If you’re reading this guide, then you already know why you need a business plan . 

You understand that planning helps you: 

• Raise money
• Grow strategically
• Keep your business on the right track 

As you start to write your plan, it’s useful to zoom out and remember what a business plan is .

At its core, a business plan is an overview of the products and services you sell, and the customers that you sell to. It explains your business strategy: how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

Most business plans also include financial forecasts for the future. These set sales goals, budget for expenses, and predict profits and cash flow. 

A good business plan is much more than just a document that you write once and forget about. It’s also a guide that helps you outline and achieve your goals. 

After completing your plan, you can use it as a management tool to track your progress toward your goals. Updating and adjusting your forecasts and budgets as you go is one of the most important steps you can take to run a healthier, smarter business. 

We’ll dive into how to use your plan later in this article.

There are many different types of plans , but we’ll go over the most common type here, which includes everything you need for an investor-ready plan. However, if you’re just starting out and are looking for something simpler—I recommend starting with a one-page business plan . It’s faster and easier to create. 

It’s also the perfect place to start if you’re just figuring out your idea, or need a simple strategic plan to use inside your business.

Dig deeper : How to write a one-page business plan

Brought to you by

Create a professional business plan

Using ai and step-by-step instructions.

Secure funding

Validate ideas

Build a strategy

• What to include in your business plan

Executive summary

The executive summary is an overview of your business and your plans. It comes first in your plan and is ideally just one to two pages. Most people write it last because it’s a summary of the complete business plan.

Ideally, the executive summary can act as a stand-alone document that covers the highlights of your detailed plan. 

In fact, it’s common for investors to ask only for the executive summary when evaluating your business. If they like what they see in the executive summary, they’ll often follow up with a request for a complete plan, a pitch presentation , or more in-depth financial forecasts .

Your executive summary should include:

• A summary of the problem you are solving
• A description of your product or service
• An overview of your target market
• A brief description of your team
• A summary of your financials
• Your funding requirements (if you are raising money)

Dig Deeper: How to write an effective executive summary

Products and services description

This is where you describe exactly what you’re selling, and how it solves a problem for your target market. The best way to organize this part of your plan is to start by describing the problem that exists for your customers. After that, you can describe how you plan to solve that problem with your product or service. 

This is usually called a problem and solution statement .

To truly showcase the value of your products and services, you need to craft a compelling narrative around your offerings. How will your product or service transform your customers’ lives or jobs? A strong narrative will draw in your readers.

This is also the part of the business plan to discuss any competitive advantages you may have, like specific intellectual property or patents that protect your product. If you have any initial sales, contracts, or other evidence that your product or service is likely to sell, include that information as well. It will show that your idea has traction , which can help convince readers that your plan has a high chance of success.

Market analysis

Your target market is a description of the type of people that you plan to sell to. You might even have multiple target markets, depending on your business. 

A market analysis is the part of your plan where you bring together all of the information you know about your target market. Basically, it’s a thorough description of who your customers are and why they need what you’re selling. You’ll also include information about the growth of your market and your industry .

Try to be as specific as possible when you describe your market. 

Include information such as age, income level, and location—these are what’s called “demographics.” If you can, also describe your market’s interests and habits as they relate to your business—these are “psychographics.” 

Related: Target market examples

Essentially, you want to include any knowledge you have about your customers that is relevant to how your product or service is right for them. With a solid target market, it will be easier to create a sales and marketing plan that will reach your customers. That’s because you know who they are, what they like to do, and the best ways to reach them.

Next, provide any additional information you have about your market. 

What is the size of your market ? Is the market growing or shrinking? Ideally, you’ll want to demonstrate that your market is growing over time, and also explain how your business is positioned to take advantage of any expected changes in your industry.

Dig Deeper: Learn how to write a market analysis

Competitive analysis

Part of defining your business opportunity is determining what your competitive advantage is. To do this effectively, you need to know as much about your competitors as your target customers. 

Every business has some form of competition. If you don’t think you have competitors, then explore what alternatives there are in the market for your product or service. 

For example: In the early years of cars, their main competition was horses. For social media, the early competition was reading books, watching TV, and talking on the phone.

A good competitive analysis fully lays out the competitive landscape and then explains how your business is different. Maybe your products are better made, or cheaper, or your customer service is superior. Maybe your competitive advantage is your location – a wide variety of factors can ultimately give you an advantage.

Dig Deeper: How to write a competitive analysis for your business plan

Marketing and sales plan

The marketing and sales plan covers how you will position your product or service in the market, the marketing channels and messaging you will use, and your sales tactics. 

The best place to start with a marketing plan is with a positioning statement . 

This explains how your business fits into the overall market, and how you will explain the advantages of your product or service to customers. You’ll use the information from your competitive analysis to help you with your positioning. 

For example: You might position your company as the premium, most expensive but the highest quality option in the market. Or your positioning might focus on being locally owned and that shoppers support the local economy by buying your products.

Once you understand your positioning, you’ll bring this together with the information about your target market to create your marketing strategy . 

This is how you plan to communicate your message to potential customers. Depending on who your customers are and how they purchase products like yours, you might use many different strategies, from social media advertising to creating a podcast. Your marketing plan is all about how your customers discover who you are and why they should consider your products and services. 

While your marketing plan is about reaching your customers—your sales plan will describe the actual sales process once a customer has decided that they’re interested in what you have to offer. 

If your business requires salespeople and a long sales process, describe that in this section. If your customers can “self-serve” and just make purchases quickly on your website, describe that process. 

A good sales plan picks up where your marketing plan leaves off. The marketing plan brings customers in the door and the sales plan is how you close the deal.

Together, these specific plans paint a picture of how you will connect with your target audience, and how you will turn them into paying customers.

Dig deeper: What to include in your sales and marketing plan

Business operations

The operations section describes the necessary requirements for your business to run smoothly. It’s where you talk about how your business works and what day-to-day operations look like. 

Depending on how your business is structured, your operations plan may include elements of the business like:

• Supply chain management
• Manufacturing processes
• Equipment and technology
• Distribution

Some businesses distribute their products and reach their customers through large retailers like Amazon.com, Walmart, Target, and grocery store chains. 

These businesses should review how this part of their business works. The plan should discuss the logistics and costs of getting products onto store shelves and any potential hurdles the business may have to overcome.

If your business is much simpler than this, that’s OK. This section of your business plan can be either extremely short or more detailed, depending on the type of business you are building.

For businesses selling services, such as physical therapy or online software, you can use this section to describe the technology you’ll leverage, what goes into your service, and who you will partner with to deliver your services.

Dig Deeper: Learn how to write the operations chapter of your plan

Key milestones and metrics

Although it’s not required to complete your business plan, mapping out key business milestones and the metrics can be incredibly useful for measuring your success.

Good milestones clearly lay out the parameters of the task and set expectations for their execution. You’ll want to include:

• A description of each task
• The proposed due date
• Who is responsible for each task

If you have a budget, you can include projected costs to hit each milestone. You don’t need extensive project planning in this section—just list key milestones you want to hit and when you plan to hit them. This is your overall business roadmap. 

Possible milestones might be:

• Website launch date
• Store or office opening date
• First significant sales
• Break even date
• Business licenses and approvals

You should also discuss the key numbers you will track to determine your success. Some common metrics worth tracking include:

• Conversion rates
• Customer acquisition costs
• Profit per customer
• Repeat purchases

It’s perfectly fine to start with just a few metrics and grow the number you are tracking over time. You also may find that some metrics simply aren’t relevant to your business and can narrow down what you’re tracking.

Dig Deeper: How to use milestones in your business plan

Organization and management team

Investors don’t just look for great ideas—they want to find great teams. Use this chapter to describe your current team and who you need to hire . You should also provide a quick overview of your location and history if you’re already up and running.

Briefly highlight the relevant experiences of each key team member in the company. It’s important to make the case for why yours is the right team to turn an idea into a reality. 

Do they have the right industry experience and background? Have members of the team had entrepreneurial successes before? 

If you still need to hire key team members, that’s OK. Just note those gaps in this section.

Your company overview should also include a summary of your company’s current business structure . The most common business structures include:

• Sole proprietor
• Partnership

Be sure to provide an overview of how the business is owned as well. Does each business partner own an equal portion of the business? How is ownership divided? 

Potential lenders and investors will want to know the structure of the business before they will consider a loan or investment.

Dig Deeper: How to write about your company structure and team

Financial plan

Last, but certainly not least, is your financial plan chapter. 

Entrepreneurs often find this section the most daunting. But, business financials for most startups are less complicated than you think, and a business degree is certainly not required to build a solid financial forecast. 

A typical financial forecast in a business plan includes the following:

• Sales forecast : An estimate of the sales expected over a given period. You’ll break down your forecast into the key revenue streams that you expect to have.
• Expense budget : Your planned spending such as personnel costs , marketing expenses, and taxes.
• Profit & Loss : Brings together your sales and expenses and helps you calculate planned profits.
• Cash Flow : Shows how cash moves into and out of your business. It can predict how much cash you’ll have on hand at any given point in the future.
• Balance Sheet : A list of the assets, liabilities, and equity in your company. In short, it provides an overview of the financial health of your business. 

A strong business plan will include a description of assumptions about the future, and potential risks that could impact the financial plan. Including those will be especially important if you’re writing a business plan to pursue a loan or other investment.

Dig Deeper: How to create financial forecasts and budgets

This is the place for additional data, charts, or other information that supports your plan.

Including an appendix can significantly enhance the credibility of your plan by showing readers that you’ve thoroughly considered the details of your business idea, and are backing your ideas up with solid data.

Just remember that the information in the appendix is meant to be supplementary. Your business plan should stand on its own, even if the reader skips this section.

Dig Deeper : What to include in your business plan appendix

Optional: Business plan cover page

Adding a business plan cover page can make your plan, and by extension your business, seem more professional in the eyes of potential investors, lenders, and partners. It serves as the introduction to your document and provides necessary contact information for stakeholders to reference.

Your cover page should be simple and include:

• Company logo
• Business name
• Value proposition (optional)
• Business plan title
• Completion and/or update date
• Address and contact information
• Confidentiality statement

Just remember, the cover page is optional. If you decide to include it, keep it very simple and only spend a short amount of time putting it together.

Dig Deeper: How to create a business plan cover page

How to use AI to help write your business plan

Generative AI tools such as ChatGPT can speed up the business plan writing process and help you think through concepts like market segmentation and competition. These tools are especially useful for taking ideas that you provide and converting them into polished text for your business plan.

The best way to use AI for your business plan is to leverage it as a collaborator , not a replacement for human creative thinking and ingenuity. 

AI can come up with lots of ideas and act as a brainstorming partner. It’s up to you to filter through those ideas and figure out which ones are realistic enough to resonate with your customers. 

There are pros and cons of using AI to help with your business plan . So, spend some time understanding how it can be most helpful before just outsourcing the job to AI.

Learn more: 10 AI prompts you need to write a business plan

• Writing tips and strategies

To help streamline the business plan writing process, here are a few tips and key questions to answer to make sure you get the most out of your plan and avoid common mistakes .  

Determine why you are writing a business plan

Knowing why you are writing a business plan will determine your approach to your planning project. 

For example: If you are writing a business plan for yourself, or just to use inside your own business , you can probably skip the section about your team and organizational structure. 

If you’re raising money, you’ll want to spend more time explaining why you’re looking to raise the funds and exactly how you will use them.

Regardless of how you intend to use your business plan , think about why you are writing and what you’re trying to get out of the process before you begin.

Keep things concise

Probably the most important tip is to keep your business plan short and simple. There are no prizes for long business plans . The longer your plan is, the less likely people are to read it. 

So focus on trimming things down to the essentials your readers need to know. Skip the extended, wordy descriptions and instead focus on creating a plan that is easy to read —using bullets and short sentences whenever possible.

Have someone review your business plan

Writing a business plan in a vacuum is never a good idea. Sometimes it’s helpful to zoom out and check if your plan makes sense to someone else. You also want to make sure that it’s easy to read and understand.

Don’t wait until your plan is “done” to get a second look. Start sharing your plan early, and find out from readers what questions your plan leaves unanswered. This early review cycle will help you spot shortcomings in your plan and address them quickly, rather than finding out about them right before you present your plan to a lender or investor.

If you need a more detailed review, you may want to explore hiring a professional plan writer to thoroughly examine it.

Use a free business plan template and business plan examples to get started

Knowing what information to include in a business plan is sometimes not quite enough. If you’re struggling to get started or need additional guidance, it may be worth using a business plan template. 

There are plenty of great options available (we’ve rounded up our 8 favorites to streamline your search).

But, if you’re looking for a free downloadable business plan template , you can get one right now; download the template used by more than 1 million businesses. 

Or, if you just want to see what a completed business plan looks like, check out our library of over 550 free business plan examples . 

We even have a growing list of industry business planning guides with tips for what to focus on depending on your business type.

Common pitfalls and how to avoid them

It’s easy to make mistakes when you’re writing your business plan. Some entrepreneurs get sucked into the writing and research process, and don’t focus enough on actually getting their business started. 

Here are a few common mistakes and how to avoid them:

Not talking to your customers : This is one of the most common mistakes. It’s easy to assume that your product or service is something that people want. Before you invest too much in your business and too much in the planning process, make sure you talk to your prospective customers and have a good understanding of their needs.

• Overly optimistic sales and profit forecasts: By nature, entrepreneurs are optimistic about the future. But it’s good to temper that optimism a little when you’re planning, and make sure your forecasts are grounded in reality. 
• Spending too much time planning: Yes, planning is crucial. But you also need to get out and talk to customers, build prototypes of your product and figure out if there’s a market for your idea. Make sure to balance planning with building.
• Not revising the plan: Planning is useful, but nothing ever goes exactly as planned. As you learn more about what’s working and what’s not—revise your plan, your budgets, and your revenue forecast. Doing so will provide a more realistic picture of where your business is going, and what your financial needs will be moving forward.
• Not using the plan to manage your business: A good business plan is a management tool. Don’t just write it and put it on the shelf to collect dust – use it to track your progress and help you reach your goals.
• Presenting your business plan

The planning process forces you to think through every aspect of your business and answer questions that you may not have thought of. That’s the real benefit of writing a business plan – the knowledge you gain about your business that you may not have been able to discover otherwise.

With all of this knowledge, you’re well prepared to convert your business plan into a pitch presentation to present your ideas. 

A pitch presentation is a summary of your plan, just hitting the highlights and key points. It’s the best way to present your business plan to investors and team members.

Dig Deeper: Learn what key slides should be included in your pitch deck

Use your business plan to manage your business

One of the biggest benefits of planning is that it gives you a tool to manage your business better. With a revenue forecast, expense budget, and projected cash flow, you know your targets and where you are headed.

And yet, nothing ever goes exactly as planned – it’s the nature of business.

That’s where using your plan as a management tool comes in. The key to leveraging it for your business is to review it periodically and compare your forecasts and projections to your actual results.

Start by setting up a regular time to review the plan – a monthly review is a good starting point. During this review, answer questions like:

• Did you meet your sales goals?
• Is spending following your budget?
• Has anything gone differently than what you expected?

Now that you see whether you’re meeting your goals or are off track, you can make adjustments and set new targets. 

Maybe you’re exceeding your sales goals and should set new, more aggressive goals. In that case, maybe you should also explore more spending or hiring more employees. 

Or maybe expenses are rising faster than you projected. If that’s the case, you would need to look at where you can cut costs.

A plan, and a method for comparing your plan to your actual results , is the tool you need to steer your business toward success.

Learn More: How to run a regular plan review

How to write a business plan FAQ

What is a business plan?

A document that describes your business , the products and services you sell, and the customers that you sell to. It explains your business strategy, how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

What are the benefits of a business plan?

A business plan helps you understand where you want to go with your business and what it will take to get there. It reduces your overall risk, helps you uncover your business’s potential, attracts investors, and identifies areas for growth.

Having a business plan ultimately makes you more confident as a business owner and more likely to succeed for a longer period of time.

What are the 7 steps of a business plan?

The seven steps to writing a business plan include:

• Write a brief executive summary
• Describe your products and services.
• Conduct market research and compile data into a cohesive market analysis.
• Describe your marketing and sales strategy.
• Outline your organizational structure and management team.
• Develop financial projections for sales, revenue, and cash flow.
• Add any additional documents to your appendix.

What are the 5 most common business plan mistakes?

There are plenty of mistakes that can be made when writing a business plan. However, these are the 5 most common that you should do your best to avoid:

• 1. Not taking the planning process seriously.
• Having unrealistic financial projections or incomplete financial information.
• Inconsistent information or simple mistakes.
• Failing to establish a sound business model.
• Not having a defined purpose for your business plan.

What questions should be answered in a business plan?

Writing a business plan is all about asking yourself questions about your business and being able to answer them through the planning process. You’ll likely be asking dozens and dozens of questions for each section of your plan.

However, these are the key questions you should ask and answer with your business plan:

• How will your business make money?
• Is there a need for your product or service?
• Who are your customers?
• How are you different from the competition?
• How will you reach your customers?
• How will you measure success?

How long should a business plan be?

The length of your business plan fully depends on what you intend to do with it. From the SBA and traditional lender point of view, a business plan needs to be whatever length necessary to fully explain your business. This means that you prove the viability of your business, show that you understand the market, and have a detailed strategy in place.

If you intend to use your business plan for internal management purposes, you don’t necessarily need a full 25-50 page business plan. Instead, you can start with a one-page plan to get all of the necessary information in place.

What are the different types of business plans?

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. Here are a few common business plan types worth considering.

Traditional business plan: The tried-and-true traditional business plan is a formal document meant to be used when applying for funding or pitching to investors. This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix.

Business model canvas: The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea.

One-page business plan: This format is a simplified version of the traditional plan that focuses on the core aspects of your business. You’ll typically stick with bullet points and single sentences. It’s most useful for those exploring ideas, needing to validate their business model, or who need an internal plan to help them run and manage their business.

Lean Plan: The Lean Plan is less of a specific document type and more of a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, test, review, refine, and take action based on performance. It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

What’s the difference between a business plan and a strategic plan?

A business plan covers the “who” and “what” of your business. It explains what your business is doing right now and how it functions. The strategic plan explores long-term goals and explains “how” the business will get there. It encourages you to look more intently toward the future and how you will achieve your vision.

However, when approached correctly, your business plan can actually function as a strategic plan as well. If kept lean, you can define your business, outline strategic steps, and track ongoing operations all with a single plan.

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• Use AI to help write your plan
• Common planning mistakes
• Manage with your business plan

Related Articles

7 Min. Read

How to Write a Bakery Business Plan + Sample

5 Min. Read

How To Write a Business Plan for a Life Coaching Business + Free Example

1 Min. Read

How to Calculate Return on Investment (ROI)

3 Min. Read

What to Include in Your Business Plan Appendix

The Bplans Newsletter

The Bplans Weekly

Subscribe now for weekly advice and free downloadable resources to help start and grow your business.

We care about your privacy. See our privacy policy .

The quickest way to turn a business idea into a business plan

Fill-in-the-blanks and automatic financials make it easy.

No thanks, I prefer writing 40-page documents.

Discover the world’s #1 plan building software

• fnSummit 2024
• Mentorship Platform
• Mentoring Programs
• Success Team
• Investor Mentorship
• Partners & Deals
• fnVirtual Meet and Greet
• Testimonials

Startup Financials 101: Everything You Need To Know

Every startup founder needs a basic understanding of startup financials to be successful. 

Like a car, your startup won’t go without gas in the tank. 

The destination is far. If you don’t use a map, watch your gauges, refuel, and change the oil, you’ll break down. 

Nine out of ten startups fail, and 82% of those failures are from cash flow mismanagement.  

So it’s time to take the initiative and do the math because you can’t afford to wing it, especially with a recession ahead.

You might already have investors and staff depending on you. Or maybe you’re still on your own with personal savings and/or debt on the line. Either way, you owe it to someone to do your due diligence when it comes to managing your startup’s finances. 

Use this comprehensive guide to take control. We’ll help you brush up on startup finance fundamentals, bookmark key metrics, anticipate challenges, follow best practices, and prepare for harsh economic conditions.

Startup Finance Fundamentals

Startup finance is a far cry from finance at an established business.

Most startups take three seed rounds and almost two years to establish a product, user base, consistent KPIs, and revenue. 

However, even in the early stages, having a firm grasp on startup finance fundamentals is vital. Key startup accounting records like income statements (income and expenses) and financial projections can be essential in securing funding that might ultimately make or break your startup. Here are a few of the fundamentals.

Basic Startup Accounting

Getting started is simple. Regardless what phase your startup is in, you need a basic income statement that allows you to manage revenue, operating expenses, and net income. Simply track revenue and costs in a spreadsheet, and subtract expenses from income to get net income. 

As part of the accounting process, you must meticulously account for every cost. This should include easy to overlook costs like shipping, taxes, insurance, payment processing fees, and utilities.

Later, use the net income figure to create a cash flow statement. Your cash flow statement will yield a cash balance to feed into a balance sheet tracking finances and retained earnings over time. Ultimately this will enable you to create a solid financial model and forecasts.

Looking Ahead

Financial projections are vital to the fundraising process because they’re essential to prove yourself to potential investors. You’ll need to demonstrate possible, solid ROI with stats when the time comes. 

Here are a few positive signs investors like to see in financial projections:

• Prepare to break even by year two or three.
• The stats should support 50%+ margins and revenue expectations of $20 million to $100 million by year five.
• Revenues at a minimum doubling each year demonstrate viability and confidence.
• Predict a likely growth rate given the necessary business operations. In other words, don’t expect to make $100 million in sales in the first year.
• Aim for 10%-50% penetration of your target market segment over five years.
• Request investments in segments alongside milestones.
• In your investor fund usage plan, prioritize business scaling requirements like marketing, inventory building, and staffing in detail.
• Lay out an exit strategy (IPO or acquisition) with a valuation five times your projected revenue.
• Have a simple financial model anticipating market shifts, slowing growth, and cost increases.

To learn more about startup finance, see if you qualify for membership to join Founders Network .

Key Financial Metrics for Startups

So, how do you get from the most basic income statement to a concrete financial model with detailed and logical projections? 

Track and interpret key metrics:

Revenue: How much money a startup makes

The starting point of your income statement, revenue, is the sum you generate through sales. Revenue doesn’t say much about financial health, but it’s vital to other equations.

Expenses: How much money a startup spends

Expenses are the costs you deduct from total revenue in an income statement to see whether you’re profitable.

Net Income: The ‘bottom line’ on a startup’s income statement

Net income = Revenue – Expenses

Subtract expenses from your revenue to determine net profit in an income statement. Expenses include operating expenses, cost of goods sold, depreciation, interest, taxes, and allowable deductions. Then, plug net profit into your cash flow statement to track cash movement and find the cash balance.

To increase net income, a.k.a., the bottom line, watch your:

• Customer acquisition cost
• Customer retention
• Customer lifetime value

Net Profit: Profitability over a specific period

Net profit = Total revenue – Total expenses

This is similar to net income, but net profit computes profitability and tax liability. It’s total revenue minus total expenses calculated in stages to establish profitability for each expense type. 

Gross Margin: Preliminary measure of profitability before overhead

Gross margin = 100 x ([Revenue – Cost of goods and services] / Revenue)

This is an early indicator of profitability. Deduct all overhead and operating expenses to get your operating margin, a.k.a. EBIT (earnings before interest and taxes).

An investor usually looks for a 70% to 90% gross margin for a SaaS business.  

There’s sometimes room to bet, and founders have successfully used negative gross margins to test product functionality, pricing, and the possibility of reinventing a whole market. But this gamble only works for those who know what they’re doing and raise enough money.

Amazon, Uber, Lyft, and Postmates started with negative gross margins, but they pulled it off with massive market disruption. 

Burn Rate: How quickly a startup spends cash reserves

How fast does your startup spend capital to fuel operations? Burn rate gives startups a timeline for how long cash reserves will last. There’s gross burn rate, total spending, and net burn rate. 

Net burn rate = (Beginning cash balance – Ending cash balance) / Measurement period such as months

Runway: How long a startup has before it runs out of cash

Runway = Cash in hand / Projected burn rate

That timeline for how long the cash reserves will last at the current burn rate is called the runway. It’s how long your startup has before it has to ‘take off’ with profits. 

Take the amount of cash remaining and divide it by the projected burn rate. For example, if your burn rate is $10,000/month, and you have $100,000 COH to spend, you have a 10-month cash runway.

Customer Lifetime Value: Cumulative revenue a customer generates

LTV = (Average purchase value x Purchase frequency) x Average period of customer retention in months or years

Customer lifetime value (LTV) is how much revenue you expect a customer to generate cumulatively. This number can help you decide how much money is worth investing to win each new customer.

Customer Acquisition Cost: Money spent on converting a new customer

Customer acquisition cost (CAC) is the sum of all sales, marketing, and distribution expenditures to get a new customer. It tends to be high initially, decreasing as you narrow down ideal customers and marketing channels and earn referrals.

Churn Rate: Percentage of customers you lose

Churn rate = (Customers at the beginning of period – Customers at the end of period) – Customers at the beginning of the period

Customer churn is the percentage of paying customers you lose in a window of time, contributing to revenue churn. Ideally, you want to keep customer and revenue churn as low as possible. To ensure financial health, investigate any high or persistent customer churn, and try to correct it.

Customer Retention: Percentage of customers staying

Customer retention = (Customers at the beginning of period – New customers gained over the period) / Customers at the beginning of period)

The inverse of customer churn rate, customer retention measures how many customers you keep over a given time. This metric can help quantify customer satisfaction.

Return On Investment

ROI = Investment net profit / Investment cost or  ROI = (Value – Project cost) / Project cost

These formulas reveals the degree of an investment’s success. It’s also an excellent way to test the accuracy of your projections for a specific project or initiative.

Five Common Financial Challenges For Startups

Even when startup founders have a thorough grasp of finance fundamentals, there are a number of challenges that can impact a startup’s financial performance. So let’s discuss the most common startup finance pitfalls and what to do about them:

Limited access to funding and capital

Overwhelmingly, startups fail because they run out of money.

This can be devastating since 77% of small business owners and startups depend on personal assets like savings, home equity, and loans for funding.

VC firms can get over 1,000 proposals a year. Startups must cut through the noise and make an impression that warrants a $250,000+ investment. 

So, in addition to managing finances to appeal to angel investors and venture capitalists down the line, weigh all your funding options from the beginning:

• Bootstrapping- side gigs, pooling with co-founders
• Pitch competitions
• Startup incubators- government and private
• Grants- SBIR, 4pt0, etc.
• P2P lending
• Crowdfunding
• Corporate seed funds in return for equity or future partnership
• Accelerators- guidance and financing in return for fees or equity

Insufficient data/records

Potential investors need accurate, hard data from financial statements to assess risk and pricing. Produce monthly financials and show a history of recurring revenue so they can make their projections.

Excel and Google Sheets may suffice at the start. But look into industry-standard accounting software like QuickBooks to organize data and streamline transaction verification/reconciliation.

High costs and risks of product development and market entry

When estimating the time and cost of getting something done in a startup, experts say you should usually double whatever figure you come up with.  

That’s why founders usually look for ways to cut costs. This includes paying themselves a fraction of the standard market salary and outsourcing work to firms and contractors to conserve funds and stay flexible.

Additionally, don’t compartmentalize financing and product development too much. Stay involved in the finances and the product itself to know when a calculated risk or expense is worth it.

Intense competition and uncertainty in the market

One of the biggest fatal startup mistakes is blundering product-market fit . In perpetually competitive and evolving markets, take these steps as early as possible: 

Research the market and direct competition exhaustively.

Fully validate the target market needs what you have.

Rapid growth and changing business needs

You can’t be too eager to spend money, but don’t be too scared to spend, either. Staying on top of financials puts you one step ahead of worst-case and best-case scenarios. 

Have the financial knowledge and resources, so you don’t miss the wave. Say you’re onto something, and your target market responds enthusiastically to the product. Be ready to hire the right amount of the right sales staff on time to sustain trending sales growth.

Six Best Practices For Managing Startup Financials

Let’s summarize startup finance best practices to follow going forward:

Develop a comprehensive financial plan and budget for your startup

Using the cash flow statement, profit and loss (P&L), and balance sheet, your financial plan charts the path for revenue, goals, predictions, strategy, hiring, and more. It details:

• Fixed/variable expenses
• Gross/operating margins
• Profit potential/durability
• Break-even point
• Cash balance
• Cash flow changes

The ideal software can help you develop a financial plan by linking financial statements to formulas generating performance forecasts. 

Track financial performance and metrics regularly

Make the metrics readily accessible for weekly or daily review. Diligent tracking helps you identify, leverage, and update KPIs to harness opportunities and mitigate problems.

Be flexible and adaptable to changing business conditions

Make an educated guess and try something. Watch the data to see if it works, and take the outcomes in stride.

Here’s the philosophy of Eric Ries’s The Lean Startup. In a startup, you know nothing, and your only tool is trial-and-error. Experiment cheaply to adapt as much as you need to without diminishing funds too fast.

Communicate openly and transparently with investors, employees, and stakeholders

In the era of Theranos and FTX, always be transparent. Instead of fearing accountability, welcome it. Trust and visibility bring investors, employees, and customers; and startup accounting prowess brings results.

Connect with other startup founders to learn and build relationships

Immerse yourself in a community of startup founders who understand all the struggles, questions, and answers. Build relationships with people who offer fresh perspectives and share success through mentorship, resources, referrals, leverage, and opportunities.

How the Looming Recession May Impact the Startup Scene

It’s hard to know what to expect with an oncoming recession, like which industries it will affect and how. For now, here are some recession predictions and survival tips:

• Funding decrease: Scale back non-essential expenses, communicate with investors, and secure as much cash as possible to extend your runway.
• Consumer spending slowdown: Anticipate current and prospective customers trimming the fat. Take the chance to focus on your best customers with a personal approach. If you’re not already, get used to spending time selling directly.
• Intensifying job competition: Your workforce might worry about security. Do what it takes to hold on to top talent.

Although a recession causes many problems, problems are opportunities to innovate.

FAQs About Startup Financials

Why do startups have a hard time forecasting financial results.

Financial forecasts use existing data, and startups have minimal data to pull from.

How to maximize cash flow for your startup?

To maximize cash flow, incentivize early payment, optimize inventory, use electronic payment, negotiate with suppliers, and have high-yield savings accounts.

How much equity should a CFO get in a startup?

An early-stage CFO may get 1-5% equity vested over time.

What is the most important financial statement for startups?

Income statements are the most important startup financial statements.

How to present financials in a startup with no revenue?

If you can’t show revenue in your pitch deck’s financials slide, expect questions and criticism, and at least present customer acquisition costs, profit margins, growth rates, and ROI potential.

What do most startup founders get wrong about financial projections?

Too many startup founders cherry-pick what they want to happen in the next 12-18 months. Instead, observe what the data of the last four months predicts.

How often do you work on your startup’s financial model?

Work on your startup’s financial model as often as necessary. If things don’t play out the way you modeled, react to the information immediately and pivot your model.

What are your startup financial goals?

Are you ready to approach angel investors and VCs yet? Is your startup still in its infancy? Either way, these fundamentals, metrics, solutions, and best practices are just as relevant for your startup’s future. 

Whether in year one or approaching profitability in year five or six, take action now to solidify your startup financials for the long road ahead. 

If you’re ready to join a community where you can connect with other founders, see if you qualify for membership .

A Complete Guide to Creating a Killer Startup Pitch Deck

Navigating the Startup Funding Landscape from Maile Keone

Looking for startup advice, connections, and insights?

Featured articles.

Five Powerful Pieces of Advice for Founders

Entrepreneurial Operating System for Startups: Boost Growth and Efficiency

VC Investment Landscape 2024: What Founders Must Know to Secure Funding

We use cookies to optimize our website and our service.

Startup financial models - 12 templates compared

Posted by Stéphane Nasser | April 20, 2020

As a founder, there comes a time when you need a business plan, complete with financial forecasts, income statements, and fancy graphs that will impress your investors.

Don't build it from scratch - use an existing model.

A financial model allows you to draft financial projections easily, fast, and in a professional manner. A great template will also force you to think through all the aspects of your project and make sure you really get the financial logic behind your business.

It can be annoying but trust me, it's worth your time.

This post compares the top 12 templates of financial models for SaaS startups. I have personally tested each model. I have ranked them on 40+ items along 5 categories. I've looked at both spreadsheets and SaaS apps, and both free and paid solutions.

If you are looking at building your SaaS financials, this article is for you.

Table of Contents

Methodology - what makes a great financial model for saas startups.

Here is the methodology I used to build this benchmark.

I compared 40 points across 5 categories: (a) financial statements, (b) analysis capabilities, (c) revenue modeling, (d) cost modeling, (e) extra features. A detailed analysis of each model is available below. In each case, I tested the software/spreadsheet myself.

Criteria 1: Financial statements

• Time scale : Are the statements over 1 year, 3 years or more? You usually want 3 years as a minimum when you speak with professional investors.
• Income statement : Does the template include an income statement? You usually want a monthly income statement, at least for year 1.
• Cash flow statement : Same as income statement
• Balance sheet : Same as income statement
• GAAP/IFRS : Are the statements compliant with GAAP and/or IFRS rules?
• Currency : How many currencies are available?

Criteria 2: Analysis capabilities

• Financial analysis : Number of typical financial metrics included e.g. breakeven point, quick ratio, average inventory, etc.
• SaaS analysis : Number of typical SaaS metrics included e.g. MRR growth, SaaS magic number, CAC/LTV, etc.
• Graphs : Number of built-in graphs
• Costs by P&L category : Does the template break down costs into P&L categories (CoGS, RD, G&A, etc.)
• Costs by departments : Does the model break down costs into departments (sales, marketing, CS, engineering, etc)
• VS Scenarios : Does the template allow you to compare multiple scenarios?
• VS Industry comparables : Does the template compare your financials against industry comparables?
• VS Actuals : Does the template allow you to run your model versus your actual numbers?

Criteria 3: Revenue modeling

• New client acquisition : How do you enter new clients into the model? Possibilities include: entering a number manually for each month or year (it sucks); autofill the model from a base number and a growth rate (sucks a bit less); autofill several streams - each stream represents a different type of client e.g SMB/enterprise (better); or even fully model each acquisition channel (the best, very rare)
• Offerings : How many offers can you define and how precisely can you model them? This includes the possibility to create one-off offers, recurring offers, or a combo, but also the possibility to create introduction times and end times for specific offers.
• Pricing model : How many pricing models can you define and how precisely: tiers (free, basic, premium), revenue models (per seat, per usage, etc), automatically increase or decrease the plans price over years.
• Existing clients : Can you model expansion, contraction, churn, reactivation?
• Commitment : Can you model monthly VS yearly VS multi-annual contracts?
• Service revenue : Can you model punctual service revenue on top of all the other pricing models and offerings?
• Enterprise specific : Does the template offer specific features to model complex enterprise sales, such as landing/expansion, custom product developments, various sales cycles, etc?

Criteria 4: Costs modeling

• Direct labor costs : The best templates allow you to correlate direct labor costs with relevant metrics. For example, your sales staff is calculated based on forecasted income and sales target per account executive. Same for customer success payroll with number of customers and workload target per CS staff.
• Direct non-labor costs : just like with labor costs, the best templates allow you to link some direct non-labor costs with relevant metrics. For instance, server costs can be a % of MRR.
• Indirect labor costs : same as above. Even for indirect costs, some templates find smart ways to tie them to some aspect of the business.
• Indirect non-labor costs : same as above
• Payment terms : Can you define the payments terms with your vendors and suppliers? May be useful if there is a hardware component to your offer.
• Hardware-friendly : This is a special mention for templates that model things like shipping costs, inventory delay, etc.

Criteria 5: Extra features

• Documentation : Is there proper documentation in the model and on the website? Are there good explainer videos? What kind of direct support (chat, email) comes with the template?
• Languages : In what language is the template available?
• Third-party integration : Third-party integrations can be useful to input or update data over time, or to display advanced graphs.
• Excel spreadsheet : Can you access your financials as a Microsoft Excel spreadsheet? This is a must if you need to share it with investors.
• Google Sheets : Does the model work in Google Sheets? Not all models that work in Microsoft Excel work in Google, so you may want to consider that point.
• Editable formulas : Some templates do not allow you to modify formulas - which is a massive bummer when it comes to customization.

Granted, it's not a perfect methodology. One could argue forever about whether cap tables should be included in a startup financial model. But it's the best I could come up with - without being a finance nerd myself :)

Disclaimers: affiliation, impartiality, and non-finito

Before jumping to the heart of the matter, please allow me three disclaimers:

• Affiliation: Some links in the article are affiliated - which means that if you end up buying a template through one of those links, OpenVC will get a few $$$. It doesn't cost you anything, and it allows us to keep writing useful articles for you.
• Impartiality: Regardless of whether there is a referral in place or not, I am committed to providing you with an honest opinion. We take great pride in being an independent, honest, and trusted source of information for entrepreneurs.
• Non finito: This is a non-finite work. We are happy to update the article if you bring new, relevant information to our knowledge. We are also happy to fix any mistake or clarify any confusion that you may find in the article.

1. "FISY Innovation Plan" by Remi Berthier

Fisy Innovation Plan, by Rémi Berthier

For years, this template has been the go-to financial model for French entrepreneurs. However, it didn't age that well.

Analysis capabilities are limited: only a handful of financial metrics, zero SaaS metrics, a couple of graphs, and it's impossible to categorize costs. Modeling, be it for revenue or costs, is all too basic and requires a lot of manual input. Also, it's entirely in French.

Having said that, it remains a free-of-charge, easy-to-use, easy-to-customize template that covers all the basics while including specificities to the French ecosystem such as CIR, JEI, etc. It also offers a detailed page of instructions on the website.

This model makes a lot of sense for French entrepreneurs looking for a simple solution. For the others, keep on reading.

Edit 2023: I've re-downloaded the template in 2023 and didn't notice any significant change versus the 2017 version I had initially reviewed, so I kept my review untouched.

2. "SaaS Financial Plan 2.0" by Christoph Janz

SaaS Financial Plan 2.0, by Christoph Janz

This template was built by SaaS apostle Christoph Janz, and you can tell. It packs a punch of SaaS knowledge in a sleek, clear spreadsheet. You'll find lots of good stuff: basic/pro/enterprise plans, churn/upgrade/downgrade, an elegant client acquisition model and a wealth of graphs and charts.

It's not all rosy, though. You want a 5 years forecast? No, you only need 2. You want to sell annual pro plans? Too bad, pro plans are monthly and that's that. Also, no balance sheet.

This template works great if you are a typical SaaS startup and fits the vision that Christoph put into his financial plan. If not, you may be better off considering templates with broader horizons.

Edit 2023: Based on the Dropbox information, the template has not been modified since my first review in 2017, so I kept it untouched.

3. "SaaS Financial Model 3.0" by Baremetrics

SaaS Financial Model 3.0, by Baremetrics

I reviewed this model for the first time in 2017, when Jaakko Piiponen was its sole author. Since then, the Baremetrics team has substantially updated it. This new 2023 review should finally do it justice.

This SaaS Financial Model 3.0 is geared towards people who want to pilot their SaaS business, as opposed to just raising funds. Its underlying philosophy is that you need to match actual numbers with your forecasts for maximum piloting accuracy. To reach that objective, this model wants you to frequently pull data from your accounting software (e.g. Quickbooks, Xero…) and will project many assumptions based on your last 3 months - what they call "Autopilot". It's a healthy approach, and if you're ok with the extra work, it may be the right one for you.

When it comes to financial statements, this model nails it: you get a monthly view of your P&L, cash flow, and balance sheet over 5 years. However, because this model is not designed for fundraising, it doesn't include a cap table, which may be a dealbreaker to some. The whole model is in USD - you can manually change to any other currency, but you'll have to click a lot….

The Baremetrics team has also beefed up the analysis capabilities. This new version packs up all the must-have financial and SaaS metrics (Churn, ARPC, LTV, Paid CAC, Blended CAC, CAC:Payback time, CAC:LTV, MRR Breakdown), plus 11 built-in charts. A very nice attention is the Chartbuilding tab, which groups all the numbers in a clean format so you can build additional custom charts effortlessly. Like Janz's and Murray's models, you can break down expenses by category (engineering, marketing, etc.). The icing on the cake: this SaaS financial Model 3.0 is the only free model of this benchmark that lets you build a "worst case scenario" on top of your base case - and of course, compare both scenarios to your Actuals. Kudos to that!

Revenue modeling and cost modeling follow the "Autopilot" philosophy described above, with a few notable twists. For instance, the Acquisition model can be augmented with a separate "Marketing funnel" sheet (also provided by Baremetrics, also free) that models a proper 7 step funnel (visitor, signups, MQL, SQL, opportunities, trial, customer) and distinguishes between paid and organic leads. Your CMO will love it. Similarly, each expense line can be tied to specific variables to reflect dependencies.

All in all, this model by Baremetrics is a very strong contender. The only weakness I found relates to modeling complex offers, such as a Basic, a Premium and a Pro plan. It's just not possible. Even modeling annual plans seems to take a bit of work using the "Deferred revenue" tab. On the upside, this SaaS Financial Model 3.0 models expansion, contraction, churn, and even reactivation, so it's a tit for tat.

If you're looking for a free model that cares about accuracy to pilot your SaaS business the year round, and you don't mind getting your hands dirty a bit, then this is the one. Support is limited to a well-written, opinionated page of instructions, and you can contact the creators on Twitter. The model is available on Excel and Google Sheets, and all the formulas are editable.

4. "Standard SaaS Financial Plan for Startups and SMBs" by Ben Murray

SaaS Financial Plan for Startups and SMBs, by Ben Murray

This template published by Ben Murray, AKA the SaaS CFO, has a lot in common with Chris Janz's model: it's free, it's SaaS-centric and it's really good overall.

But that's where similarities stop. Let's look at what differentiates them:

• Cost modeling: Janz does a much better job as many costs are tied to activity metrics. With Murray, you have to fill it all manually. Janz 1 - 0 Murray
• Commitment: Murray allows you to define which plans are annual and which are monthly. Janz does not. Janz 1 - 1 Murray
• Client acquisition: Murray wants you to manually input new clients each month, where Janz includes 3 acquisition channels. Janz 2 - 1 Murray
• Murray also allows you to add service revenue and offers up to 5 years of forecasts. Janz 2 - 2 Murray
• Since its latest update, Murray's model also allows you to input your actual number and compare them with your forecasts. Janz 2 - 3 Murray

At the end of the day, Murray's SaaS template is great - maybe the best amongst the free templates. It is a bit disappointing when it comes to modeling new client acquisition and costs, though.

To explore more powerful (and paid) templates, read on!

5. "SaaS Startup" by Pro Forma

SaaS Startup Kit, by Pro Forma

The SaaS startup kit is the first paying template we're looking at: one-time $99.

Because you're paying, you obviously get a lot more in return: balance sheet, cap table, GAAP/IFRS compliance, 161 currencies to choose from, a ton of financial metrics and graphs, and advanced capabilities to model your costs and your revenue, including for hardware startups.

Now, because we are paying, we are a lot pickier. And I see 3 problems with this SaaS Startup Kit. First, you cannot account for upgrades and downgrades (you can model churn, though). Second, you cannot break down costs by P&L categories or departments. Third, the formulas are "locked ' so you cannot edit them. That's a big problem if, like me, you like looking under the hood. But maybe you don't care?

All in all, I cannot tell you not to look at the SaaS startup kit. It has a lot going for it, and at $99, it's priced right. But if you can stretch your budget a little more, look at the next model - it may be the right one for you.

6. "SaaS Financial Model" by Taylor Davidson

"SaaS Financial Model" by Taylor Davidson

Let me start right off the bat: this "SaaS Financial Model" by Taylor Davidson is one of the best templates out there.

For $149, you get all the financial statements you may wish for, laid out over 5 years, and GAAP-compliant. Additional tabs are built-in for fundraising (assess needs and uses), valuation (ownership, DCF, waterfall exit, ROI), variants (simplified scenarios), and impact (for purpose-driven startups). Bonus point: the model works in Microsoft Excel and Google Sheets, supports all currencies, and is fully editable.

In terms of analysis capabilities, the template generates boatloads of financial and SaaS metrics, as well as 20+ beautiful graphs. Costs can be broken down by departments and P&L categories so you can make sense of all that good stuff. SaaS experts will especially appreciate the granularity provided by monthly cohort analysis - a rarity!

Modeling revenue and costs is extremely versatile. Instead of pre-modeling everything for you, the template provides you with very unique features (Pricing, Pipeline, Drivers) that allow you to customize it to your needs. Here are a few examples of what you can do:

• You can build as many subscription plans as you want.
• Contract length is not limited to monthly or annual but can be anything you want.
• Billings are separate from contract cycles, so can do an annual contract with quarterly billings, or 3-year contract with annual billings, or annual contract with monthly billings
• All costs, direct and indirect, labor and non-labor, can be tied to relevant activity metrics (revenue, headcount, etc.) which is what you would expect from this kind of template.
• All costs can also be tied that are *not* tied to an activity metric, say periodic costs that occur quarterly or annually, or costs that increase a % over time, or costs that are a % of salaries, or a % of revenues, for example. This is all built-in within the Drivers sheet and an absolute delight to use.
• For Enterprise sales, you can model a good old Pipeline in the Pipeline sheet and attribute different numbers of seats and "likelihood to close" to each deal.

True, it takes a bit of time to wrap your head around the internal logic of that model. But once you master it, there is virtually no limit to what you can do.

Thankfully, this financial model is well-documented. The website includes a long, detailed "Getting Started" page as well as specific articles and videos for technical points. The highlight is definitely the email support - I've consistently received detailed replies within 24 hours - at zero extra cost. Kudos to that.

Long story short - if you are willing to shell out $149 for a SaaS financial model, Taylor Davidon's template is arguably one of the absolute best you can get your hands on. The other one is the model built by Alexander Jarvis - read on to learn about it.

7. "SaaS: SME & Users" by Alexander Jarvis

8. "saas: enterprise, sme & users" by alexander jarvis.

"SaaS: SME & Users" by Alexander Jarvis

"SaaS: Enterprise, SME & Users" by Alexander Jarvis

It's hard to write a serious review about this template - everything about it is absolutely ridiculous. It is ridiculously rich, ridiculously detailed, ridiculously powerful. It's the kind of template that you use when you want to make a statement, like impress your investors or make your CFO feel irrelevant. It's heavy, bold, and over-the-top, in the best way possible. Brace yourselves, let's dive in.

This template by Alexander Jarvis comes in 2 versions. The "SaaS: SME & Users" is perfectly fine for most SaaS businesses. It sells at $319. The "SaaS: Enterprise, SME & Users" retails at $1,299 and includes extra logic to model enterprise sales. Because of their complexity, both models only work in Microsoft Excel (no Google Sheets).

In return for your money, you get the most advanced modeling capabilities - period.

• Each acquisition channel is modeled in great details: paid, organic, blog, social, emailing, and channel partners. Each channel can be assigned its own conversion rate from visitor to user. You can also differentiate between the customers that self-onboard and those who require sales intervention.
• You can design composite offerings based on usage fee, monthly fee and/or a one-time service fee. The templates allow 3 paid plans - typically basic, premium, pro - as well as a free trial plan, and each of these plans can exist with a monthly or annual commitment.
• Customers can upgrade, downgrade or churn, and you can even schedule module releases at different points in time, so you create new revenue streams over the years.
• All costs, direct and indirect, labor and non-labor, are modeled in a clever way i.e. they are tied to relevant activity metrics

I cannot stress enough how detailed this model is. Here is an example: the "email marketing" tab (yes, there is such a thing) takes into account 12+ inputs including stuff like the % of recipients who will share the newsletter with their friends. I love this kind of detail because it gives actionable points when thinking about execution. It also makes it easier to defend your numbers in front of investors because you can explain the underlying assumptions. If it's too much for you, you can always deactivate the advanced fields with the switch and focus on the core input.

If you buy the $1,299 version, you get an extra slew of tabs specifically dedicated to enterprise sales in all its complexity: enterprise-specific products and offerings, geographies, sales cycles, "land and expand", custom development, etc. If you are building the next Oracle or Palantir, that stuff alone is invaluable.

Documentation is ok. Instructions and comments are included inside the template, but not much in terms of FAQ/articles on the website. Having said that, I particularly appreciated the tutorial videos: one 28-min overview and 20 shorter videos that each cover a specific tab.

You want more? Time to talk about analysis capabilities. Alexander Jarvis' model is most lavish when it comes to that point. 50+ graphs are readily available - and that's without counting the sparklines that are peppered throughout the sheet. Because modeling is so detailed, the template can provide advanced SaaS metrics such as marketing leverage or expansion % of new MRR. Of course, costs can be allocated to P&L categories and departments so you really understand what's going on in your model.

When it comes to financial statements, the $319 version gives you only 3 years of forecasts, with no balance sheet and no cap table. The $1,299 version does a bit better with 5-year forecasts, but still no sign of balance sheet nor cap table. Some would argue that an early-stage startup doesn't need formal financial statements... However, this template does include a tab to compare your forecasts to your actuals, and another tab listing down industry metrics - both are very welcome additions.

If you want the best spreadsheet ever, it boils down to comparing Taylor Davidson's and Alexander Jarvis' templates, and picking the one that fits you the most. See the final section "Conclusion" for a side-by-side of both models.

However, some prefer using a specialized SaaS app to build their startup financial model. If that's your case, check out the last 4 models.

9. "EY Finance Navigator" by Alex and Wout

EY Finance Navigator, by Alex and Wout

The Finance Navigator was developed by Alexander Matthiessen and Wout Bobbink from EY's Dutch office. It's a SaaS app: you pay a monthly subscription to access an online tool. It's a fundamentally different approach from the spreadsheet-based models we've explored so far.

The Finance Navigator costs $30 per month without commitment or $380 over an 18 month period. For that price, you get very exhaustive financial statements: income statements, cash flow statements, and balance sheets over 10 years - no cap table though. All currencies are available and you can export the statements to a clean, well-designed spreadsheet format (only numbers, no formulas).

Documentation is good, with in-app guidance, website posts, a Q&A, and a 37 min walkthrough video. The tool was clearly thought to be user-friendly and the onboarding is best-in-class. You will have zero difficulties using EY's Finance Navigator whatsoever.

Unfortunately, simplicity is a double-edged sword. Revenue and cost modeling is super basic. For example, revenue is defined as a base number for month 1, then a monthly growth rate. No channels, no conversion rate, no pricing plans. The same goes for costs: you cannot tie costs to specific activity metrics, so you have to input them manually. Because it's a SaaS application, you cannot customize the model by adding fields or modifying formulas. And because it's so basic, there is only the bare minimum in terms of analysis capabilities.

At the end of the day, EY's Finance Navigator holds a lot of promises. UX is great and they have a couple of nice features like comparables and scenarios. The product has evolved over the years, adding up features and getting more usable. In my estimation, it's not quite enough to be used by advanced SaaS entrepreneurs. The product is geared towards traditional businesses - think bakery, restaurant, consulting, who just want clean and easy financials. Not the right pick for SaaS people - yet. I'd love to revisit the tool in a year and see what progress has been made.

10. "Liveplan" by Palo Alto Software

Liveplan, by Palo Alto Software

Liveplan sells its financial modeling SaaS app at $20 per month ($360 over 18 months), which makes it a close competitor to EY Finance Navigator.

Starting with the strong points, Liveplan offers exhaustive statements over 5 years: income statements, cash flow statements, and balance sheets. Compared with EY's model, you have a bit more control over revenue modeling: offerings can be defined as recurring fees, billable hours, and a one-time upfront fee can also be added. Pricing can be increased automatically over time, churn can be factored in, and you can model monthly or annual plans.

When looking at cost modeling, you can adjust payment terms for clients and suppliers. There are also specific variables for hardware products. Documentation is just fine, with a tutorial video per section embedded directly in the app, as well as plenty of instructions. Liveplan exists in 5 languages, and integrates with Quickbooks, which allows importing your actual numbers and comparing them with your forecasts. You can also export your financials into a (numbers-only) spreadsheet to share with your investors.

Now, although Liveplan's software has more powerful modeling capacities than EY's, it remains insufficient in my estimation. Here are just a few examples.

• Direct labor costs can be set as a % of revenue, but do not update the number of employees accordingly.
• Indirect costs can only be set as a constant, a % of overall revenue, or a % of a specific revenue.
• New client acquisition is just manual input - as in you manually input "2" clients in March and "4" clients in April. There is no channel modeling whatsoever.
• Costs cannot be broken down by P&L categories nor departments.

When modeling is too superficial, it translates into poor analysis capabilities. In Liveplan's case, you do have a dozen financial metrics available (net cash flow, account payable, cash on hand…) and another dozen graphs. But SaaS metrics are absent, which is a bummer for SaaS entrepreneurs.

At the end of the day, LivePlan was built for non-tech entrepreneurs. Perfect for a bike shop owner, but not quite there for SaaS people.

Don't take my word for it: there is a 60-day trial, so give it a spin for free and make up your own mind.

11. "Summit" by Matt Wensing

Summit, by Matt Wensing

Summit is a young startup (founded 2019) that brings a fresh take on the whole financial modeling thing with a SaaS solution.

Let's make it clear - Summit is not meant for fundraising. Forecasts on Summit are made for an 18-month period only. Costs cannot be allocated to P&L categories and departments, nor can you differentiate between labor/non-labor or direct/indirect costs. Therefore, you won't be able to generate any financial statements that your investors may require . Hell, you can't even export a spreadsheet!

So why talk about Summit? Because Summit is pretty awesome when it comes to piloting your SaaS startup with a financial model. Here is how it works. First you connect your live metrics (Stripe, Baremetrics, etc.) to your Summit account. This allows Summit to derive your future growth from the current trends. The next step consists in optimizing that future growth. To do that, you define a baseline scenario around 20+ metrics from sales, product, finance, then you play around with those variables to maximize your MRR or any other metric you like. What if we increase our close rate? What if we raise funds and funnel that money into paid ads? You instantly get clear answers. What's more, the clean dashboards and convenient built-in comments feature makes it easy and even pleasant to run those analyses and share with your team. It's a really fresh experience - no comparison possible with fuddy-duddy spreadsheets.

Summit is still a young product and there is room for improvement: currencies, tax rates, expansion and contraction of existing clients, one-off revenue. In particular, client acquisition would greatly benefit from more granularity and native integrations with social media accounts for instance.

At the end of the day, Summit is not meant to build financial statements, but to make decisions in a data-driven way. It's such a refreshing approach in the space that I highly recommend trying it out. Bonus point: it's 100% free for now, so it's a no-brainer.

12. "Causal" by Taimur and Lukas

Causal, by Taimur and Lukas

At first glance, Causal seemed very similar to Summit. It's also a SaaS solution, also founded in 2019, also bringing a new approach to modeling. But that's where the comparison stops because the philosophy behind Causal is quite unique.

Causal is not just a financial modeling tool for SaaS startups. It's a modeling tool that aims at replacing Excel for every modeling need you may have. This means that (a) Causal is super versatile and goes much deeper than Summit, and (b) Causal is much more complex with a steeper learning curve than Summit.

Looking at revenue and cost modeling, you can model anything you want on Causal with an interface that's 10x more modern and user-friendly than a spreadsheet. The same thing goes for analysis capabilities: you can generate dashboards, tables, and graphs for absolutely anything - including any financial statement your investors may want. You can also connect live data sources (Stripe and Google Sheets for now, more to come) to automatically update your models with real-time metrics.

As a SaaS entrepreneur, you don't have time to build a model from scratch. Lucky you, Causal has built-in templates - including two SaaS models built by Taylor Davidson himself (see template #6). You are then able to augment or fine-tune those models to suit your specific needs.

In terms of documentation, there are a few videos, a live chat as well as a walkthrough when you start a new model. That's not much, but Causal assumes that you are a modeling "nerd" and that your usual work environment is massive spreadsheets. If that's the case, you'll be just fine. Assuming you have the time and desire to put in the hours to learn a new tool, Causal may very well be the ultimate platform for financial modeling.

New models - reviews coming soon

"financial model template for startups" by basetemplates.

Financial Model Template, by BaseTemplates

Conclusion: this is the best financial model for SaaS startups

Best free spreadsheet

If you want a "good enough" model but are not willing to pay for it, go for Ben Murray's (model #4) or Chris Janz's (model #2) . Customize them a bit to offset their weaknesses.

See below a side-by-side comparison of the differences between both models.

Best paid spreadsheet

If you want the best financial model spreadsheet out there and are willing to pay for it, go for Taylor Davidson's (model #6) or Alexander Jarvis' (models #7/#8) . They are by far the best stuff on the market today.

See below a side-by-side comparison of the differences.

Best software

If you want to experience the future of financial modeling, go for Summit (model #11) or Causal (model #12) - while keeping in mind that both are very different.

Thanks for reading. Don't hesitate to leave a question in the comments, I try to reply personally to each one of them.

OpenVC is a radically open platform that helps tech founders connect with the right investors.

POPULAR Posts

An LP take on VC portfolio construction

How to write a top 1% cold email to VCs

Pitch deck for startups - 9 templates compared

How to Model a Venture Capital Fund

How to whitelist OpenVC

You might also enjoy

Here's our list of the absolute best 9 templates of pitch decks for startup founders. Most of what you find online - both free and paid - sucks. So we tested them all and produced a detailed benchmark for you.

Need a financial model for your startup? Fear not. I have extensively compared the top 12 templates, free and paid, so you don't have to do it.

• Start free trial

Start selling with Shopify today

Start your free trial with Shopify today—then use these resources to guide you through every step of the process.

How To Create Financial Projections for Your Business Plan

Building a financial projection as you write out your business plan can help you forecast how much money your business will bring in.

Planning for the future, whether it’s with growth in mind or just staying the course, is central to being a business owner. Part of this planning effort is making financial projections of sales, expenses, and—if all goes well—profits.

Even if your business is a startup that has yet to open its doors, you can still make projections. Here’s how to prepare your business plan financial projections, so your company will thrive.

What are business plan financial projections?

Business plan financial projections are a company’s estimates, or forecasts, of its financial performance at some point in the future. For existing businesses, draw on historical data to detail how your company expects metrics like revenue, expenses, profit, and cash flow to change over time.

Companies can create financial projections for any span of time, but typically they’re for between one and five years. Many companies revisit and amend these projections at least annually. 

Creating financial projections is an important part of building a business plan . That’s because realistic estimates help company leaders set business goals, execute financial decisions, manage cash flow , identify areas for operational improvement, seek funding from investors, and more.

What are financial projections used for? 

Financial forecasting serves as a useful tool for key stakeholders, both within and outside of the business. They often are used for:

Business planning

Accurate financial projections can help a company establish growth targets and other goals . They’re also used to determine whether ideas like a new product line are financially feasible. Future financial estimates are helpful tools for business contingency planning, which involves considering the monetary impact of adverse events and worst-case scenarios. They also provide a benchmark: If revenue is falling short of projections, for example, the company may need changes to keep business operations on track.

Projections may reveal potential problems—say, unexpected operating expenses that exceed cash inflows. A negative cash flow projection may suggest the business needs to secure funding through outside investments or bank loans, increase sales, improve margins, or cut costs.

When potential investors consider putting their money into a venture, they want a return on that investment. Business projections are a key tool they will use to make that decision. The projections can figure in establishing the valuation of your business, equity stakes, plans for an exit, and more. Investors may also use your projections to ensure that the business is meeting goals and benchmarks.

Loans or lines of credit 

Lenders rely on financial projections to determine whether to extend a business loan to your company. They’ll want to see historical financial data like cash flow statements, your balance sheet , and other financial statements—but they’ll also look very closely at your multi-year financial projections. Good candidates can receive higher loan amounts with lower interest rates or more flexible payment plans.

Lenders may also use the estimated value of company assets to determine the collateral to secure the loan. Like investors, lenders typically refer to your projections over time to monitor progress and financial health.

What information is included in financial projections for a business?

Before sitting down to create projections, you’ll need to collect some data. Owners of an existing business can leverage three financial statements they likely already have: a balance sheet, an annual income statement , and a cash flow statement .

A new business, however, won’t have this historical data. So market research is crucial: Review competitors’ pricing strategies, scour research reports and market analysis , and scrutinize any other publicly available data that can help inform your projections. Beginning with conservative estimates and simple calculations can help you get started, and you can always add to the projections over time.

One business’s financial projections may be more detailed than another’s, but the forecasts typically rely on and include the following:

True to its name, a cash flow statement shows the money coming into and going out of the business over time: cash outflows and inflows. Cash flows fall into three main categories:

Income statement

Projected income statements, also known as projected profit and loss statements (P&Ls), forecast the company’s revenue and expenses for a given period.

Generally, this is a table with several line items for each category. Sales projections can include the sales forecast for each individual product or service (many companies break this down by month). Expenses are a similar setup: List your expected costs by category, including recurring expenses such as salaries and rent, as well as variable expenses for raw materials and transportation.

This exercise will also provide you with a net income projection, which is the difference between your revenue and expenses, including any taxes or interest payments. That number is a forecast of your profit or loss, hence why this document is often called a P&L.

Balance sheet

A balance sheet shows a snapshot of your company’s financial position at a specific point in time. Three important elements are included as balance sheet items:

• Assets. Assets are any tangible item of value that the company currently has on hand or will in the future, like cash, inventory, equipment, and accounts receivable. Intangible assets include copyrights, trademarks, patents and other intellectual property .
• Liabilities. Liabilities are anything that the company owes, including taxes, wages, accounts payable, dividends, and unearned revenue, such as customer payments for goods you haven’t yet delivered.
• Shareholder equity. The shareholder equity figure is derived by subtracting total liabilities from total assets. It reflects how much money, or capital, the company would have left over if the business paid all its liabilities at once or liquidated (this figure can be a negative number if liabilities exceed assets). Equity in business is the amount of capital that the owners and any other shareholders have tied up in the company.

They’re called balance sheets because assets always equal liabilities plus shareholder equity. 

5 steps for creating financial projections for your business

• Identify the purpose and timeframe for your projections
• Collect relevant historical financial data and market analysis
• Forecast expenses
• Forecast sales
• Build financial projections

The following five steps can help you break down the process of developing financial projections for your company:

1. Identify the purpose and timeframe for your projections

The details of your projections may vary depending on their purpose. Are they for internal planning, pitching investors, or monitoring performance over time? Setting the time frame—monthly, quarterly, annually, or multi-year—will also inform the rest of the steps.

2. Collect relevant historical financial data and market analysis

If available, gather historical financial statements, including balance sheets, cash flow statements, and annual income statements. New companies without this historical data may have to rely on market research, analyst reports, and industry benchmarks—all things that established companies also should use to support their assumptions.

3. Forecast expenses

Identify future spending based on direct costs of producing your goods and services ( cost of goods sold, or COGS) as well as operating expenses, including any recurring and one-time costs. Factor in expected changes in expenses, because this can evolve based on business growth, time in the market, and the launch of new products.

4. Forecast sales

Project sales for each revenue stream, broken down by month. These projections may be based on historical data or market research, and they should account for anticipated or likely changes in market demand and pricing.

5. Build financial projections

Now that you have projected expenses and revenue, you can plug that information into Shopify’s cash flow calculator and cash flow statement template . This information can also be used to forecast your income statement. In turn, these steps inform your calculations on the balance sheet, on which you’ll also account for any assets and liabilities .

Business plan financial projections FAQ

What are the main components of a financial projection in a business plan.

Generally speaking, most financial forecasts include projections for income, balance sheet, and cash flow.

What’s the difference between financial projection and financial forecast?

These two terms are often used interchangeably. Depending on the context, a financial forecast may refer to a more formal and detailed document—one that might include analysis and context for several financial metrics in a more complex financial model.

Do I need accounting or planning software for financial projections?

Not necessarily. Depending on factors like the age and size of your business, you may be able to prepare financial projections using a simple spreadsheet program. Large complicated businesses, however, usually use accounting software and other types of advanced data-management systems.

What are some limitations of financial projections?

Projections are by nature based on human assumptions and, of course, humans can’t truly predict the future—even with the aid of computers and software programs. Financial projections are, at best, estimates based on the information available at the time—not ironclad guarantees of future performance.

Keep up with the latest from Shopify

Get free ecommerce tips, inspiration, and resources delivered directly to your inbox.

By entering your email, you agree to receive marketing emails from Shopify.

popular posts

The point of sale for every sale.

Subscribe to our blog and get free ecommerce tips, inspiration, and resources delivered directly to your inbox.

Unsubscribe anytime. By entering your email, you agree to receive marketing emails from Shopify.

Latest from Shopify

Aug 2, 2024

Aug 1, 2024

Jul 31, 2024

Learn on the go. Try Shopify for free, and explore all the tools you need to start, run, and grow your business.

Try Shopify for free, no credit card required.

Everything that you need to know to start your own business. From business ideas to researching the competition.

Practical and real-world advice on how to run your business — from managing employees to keeping the books

Our best expert advice on how to grow your business — from attracting new customers to keeping existing customers happy and having the capital to do it.

Entrepreneurs and industry leaders share their best advice on how to take your company to the next level.

• Business Ideas
• Human Resources
• Business Financing
• Growth Studio
• Ask the Board

Looking for your local chamber?

Interested in partnering with us?

Run » finance, how to create a financial forecast for a startup business plan.

Financial forecasting allows you to measure the progress of your new business by benchmarking performance against anticipated sales and costs.

When starting a new business, a financial forecast is an important tool for recruiting investors as well as for budgeting for your first months of operating. A financial forecast is used to predict the cash flow necessary to operate the company day-to-day and cover financial liabilities.

Many lenders and investors ask for a financial forecast as part of a business plan; however, with no sales under your belt, it can be tricky to estimate how much money you will need to cover your expenses. Here’s how to begin creating a financial forecast for a new business.

[Read more: Startup 2021: Business Plan Financials ]

Start with a sales forecast

A sales forecast attempts to predict what your monthly sales will be for up to 18 months after launching your business. Creating a sales forecast without any past results is a little difficult. In this case, many entrepreneurs make their predictions using industry trends, market analysis demonstrating the population of potential customers and consumer trends. A sales forecast shows investors and lenders that you have a solid understanding of your target market and a clear vision of who will buy your product or service.

A sales forecast typically breaks down monthly sales by unit and price point. Beyond year two of being in business, the sales forecast can be shown quarterly, instead of monthly. Most financial lenders and investors like to see a three-year sales forecast as part of your startup business plan.

Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign.

Tim Berry, president and founder of Palo Alto Software

Create an expenses budget

An expenses budget forecasts how much you anticipate spending during the first years of operating. This includes both your overhead costs and operating expenses — any financial spending that you anticipate during the course of running your business.

Most experts recommend breaking down your expenses forecast by fixed and variable costs. Fixed costs are things such as rent and payroll, while variable costs change depending on demand and sales — advertising and promotional expenses, for instance. Breaking down costs into these two categories can help you better budget and improve your profitability.

"Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign," Tim Berry, president and founder of Palo Alto Software, told Inc . "Most of your variable costs are in those direct costs that belong in your sales forecast, but there are also some variable expenses, like ads and rebates and such."

Project your break-even point

Together, your expenses budget and sales forecast paints a picture of your profitability. Your break-even projection is the date at which you believe your business will become profitable — when more money is earned than spent. Very few businesses are profitable overnight or even in their first year. Most businesses take two to three years to be profitable, but others take far longer: Tesla , for instance, took 18 years to see its first full-year profit.

Lenders and investors will be interested in your break-even point as a projection of when they can begin to recoup their investment. Likewise, your CFO or operations manager can make better decisions after measuring the company’s results against its forecasts.

[Read more: ​​ Startup 2021: Writing a Business Plan? Here’s How to Do It, Step by Step ]

Develop a cash flow projection

A cash flow statement (or projection, for a new business) shows the flow of dollars moving in and out of the business. This is based on the sales forecast, your balance sheet and other assumptions you’ve used to create your expenses projection.

“If you are starting a new business and do not have these historical financial statements, you start by projecting a cash-flow statement broken down into 12 months,” wrote Inc . The cash flow statement will include projected cash flows from operating, investing and financing your business activities.

Keep in mind that most business plans involve developing specific financial documents: income statements, pro formas and a balance sheet, for instance. These documents may be required by investors or lenders; financial projections can help inform the development of those statements and guide your business as it grows.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

Follow us on Instagram for more expert tips & business owners’ stories.

CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here .

Subscribe to our newsletter, Midnight Oil

Expert business advice, news, and trends, delivered weekly

By signing up you agree to the CO— Privacy Policy. You can opt out anytime.

For more finance tips

Mobile credit card readers: choosing the best for your small businesses, mastering mobile payments: top credit card payment apps for entrepreneurs, how to accept recurring payments from customers.

By continuing on our website, you agree to our use of cookies for statistical and personalisation purposes. Know More

Welcome to CO—

Designed for business owners, CO— is a site that connects like minds and delivers actionable insights for next-level growth.

U.S. Chamber of Commerce 1615 H Street, NW Washington, DC 20062

Social links

Looking for local chamber, stay in touch.

• Search Search Please fill out this field.
• Building Your Business
• Becoming an Owner
• Business Plans

How to Write the Financial Section of a Business Plan

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

Taking Stock of Expenses

The income statement, the cash flow projection, the balance sheet.

The financial section of your business plan determines whether or not your business idea is viable and will be the focus of any investors who may be attracted to your business idea. The financial section is composed of four financial statements: the income statement, the cash flow projection, the balance sheet, and the statement of shareholders' equity. It also should include a brief explanation and analysis of these four statements.

Think of your business expenses as two cost categories: your start-up expenses and your operating expenses. All the costs of getting your business up and running should be considered start-up expenses. These may include:

• Business registration fees
• Business licensing and permits
• Starting inventory
• Rent deposits
• Down payments on a property
• Down payments on equipment
• Utility setup fees

Your own list will expand as soon as you start to itemize them.

Operating expenses are the costs of keeping your business running . Think of these as your monthly expenses. Your list of operating expenses may include:

• Salaries (including your own)
• Rent or mortgage payments
• Telecommunication expenses
• Raw materials
• Distribution
• Loan payments
• Office supplies
• Maintenance

Once you have listed all of your operating expenses, the total will reflect the monthly cost of operating your business. Multiply this number by six, and you have a six-month estimate of your operating expenses. Adding this amount to your total startup expenses list, and you have a ballpark figure for your complete start-up costs.

Now you can begin to put together your financial statements for your business plan starting with the income statement.

The income statement shows your revenues, expenses, and profit for a particular period—a snapshot of your business that shows whether or not your business is profitable. Subtract expenses from your revenue to determine your profit or loss.

While established businesses normally produce an income statement each fiscal quarter or once each fiscal year, for the purposes of the business plan, an income statement should be generated monthly for the first year.

Not all of the categories in this income statement will apply to your business. Eliminate those that do not apply, and add categories where necessary to adapt this template to your business.

If you have a product-based business, the revenue section of the income statement will look different. Revenue will be called sales, and you should account for any inventory.

The cash flow projection shows how cash is expected to flow in and out of your business. It is an important tool for cash flow management because it indicates when your expenditures are too high or if you might need a short-term investment to deal with a cash flow surplus. As part of your business plan, the cash flow projection will show how  much capital investment  your business idea needs.

For investors, the cash flow projection shows whether your business is a good credit risk and if there is enough cash on hand to make your business a good candidate for a line of credit, a  short-term loan , or a longer-term investment. You should include cash flow projections for each month over one year in the financial section of your business plan.

Do not confuse the cash flow projection with the cash flow statement. The cash flow statement shows the flow of cash in and out of your business. In other words, it describes the cash flow that has occurred in the past. The cash flow projection shows the cash that is anticipated to be generated or expended over a chosen period in the future.

There are three parts to the cash flow projection:

• Cash revenues: Enter your estimated sales figures for each month. Only enter the sales that are collectible in cash during each month you are detailing.
• Cash disbursements: Take the various expense categories from your ledger and list the cash expenditures you actually expect to pay for each month.
• Reconciliation of cash revenues to cash disbursements: This section shows an opening balance, which is the carryover from the previous month's operations. The current month's revenues are added to this balance, the current month's disbursements are subtracted, and the adjusted cash flow balance is carried over to the next month.

The balance sheet reports your business's net worth at a particular point in time. It summarizes all the financial data about your business in three categories:

• Assets :  Tangible objects of financial value that are owned by the company.
• Liabilities: Debt owed to a creditor of the company.
• Equity: The net difference when the  total liabilities  are subtracted from the total assets.

The relationship between these elements of financial data is expressed with the equation: Assets = Liabilities + Equity .

For your  business plan , you should create a pro forma balance sheet that summarizes the information in the income statement and cash flow projections. A business typically prepares a balance sheet once a year.

Once your balance sheet is complete, write a brief analysis for each of the three financial statements. The analysis should be short with highlights rather than in-depth analysis. The financial statements themselves should be placed in your business plan's appendices.

We use essential cookies to make Venngage work. By clicking “Accept All Cookies”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.

Manage Cookies

Cookies and similar technologies collect certain information about how you’re using our website. Some of them are essential, and without them you wouldn’t be able to use Venngage. But others are optional, and you get to choose whether we use them or not.

Strictly Necessary Cookies

These cookies are always on, as they’re essential for making Venngage work, and making it safe. Without these cookies, services you’ve asked for can’t be provided.

Show cookie providers

• Google Login

Functionality Cookies

These cookies help us provide enhanced functionality and personalisation, and remember your settings. They may be set by us or by third party providers.

Performance Cookies

These cookies help us analyze how many people are using Venngage, where they come from and how they're using it. If you opt out of these cookies, we can’t get feedback to make Venngage better for you and all our users.

• Google Analytics

Targeting Cookies

These cookies are set by our advertising partners to track your activity and show you relevant Venngage ads on other sites as you browse the internet.

• Google Tag Manager
• Infographics
• Daily Infographics
• Popular Templates
• Accessibility
• Graphic Design
• Graphs and Charts
• Data Visualization
• Human Resources
• Beginner Guides

Blog Feature Updates Startup Business Plans 101: Your Path to Success

Startup Business Plans 101: Your Path to Success

Written by: Jay Nair Jul 24, 2023

It’s time — you’ve got a promising idea and you’re now prepared to invest the necessary effort to turn it into reality. Startup business plans are vital hack tools that will guide you through your entrepreneurial journey and a business venture with clarity and purpose.

Though vital, business planning doesn’t have to be a chore. Business plans for lean startups and solopreneurs can simply outline the business concept, sales proposition, target customers and sketch out a plan of action to bring the product or service to market. These plans will serve as strategic documents outlining your company’s vision, mission statements, business objectives, target market, financial forecasts and growth strategies.

To simplify the creation of a robust business plan as an entrepreneur, you can harness the power of a business plan maker . This invaluable tool streamlines the process and ensures a polished and well-organized presentation.  Startup business plan templates provide pre-designed frameworks that can be customized to suit your specific industry needs, saving valuable time and effort while preserving the essential structure of a comprehensive business plan.

Ready to begin? Let’s go!

Just so you know, some of our business plan templates are free to use and some require a small monthly fee. Sign-up is always free, as is access to Venngage’s online drag-and-drop editor.

Click to jump ahead:

• Laying the foundation of your startup business plan
• Business plan executive summary
• Writing your business description
• Marketing & sales strategies
• Startup operational plans
• Financial plans – forecasting and projections
• Team and management
• Appendix and supporting documents

FAQs on startup business plans

• Use Venngage to create your startup business plan

Preparation and research: 6 steps to laying the foundation of your startup business plan

• What problem does your product or service solve? 
• Who are your target customers? 
• What differentiates your offering from existing solutions in the market? 

This self-reflection will help you establish a clear direction for your startup.

• Next, conduct market research to gather valuable insights about your target market , including demographics, preferences, and purchasing behavior . This data will enable you to tailor your product or service to meet the specific needs of your customers. Identify trends, industry growth projections, and any potential barriers or challenges you may encounter.
• Competitive analysis is another critical aspect of preparation and research. Study your competitors to understand their strengths, weaknesses, and strategies. Analyze their pricing, marketing tactics, customer experience, and product/service features. This analysis will allow you to identify gaps in the market and position your startup to offer a unique value proposition .
• Financial research is equally important during this phase. Calculate the costs associated with starting and operating your business , including overhead expenses, production costs, marketing expenses, and employee salaries. Assess potential revenue streams and estimate your expected sales. This financial analysis will help you determine the feasibility of your business idea and outline a realistic financial plan.
• Additionally, gather information about legal and regulatory requirements that apply to your industry and location . Understand the necessary permits, licenses, and certifications you need to operate legally. Complying with these regulations from the outset will prevent potential setbacks or legal issues in the future.
• Finally, organize your findings and insights into a coherent business plan. Create your business plan outline , list your business plan goals, strategies, target market, competitive analysis, marketing plan, financial projections and any other relevant information. This compilation will serve as a roadmap for your startup, guiding your decisions and actions moving forward.

You’ve just encountered a wealth of information and are well on your way to becoming a seasoned business owner! This can sometimes feel overwhelming. But don’t worry, take a moment to breathe deeply and remember how far you’ve come. You’ve got this!

To help you condense and organize your essential points, I have brilliant one-page samples of business plan layouts and templates that will capture everything in a concise format.

Knowing when to use a one-page business plan versus a more comprehensive plan depends on various factors. A one-page business plan is ideal for providing a quick overview, saving time, and internal planning. However, it may not suffice for detailed information, complex business models, or meeting external stakeholders’ expectations.

Ultimately, consider the purpose, audience, and complexity of your business when deciding whether to utilize a one-page business plan or opt for a more detailed approach.

Executive Summary: Your Startup’s Elevator Pitch

First impressions are crucial, and a concise yet comprehensive executive summary is your chance to grab potential investors’ attention.

To create a compelling elevator pitch, consider the following key elements:

Problem Statement : Clearly articulate the problem or pain point that your startup addresses. Emphasize the significance of the problem and the potential market size

Solution : Concisely describe your innovative solution or product that solves the identified problem. Highlight its unique features or benefits that differentiate it from existing alternatives.

Target Market : Define your ideal customer segment and outline the market potential. Demonstrate a deep understanding of your target audience’s needs, preferences, and behavior.

Competitive Advantage : Showcase the competitive edge that sets your startup apart from competitors. This could include intellectual property, strategic partnerships, cost advantages, or disruptive technology.

Business Model : Briefly explain how your startup generates revenue and sustains profitability. Outline your monetization strategy, pricing model, and any recurring revenue streams .

Traction and Milestones : Highlight any significant achievements or milestones reached by your startup. This could include customer acquisitions, partnerships, product development progress, or market validation.

Team : Showcase the expertise and qualifications of your founding team or business partners. Highlight key members and their relevant experiences demonstrating their ability to execute the business plan.

I can sense your eagerness to dive right in! To expedite your progress, I’m excited to present you with a collection of meticulously crafted executive summary templates. These templates have been thoughtfully designed and structured by Venngage designers, ensuring seamless integration into your thorough business plan. All you need to do is infuse them with your brilliant startup ideas, and you’ll be well on your way to success!

Now, remember that there’s still a ton of work to be done. Let’s take a moment to regroup and ensure we’re on the right track. Before diving into the process of writing your business plan , it’s imperative to gather a wealth of essential information. Conducting comprehensive research is key, and it should encompass the following aspects:

How to assess your target audience

To gain comprehensive insights into your potential user base, creating a user persona report is invaluable. This persona guide report will help you develop a detailed understanding of various user profiles, enabling you to tailor your products or services to meet their specific needs and preferences.

Understanding Your Market and Competition

Analyze your market and any trends relevant to your startup. Research your competitors, their strengths and weaknesses, and identify what differentiates your offering from the competition.

Developing a Unique Value Proposition

A business Unique Value Proposition (UVP) is a concise statement that communicates the unique advantage a product or service offers over competitors, addressing a specific problem or need. It highlights the distinctive value and benefits customers can expect, helping businesses attract and retain customers by differentiating themselves in the market.

Your unique value proposition (UVP) is the cornerstone of your startup, defining what sets you apart from your competitors. A strong UVP focuses on the specific benefits and solutions your startup offers to customers.

Company Description: Painting the Picture

Your company description allows you to showcase your startup’s unique features and provide more in-depth details about your business. This section should include:

The Purpose of the Company Description

Clarify the purpose of your business, your goals and how your startup is uniquely positioned to achieve them.

Essential Information to Include

Include details such as your company’s legal structure, location and a brief history of any founders or key personnel.

Showcase Your Company’s Unique Features

Emphasize the unique aspects of your startup, explaining how these features translate into a competitive advantage.

Allow me to provide you with a dash of inspiration to ignite the momentum for your startup business plan:

When it comes to showcasing your company’s unique features, keep in mind that it is essential to emphasize and highlight the distinctive aspects of your startup . Clearly articulate how these features set your company apart from competitors and translate into a tangible competitive advantage . 

Whether it’s through cutting-edge technology, innovative business models, exceptional customer service, or a combination of factors, conveying the value and impact of these unique features is crucial. By effectively communicating the benefits they bring to customers, investors, and partners, you can demonstrate the significance of your offerings and differentiate yourself in the market.

Product/Service Line: What You’re Bringing to the Table

This section highlights the finer details of your product or service offerings:

Detailing Your Product/Service Offerings

Provide a thorough description of your products/services, highlighting key features and their intended use.

Highlighting Features, Benefits, and Solutions

Demonstrate how your startup’s offerings solve specific problems or address customer needs through an analysis of product features and associated benefits.

Defining Your Pricing and Revenue Model

Outline your startup’s pricing strategy and how it aligns with the overall business model. Detail any plans for scaling or expanding your revenue sources in the future.

Presenting Your Market Research Findings

Share insights from your market research, including target customer demographics, market size, and growth potential.

Identifying Market Trends and Opportunities

Discuss current trends, emerging opportunities, and how your startup will capitalize on these developments.

Marketing and Sales Strategies: Spreading the Word

Developing a robust marketing and sales strategy plan aligns with your overall business strategy and ensures steady growth. Marketing planning will be an essential part of your journey once you’ve got your business plan tight-knit! Also, creating a marketing strategy can be the most fun part of your business plan!

Developing a Comprehensive Marketing Strategy & Plan

• Outline Specific Marketing Goals : Clearly define your marketing objectives, whether it’s increasing brand awareness, driving website traffic, generating leads, or boosting sales . Set measurable targets to track progress.
• Identify Target Audience : Conduct thorough market research to identify your ideal customer profiles. Understand their demographics, behaviors, preferences, and pain points. Tailor your marketing messages to resonate with their needs.
• Select Effective Marketing Channels : Consider both digital and traditional channels that align with your target audience and marketing goals. This may include online advertising, social media marketing, content marketing, search engine optimization (SEO), email campaigns, print media, events, or partnerships.
• Craft Compelling Messages : Develop persuasive and consistent messaging that highlights the unique value proposition of your products or services. Clearly communicate how your offerings solve customer problems or improve their lives.

5 Tips for Effective Sales Techniques and Growth Strategies + free templates

• Define Your Sales Strategy : Outline the approach and tactics your sales team will use to reach and convert customers. This may involve direct sales, channel partnerships , online sales, or a combination of strategies. Specify your sales process, including lead generation, qualification, nurturing, and closing.
• Expand Your Customer Base : Identify opportunities to expand your customer reach. Consider targeting new customer segments, entering new geographic markets, or exploring untapped market niches. Develop strategies to attract and engage these potential customers.
• Penetrate New Markets : Assess the feasibility of expanding into new markets or verticals. Market research will help you understand the dynamics, competition, and customer needs in these markets. Adapt your marketing and sales strategies accordingly to effectively penetrate and capture market share.
• Innovate Products/Services : Continuously evaluate and enhance your product or service offerings to meet evolving customer demands. Identify areas for innovation or improvement and develop a roadmap for launching new features, versions, or complementary offerings.
• Perform a SWOT analysis : By conducting a sales SWOT analysis , you will gather valuable insights to enhance your department’s performance. This analysis involves evaluating your company’s strengths, weaknesses, opportunities, and threats, enabling you to identify areas for improvement and capitalize on advantageous factors in the market.

Here’s a hack to get you organized – Get right into it with the help of these growth strategy templates and strategic planning templates :

Operational Plan: How Your Startup Will Run

Define an efficient and scalable operational plan, keeping in mind the following points:

Defining an Efficient and Scalable Plan

Outline the day-to-day operations, including processes, timelines, and necessary resources.

Legal Considerations for Your Startup Business

Identify any legal requirements or considerations, such as licenses, permits, or regulations that may apply to your startup.

Key Elements of Supply Chain Management and Logistics

Discuss supply chain and logistical aspects relevant to your business. Include details on how you plan to manage and scale these processes.

Here’s a kickstart on how you can structure your operating plans:

Financial Projections: Crunching the Numbers

A startup’s financial projections are vital in securing investor buy-in. This section should address:

The Importance of Financial Forecasting and Budgeting

Explain the significance of accurate financial forecasting, budgeting, and the assumptions made in your projections.

Identifying Key Performance Indicators (KPIs)

Highlight the KPIs used to gauge your business’s financial health and growth trajectory.

Outlining Funding Requirements

Detail the amount and type of funding your startup requires , including how the funds will be allocated and how this investment positions the company for growth.

Team and Management Structure: Building Your Dream Team

Your startup’s success depends on the people behind it. This section should cover:

Tips for Building the Right Team

Share your strategy for assembling a skilled team that supports your startup’s vision and growth trajectory.

Founders’ Background and Roles

Provide an overview of the founders’ backgrounds, their roles within the company, and how their skills contribute to the startup’s success.

Organizational Structure and Key Management Personnel

Outline your startup’s organizational structure, including any key management personnel who play a pivotal role in day-to-day operations.

Appendices and Supporting Documents: Backing Up Your Plan

Include any other relevant supporting documents, such as:

• Research data, market analysis, or competitor analyses.
• Financial statements, budgeting or forecasting data, and other financial documentation.
• Legal documents, agreements or contracts, and any patent or trademark information.

Finally, remember to review and update your business plan regularly as the industry, market, and competitive landscape evolve!

1. Why is a business plan essential for a startup?

A startup business plan is crucial for a startup because it provides a framework for strategic decision-making, facilitates financial planning, helps assess risks, aligns teams, communicates your vision, and ensures effective resource allocation. 

2. What should a startup business plan include?

A startup business plan should include:

• Vision and Direction : Set clear goals and objectives, and outline strategies to achieve them. With a well-defined plan, you will stay focused, make informed decisions, and ensure alignment with your vision.
• Market Analysis : A business plan necessitates thorough market research to understand your target market, identify competition, and assess product/service demand. These insights enable you to tailor offerings, meet customer needs, and gain a competitive edge.
• Financial Planning : By constructing a financial roadmap through projected statements such as income, cash flow, and balance sheets, a business plan unveils the expected revenues, expenses, and profitability. This comprehensive planning not only anticipates challenges and sets realistic goals but also serves as a magnet for attracting investors and securing funding.
• Risk Assessment : Devise strategies for risk mitigation and contingency planning. By proactively doing this, you can significantly enhance the likelihood of success by anticipating and effectively addressing potential obstacles.
• Communication and Team Alignment : From fostering effective communication with both internal and external stakeholders to aligning team members and showcasing your startup’s unique value proposition, a business plan plays a crucial role. It enables you to articulate target market insights, competitive advantages, and growth strategies to potential investors, partners, and employees.
• Resource Allocation : A business plan helps you identify the resources required to launch and operate your startup successfully. It includes an assessment of your human resources, technology needs, infrastructure requirements, and other key resources. By understanding your resource needs, you can allocate them effectively, ensuring that you have the necessary assets to execute your business strategy.
• Adaptability and Flexibility : Your business plan should be flexible enough to accommodate changes and adapt to new circumstances. Startups operate in dynamic environments, and a well-designed plan allows you to monitor progress, evaluate outcomes, and make adjustments as needed. This agility enables you to seize new opportunities and navigate challenges effectively.

3. What is the ideal length for a startup business plan?

The optimal length for a startup business plan typically depends on the specific requirements and intended audience, but a concise and focused plan of around 20 to 30 pages is often recommended.

4. How to write a good startup business plan?

To write a good and effective startup plan, include an executive summary, company description, market analysis, detailed products/services description and a clear marketing and sales strategy. Also incorporate a comprehensive financial plan, outline your organizational structure, and demonstrates your team’s expertise and capabilities. Your plan should be well-researched, concise, and compelling, with a focus on your company’s unique value proposition and market opportunity, making it attractive to investors and stakeholders.

Utilizing Venngage templates & other tools for success

A visually appealing and professional business plan needn’t be a daunting task. Leverage tools like Venngage Business Plan Maker for effective templates that cater to various industries and streamline the process. 

• Leveraging Venngage for Visually Appealing and Professional Business Plans

Venngage offers a range of templates designed specifically for business plans, allowing you to craft a polished and visually engaging plan without any design experience. Simply choose a template, customize it to suit your startup’s branding, and populate it with your content.

• Exploring Additional Resources and Tools for Entrepreneurs. In addition to Venngage, several other resources and tools can assist entrepreneurs in crafting the perfect business plan. Examples include:
• Small Business Administration (SBA) – Offers guidance on writing business plans and provides templates and resources for each section.
• SCORE – A nonprofit organization providing mentorship, workshops, and other resources for entrepreneurs.
• Industry-specific resources – Research relevant professional organizations, industry publications, and blogs to stay up to date on industry trends and insights.

Embarking on the entrepreneurial path may present formidable challenges, yet it offers abundant rewards in various aspects. Embrace the art of continuous learning, delving not only into the essence of your business idea but also immersing yourself in the vast world that surrounds it. Cultivate a genuine passion for understanding every facet of your enterprise, for it is through this journey of exploration that you will uncover invaluable insights and experience the true fulfillment of entrepreneurship.

Discover popular designs

Infographic maker

Brochure maker

White paper online

Newsletter creator

Flyer maker

Timeline maker

Letterhead maker

Mind map maker

Ebook maker

• Real-time data and analysis
• Collaborate and share
• Centralized Budgeting
• Forecast revenue
• Create multiple scenarios
• Automated hiring planning
• Plan for fundraising
• Founders and Small Businesses
• Mid-Sized Businesses

Downloadables

Help Center

Financial Modeling

Fundraising

Founder Story

14 Financial Planning Tips for Startups

If you fail to plan, you plan to fail.

That old adage really rings true when it comes to financial planning for startups.

One of the biggest mistakes you can make as a founder is trying to “wing it” with your finances. Taking the time to create a financial plan will:

• Make you think more strategically about growth
• Help you prepare for all the ups and downs of running a startup
• Make it easier to fundraise
• Give you more confidence about the day-to-day decisions you make

Trust us, the value you’ll get from financial planning is well worth the time you put into it. But it’s only as valuable as you make it.

In this guide we’re going to show you how to take your startup’s financial plan from being a boring static document and turn it into your new favorite growth tool.

Table of Contents

What is Financial Planning?

A financial plan is like a financial game plan for your startup. It outlines your company’s current financial state, your goals for the future, the actions you’ll take to reach those goals, and how much it’s going to cost.

Financial planning is the process of putting your “game plan” together and documenting it. Using data, you make assumptions about revenue, expenses, and other financial parts of your business to forecast the financial trajectory of your business.

A lot of startups document their plan in a spreadsheet , but we prefer software 😉. We’ll dive into why and how in a little bit.

Why is Financial Planning Important for Startups?

It costs money to grow a business, and most people don’t have unlimited resources. If you don’t plan for how you’re going to grow and how much it’s going to cost, you can easily waste your two most precious resources—time and money.

On top of that, if you plan on pitching investors, they’re going to expect to see a financial plan. They need to know that once they give you hundreds of thousands or millions of dollars to grow your startup, you have a plan for exactly how you’re going to use the money.

Essentially, financial planning forces you to think strategically about how to best use your resources and what your expected results are. Throughout the process, you’ll have to answer questions like:

• How much revenue will we generate?
• What will our churn rate look like?
• How many months of runway will we have?
• How much do we have to spend on sales and marketing?
• How many people can we afford to hire?

By answering these types of questions with data and numbers and turning it into a financial plan, you’ll have a clearer picture of what growth looks like, how much it’ll cost, and how to measure success.

If you want to build your financial plan quicker, (and with more accuracy), I highly recommend giving Finmark a try . It’s much easier than using a spreadsheet, especially for founders.

Now that you know what financial planning is and why startups need to do it, let’s take a look at some tips to make sure you’re creating the best financial plan possible.

1. Choose The Right Financial Planning Tool

If you’re like most startups, your financial plan probably starts in a spreadsheet. While spreadsheets can be an ok solution for building your financial plan, there are better options out there— like ours .

When it comes to choosing the right financial planning software for startups, here are our tips:

• Scalable: Is it going to be easy to manage your financial plan as you grow? Or will it require you to change the entire framework of your financial plan as you scale?
• Easy-to-use: Many financial planning solutions aren’t made for non-finance people. They’re unnecessarily complicated and require an intermediate level of financial knowledge to understand. Look for something that’s simple enough for non-finance people to use, but powerful enough for your future CFO or FP&A team to work with.
• Collaborative: You should be able to easily (and securely) collaborate with your team, investors, accountants, or other stakeholders on your financial plan.
• Customizable: The tool should allow you to customize your models to reflect your business type and industry.
• Integrations: Does it integrate with your accounting, payroll, and CRM tools?

If you’re looking for something that checks all these boxes, I think you’re going to like Finmark. Plus you can try it free for 30 days!

2. Plan For Multiple Scenarios

In an ideal world, your revenue would always trend upward, unexpected expenses would never pop up, and everything would just fall into place.

But as any founder will tell you, that’s rarely the case.

The thing is, nobody hopes for the worst-case scenario for their business. But if you plan for it in advance, you’ll be better prepared to maneuver through it if it happens.

That’s why we recommend creating downside, upside, and baseline scenarios when you’re doing your financial planning. Each scenario has different assumptions for how your business will grow, so you’re more prepared for whatever happens.

Your baseline plan has the expectation that your business will grow at a steady rate. Your assumptions while building this plan might include:

• Your cash flow won’t drastically change
• You won’t go on a hiring spree,
• Your burn rate will stay relatively consistent
• Your revenue growth will be steady

A baseline financial plan is important because it gives you a benchmark. Since it’s primarily based on how your company has performed historically, it’ll be a good indicator of whether or not you’re trending up or down.

Your upside plan is your best case scenario, where your expectation is to outpace your baseline. Some assumptions you might make are:

• You’ll get new customers at a faster rate each month
• Your average revenue per account (ARPA) will increase
• Your expenses will stay relatively flat while revenue grows
• You’ll decrease your churn rate

Be careful with your upside plan though. If you’re going to make these types of assumptions, they need to be tied to actions.

For instance, you need to have a plan for how you’re going to get more customers, how you’re going to decrease churn, where new revenue will come from, etc.

Just changing your churn rate from 10% to 4% in your financial plan without a strategy for how you’re going to get there isn’t “planning”, it’s guessing.

Your downside plan is going to be the least enjoyable to create, but you’ll thank yourself for doing it. This is the plan with built-in expectations that you’ll see a decline from your baseline plan. It could include assumptions like:

• Your churn rate will stay flat, or increase
• Your ARPA will decrease
• Your burn rate will outpace your revenue growth
• Your gross margin will decrease
• Higher customer acquisition cost (CAC)
• Longer CAC payback

The advice I gave you for your upside plan also applies to your downside plan. Your assumptions need to be tied to an event or action of some kind.

For example, maybe you plan on trying some new customer acquisition channels and you’re unsure of how they’ll perform so you estimate a higher CAC or lower conversions.

Or maybe your revenue growth has been on a slow decline for a few months, so you plan for what happens if that trend continues or speeds up.

What you don’t want to do is make assumptions like “our revenue will decrease 10%” without having any data or reasoning to justify why that would happen.

Essentially, your downside financial plan should have a little bit of skepticism, not pessimism. The difference is skepticism means having some doubt, while pessimism is assuming the worst will happen.

Learn more about how to do scenario analysis here .

3. Ask “What if”

Sometimes founders and finance leaders tend to look at financial planning as a means to an end. You enter in a few numbers to get a final “report” on where your financial will be in the future.

This usually happens because you’re financial planning for a specific event—fundraising, investor meetings, preparing for the new year, etc.

Instead, I want to challenge you to take a new perspective when you’re building your startup’s financial plan. Use it as an opportunity to ask “what if” questions and see how it’ll impact your financial projections.

Remember what I said about tying your assumptions to actions? This is when you can brainstorm on what those actions are.

For example, you might ask:

• What if we try sponsored newsletters?
• What if we hire a new customer support rep?
• What if we increase our pricing by 10%?
• What if we double the amount we spend on Google ads?
• What if we create a new add-on product or service?

Since you’re financial planning, try to make your “what if” questions quantifiable, and ideally something with a monetary value attached to it. That way, you can build it into your financial plan and see how it affects your projections.

4. Don’t Assume Your Expenses Will Stay Flat

A common mistake founders make with financial planning is assuming expenses will stay flat over time. If your company is growing, more than likely, so will your expenses.

There’s a big misconception that higher expenses are a bad thing. Yes, rising expenses can be bad—if you’re spending money on unnecessary things. But think about some of the most common expenses that come with growth:

• Employees ( 63% of SMBs that predict they’ll grow revenue plan to hire new employees in 2021)
• Space (if you have a physical office)
• Sales and marketing
• Software (new tools, plan upgrades)

Generally, these expenses will all grow as your company gets bigger.

One of the most common examples is with customer support. The more customers you get, the more questions, bugs, and support tickets you’ll have.

So at some point, you’ll need to bring on new support people to handle the volume. Otherwise you risk losing customers (and revenue) because 58% of consumers will switch companies because of poor customer service.

If you’re using Finmark, you can account for these types of changes when you add expenses into your financial plan. Here’s how.

Let’s take rent for example. If your rent is currently $3,000 per month, but you expect that amount to increase 2% annually from rent increases, you can build that into your financial plan with Finmark.

Including these expense increases in your financial plan make your data more accurate, and therefore reliable. Underestimating your expenses can lead you to think you’ll have more cash available than what you’ll actually have.

5. Be Flexible

Financial plans shouldn’t be static. Create your plan with the understanding that things may change.

We’ve already mentioned the importance of making multiple scenarios to prepare for what “might” happen. But when things do pop up, you should adjust your financial plan accordingly.

For instance, if your original financial plan assumed 30% of your sales would come from product line A, but after three months you realize it’s actually closer to 50%, you need to adjust the plan.

Not only will you need to adjust your revenue, but you may also consider making changes like allocating more budget to market this product line since it’s overperforming.

Taking a “rolling” approach to your financial plan allows you to create a more accurate forecast since it’s based on the most up-to-date information available.

A good place to start is to get into the habit of reviewing your actuals each month and then make any necessary adjustments to the assumptions in your original financial plan.

6. Understand Your Cash Flow

We touched on the importance of burn rate, but let’s talk more about cash flow.

Cash flow is how money flows in and out of your business. If you don’t understand how to manage cash flow, it can literally bankrupt your business.

Cash flow is a common issue for businesses that sell physical goods. They often have to plan for months in advance to manage inventory and sales. Here’s an example.

Say you buy widgets wholesale and sell them on your website at a markup. You order your inventory in advance, but you’re not 100% sure of how much you’ll be able to sell. You place an order for your inventory (cash leaves your business), but it may be a couple of months before it arrives.

In the meantime, you still have expenses like payroll, warehouse space, and others that need to be paid.

If you don’t plan your cash flow correctly, you could end up in a position where you don’t have enough cash to pay expenses because you’re waiting for new inventory to arrive.

Always keep an eye on your cash flow and know:

• When cash is coming into your business
• Where it’s coming from
• What expenses need to be paid and when

Cash flow management is an art and a science. But if you get it right, you’ll put your business in a much better financial space.

7. Plan For Where Revenue Will Come From

I touched on this in tip #1, but let’s dive a little deeper.

Revenue is one of the most important metrics you’re going to include in your financial plan so you want to make sure the numbers are as accurate as possible. That starts by being realistic about where your revenue is going to come from.

In most cases, revenue doesn’t just grow automatically. There’s a catalyst to increase it. It could be salespeople, Facebook ads, content, events, or some other action that’s bringing in leads who will ultimately convert into customers. These are all called revenue drivers , because they literally “drive” your revenue.

You don’t necessarily need to completely map out your revenue strategy during financial planning, but you should be able to account for where any planned revenue growth is going to come from.

Here’s an example of how you can do it.

Let’s say we’re a SaaS company and one of our revenue drivers is Google Ads. We run Google Ads to get leads that will convert into customers. So we need to account for the revenue we’re going to get from our ads in our financial plan.

First, we’ll create Google Ads as an expense, and specify how much we plan to spend on the ads. We’ll plan for $1,000 per month.

Now that we know how much we plan to spend, we need to plan for how much revenue we expect to get from that $1,000. So we’ll head into the revenue section of our financial plan and add our Google Ads as a new stream of revenue.

You’ll have to fill in some data points based on your assumptions like your lead conversion rate and cost per lead . I recommend reading this article for some tips on how to make accurate assumptions for those numbers.

Once we add this in, it’ll show in our revenue projections and financial plan.

You can repeat this process for all of your different revenue drivers, including your other marketing channels and your sales team. It’s fun to play around with the numbers and test your assumptions to see what impact they have on your financial plan.

Again, financial planning makes you go beyond just setting arbitrary goals. It makes you think about how you want to achieve your goals, plan what actions you need to take, and how much it’s going to cost.

8. Consider All Employee Costs

Here’s an often overlooked expense you should account for in your financial plan, particularly for newer founders that plan on hiring for the first time—additional employee costs.

Hiring (and retaining) employees includes more than just salaries. Recruiting, onboarding, new equipment, benefits, and taxes are all additional costs that come along with hiring new employees.

According to Glassdoor , the average U.S. company spends about $4,000 just to recruit a new employee. If you hire just 5-10 new employees over the course of a year, that’s an additional $20-$40K you need to account for in your financial plan. And the larger your company, the more employees you’ll typically hire per year.

Here’s a look at some of those “hidden” expenses of recruiting that Glassdoor highlighted.

In Finmark, we make it easy to account for these expenses. You can manually add expenses like background checks and job board listings directly into your plan whenever you hire new employees.

And for things like benefits and taxes, we have a “Load Multiplier” feature that allows you to add on a specific percentage on top of salaries for taxes and benefits. You can add this across all your employees, or do it on an individual basis.

So if we have an employee with an annual salary of $85K, we can add an additional 20% to account for their taxes and benefits.

Then you can see the total breakdown of salary vs benefits and taxes for all your employees.

The more employees you have, the more important it is to account for these extra expenses.

9. Watch Your Burn Rate

In the early days of a startup, you’re likely burning through a lot of cash. Even if you’re well funded, it’s easy for expenses to quickly spiral out of control.

That’s why it’s crucial to not only monitor your burn rate, but optimize it if it gets too high.

Pay attention to where your cash is going each month, how it impacts your revenue, and spot opportunities for improvement.

A good rule of thumb is to plan for cash before you get it. For instance, if you plan to raise a $1M seed round, you should build a financial model that details how you plan to spend that money and build a financial model for it.

With a financial model, you can forecast what your burn rate looks like over time and estimate when and if you’ll run out of cash. That’ll also be an indicator of when you’ll need to seek additional funding to continue growing.

Bear in mind, that advice is primarily for new startups who are either pre-revenue or unprofitable.

However, if you’re already generating revenue or are profitable, you still need to keep an eye on your burn rate. While negative burn rate is a good sign, it could mean you’re not maximizing your revenue potential.

In those scenarios, it’s good to have a cash reserve for a rainy day, but also think of ways you can use excess cash to fuel your growth.

10. Keep Your Data Clean

Your financial plan is only as good as the data you’re feeding into it.

As basic as it may sound, proper bookkeeping and following best practices for accounting can go a long way towards building a strong financial foundation for your business.

In practice, that means :

• Properly categorizing expenses
• Using the correct accounts
• Completing financial reports on time

It’s a simple tip, but it can make a big difference in your business—positive or negative.

11. Scrutinize Your Budget

This is an extension of the burn rate tip.

Unless you have limitless funds, you should review and analyze your budget on a regular budget.

Are there any expenses that can be reduced or eliminated?

Did you have any unexpected spikes in certain expenses?

Do you consistently have budget variances?

Sometimes businesses wait until problems arise to scrutinize their budgets at this level. But the reality is if you catch the red flags early, you have plenty of time to course correct.

You probably won’t be able to do a detailed review of each expense line item, but having a high-level view of trends in your expenses is very helpful.

Finmark can be extremely helpful for analyzing expenses in your financial plan.

Our software gives you a detailed view of your expenses, organized by department. This makes it really easy to see any big jumps or drops month-over-month.

Review this data monthly to avoid being caught off-guard.

12. Share Your Financial Plans

Ask yourself these two questions:

• Is your financial planning process collaborative?
• Who has access to your financial plan?

If you’re a founder and you’re the only person working on your startup’s financial plan, that’s a problem. And if you’re the only person who ever looks at your financial plan, that’s an even bigger problem.

Financial planning for startups isn’t something that should be done in isolation. If you have co-founders, they should be involved. If you have a team, they should be involved.

I’m not saying that everyone needs to be able to edit your plan, but you should at least ask questions and get insights from stakeholders when you’re putting your plan together—particularly as your startup grows.

Finmark is helpful here too. You can easily share your plan with other people and grant them specific levels of access.

Here’s an example of why collaboration is so important for financial planning.

Let’s say you’re building your financial plan, and want to project how much revenue you’ll drive next quarter. You need to know what actions marketing and sales plan to take and what their projections are.

Everything from what marketing campaigns you’ll be running, the expected number of leads they’ll generate, sales rep performance, and other info that’ll help you project how well you’ll perform.

Unless you’re leading marketing and sales, you’ll need to get that insight from your team. Your sales and marketing leaders will be able to give you some additional context around performance as well.

For instance, marketing might let you know that they’re going to be trying some new advertising channels so new leads might be a little less predictable.

Or your sales leader might’ve brought on a new SDR that was able to ramp up quicker than expected, so they’re going to be able to convert more leads.

This level of detail is only possible when you collaborate and get input from your team while you’re financial planning.

The other part of collaboration is sharing and presenting your financial plan . This is actually something we do at Finmark.

About once a month, the founders will review the current financial state of things with the entire company. We go over runway, revenue, customer growth and other parts of the financial plan.

That level of transparency helps everyone get on the same page and sets expectations.

All too often, founders wait until there’s a problem to get transparent about the financial plan. For instance, when they need to cut expenses or reduce headcount. In most cases, the founders know these changes are coming for months, but the rest of the team doesn’t know until it’s too late.

When you routinely review your financial plan with your team, it lets everyone know where things stand and gives them the opportunity to be proactive and course correct if things are trending downward. And when things are going well, it gives everyone a morale boost and motivation to keep growing.

I’ll be honest, it makes it A LOT easier to share your financial plans when you build it in a tool like Finmark rather than a spreadsheet . I’ve seen both, and from an employee’s perspective, looking at the data in charts and graphs is much more engaging and enjoyable than a bunch of cells.

When you’re using spreadsheets for your financial plan, you’ll generally have to take that data and create some sort of slide deck to present because spreadsheets aren’t the best tools for presenting data.

The process of building a deck is time-consuming and you can’t show the level of detail in the same way as you can in a tool like Finmark.

During our financial presentations, we dive into things like average revenue per account, which customer plan levels we projected to get for the month vs. what we actually got, and other details that require filtering data and switching between scenarios.

All of that is nearly impossible to do (smoothly) in a spreadsheet, but it just takes a few clicks in Finmark.

Long story short, collaborate! You’ll have a more accurate financial plan and your team will feel much more involved in the company.

13. Consider Working With an Outsourced CFO

Founders are often busy running the company. Sometimes you’re the COO, marketer, a salesperson, and wear 10 other hats. With all that on your plate, doing in-depth financial analysis probably isn’t at the top of your to-do list.

While early-stage startups hire accounting firms to handle the day-to-day finances (payroll, bookkeeping, etc.), there’s often not anyone overseeing strategic finance.

There’s no CFO or FP&A person tasked with looking at the long term financial strategy of the company and spotting opportunities for growth. That generally doesn’t happen until the company has matured significantly.

But even in the early stages, there are a lot of insights you can learn from analyzing your financial data. Yet so many young startups miss out on it because it never crosses their mind.

However, that has been changing. Outsourced CFO firms are becoming more prevalent, and even accounting firms are starting to offer client advisory services to provide strategic insights for startups.

If you’re in a position where a full-time finance person doesn’t make sense, but you still want to optimize your finances, consider working with an outsourced CFO. Tweet us if you want some recommendations!

14. Regularly Review Your Financial Plan

Your financial plan isn’t something you should create and leave sitting untouched until a major event like fundraising.

Here’s one way to think about your financial plan. I’m going to throw a football analogy at you, but stick with me!

In football, teams create game plans for each opponent they face. The game plan outlines all the different plays they can use, guidance for what to do in various situations (i.e. when to kick a field goal), strengths and weaknesses of their opponents, and other strategies to increase their chances of winning.

The coach reviews their game plan throughout the entire game so they can make adjustments based on how things are going. For example, if the team has a big lead by the third quarter, they might decide to run the ball more even though the original plan was to throw.

You should take the same approach with your financial plan. As we mentioned earlier, growing a startup doesn’t always go as planned. Your financial plan is your playbook that you should refer back to and adjust based on the situation.

Whenever something happens in your business and you think “we didn’t plan for this”, take a look at your financial plan and see what adjustments you need to make in order to deal with the current situation.

The perfect example of this was the pandemic. Nobody had a global economic freeze in their playbook. As a result, a lot of startups saw revenue plummet, certain expenses like rent became obsolete, growth stalled or declined, and nothing went as planned.

If you just left your financial plan alone and tried to make changes on the fly, you’d basically be playing a guessing game. Instead, you should adjust your “game plan” by reviewing and updating your financial plan.

That could mean lowering your projected revenue, cutting and reducing certain expenses, adjusting your hiring plan, or any other changes you need to account for the drastic shift in your business.

You can do this quickly in Finmark by just duplicating your original plan, and making changes to the updated version. That way you still have the original plan and can compare it to the new one when you need to.

Outside of those extreme cases, it’s good to get into the habit of reviewing and analyzing your financial plan at least monthly.

So many things can change from week to week that require some extra financial planning. For instance, what if your marketing strategy isn’t panning out quite like you planned, so your projected leads and revenue are off. You can adjust your financial plan accordingly.

The bottom line is that plans can (and should) be changed. Financial planning is an active and ongoing process.

Ready to Start Financial Planning For Your Startup?

We covered a lot in this guide. But our goal isn’t just to give you information—we want to make sure you take action.

Start by signing up for a free trial of Finmark .

Whether you’re starting from scratch or transitioning from a spreadsheet, using a dedicated tool will save you hours of time and make financial planning for your startup easier than ever.

This content is presented “as is,” and is not intended to provide tax, legal or financial advice. Please consult your advisor with any questions.

Subscribe to the Finmark Blog

Historically financial modeling has been hard, complicated, and inaccurate. But financials are the lifeblood of any company. They’re too important to be ignored or outsourced. They should be a core part of every founder’s job. This doesn’t have to be scary. And you don’t have to do it alone. The Finmark Blog is here to educate founders on key financial metrics, startup best practices, and everything else to give you the confidence to drive your business forward.

You can unsubscribe at any time.

By continuing, you agree to Finmark Terms of Service and Privacy Notice .

Other articles you might be interested in...

20 financial metrics every business should track, finance business partner: the future of finance teams, how to create a startup budget (template included).

Financial Projections for Startups [Template + Course Included]

January 11, 2022

Adam Hoeksema

Financial projections are an important part of any business plan or startup pitch deck. They allow a company to estimate future revenues, expenses, and profits, and to identify potential risks and opportunities.  We have been helping founders create financial projections through our templates, tools, and custom financial modeling services since 2012.  I thought it was finally time to write a comprehensive article that should answer the key questions that we get from founders again and again.  So here is what I plan to cover:

What are financial projections? 

Why should a startup create financial projections, how to create a financial forecast , creating sales projections based on data, forecasting operating expenses, salary projections.

• Startup cost forecasting

Pro forma financial statements

Existing business vs. startup vs acquisition forecasting, how to know whether my projections are realistic, what will investors and lenders be looking for in my projections, tools used for financial forecasting.

But first, who am I, and do I know anything about financial projections? 

My name is Adam Hoeksema and I am the Co-Founder of ProjectionHub.  Since 2012 we have helped over 50,000 entrepreneurs create financial projections between our software tool and our business projection spreadsheet templates . 

I didn’t spend a decade on Wall Street or make a killing in private equity, and I haven’t even raised VC funding myself.  

But I did spend over a decade launching a growing an SBA (Small Business Administration) lender in the Indianapolis, IN area.  During that time we made over 1,800 small business loans and we often asked our clients for financial projections along with their loan applications.  That is why I started ProjectionHub.  

So 10 years ago my experience was with helping small, main street businesses create projections and secure loan funding to start their dream.  Along the way, I learned a ton about startup projections for tech-based businesses as well.  Today about 50% of our work is with small businesses looking for an SBA loan and 50% is with tech-based businesses looking to raise capital from investors.  

With that background in mind, I want to share with you what I have learned along the way to try to make your financial forecasting process just a little bit easier.  Let’s dive in!

Financial projections are estimates of the future financial performance of a company. These projections are typically based on a set of assumptions and are used to help businesses plan for the future and make informed decisions about investments, financing, and other strategic matters. Most ProjectionHub customers use pro forma financials to help external stakeholders, such as investors and lenders understand a company's financial position and future prospects. Financial projections typically include projections of income, expenses, cash flow, and balance sheet items.  

There are many opinions on whether a startup needs to create a forecasted balance sheet and how many years a set of projections should be.  At ProjectionHub, all of our financial projection templates have an integrated pro forma income statement, cash flow and balance sheet in annual and monthly format for 5 years.  This seems to meet the needs of 99% of our customers, so I think it is pretty safe to say that your investor or lender might not require all of that level of information, but they probably won’t require more than a 5-year forecast of your 3 statement financials. 

So it sounds like a lot of work to create a financial forecast, so why do we create projections?  No one can know the future.  Isn’t it just a pointless exercise?  

Well, I think it is smart for an entrepreneur to create a set of projections before they start a business to understand what they are getting themselves into and what it will take to break even and generate a profit.  

I could beat that drum all day, and you know what it doesn’t really matter.  Even if we know it is a good idea to create projections before throwing our life savings into a new venture, most entrepreneurs will not create projections before starting their business.  I have just come to accept this!  

So the real reason to create projections is because the people with the money, the investors and lenders ask for them.  

• Investors will ask for a financial model because they want to see how you plan to use their money, how long you think it will last, and what the potential return could be. 
• Lenders will ask to see financial projections for startups or new projects or divisions in a business because they want to be able to see whether you think you can pay them back or not.  How does your debt service coverage ratio look? How many cups of coffee are you going to have to sell to make your monthly loan payment? 

Now that we know why we are creating projections and who the audience is, let’s get into the “how.”

So the plan now is to walk through how to create a set of financial projections, how to do good research to take a data-driven approach when modeling, what tools you can use to help you with research, and then how to know whether your forecast is realistic once you are done.   We are going to look at:

• Creating revenue projections
• Operating Expenses
• Salaries Forecasting
• How to get investor and lender-ready projections

Revenue Projections

This is where we will camp out for a while.  I want to show you a few examples of different types of revenue models to show you how I approach creating revenue projections.  

If you have a stable, existing business, then it is possible that the best approach to creating sales projections is simply to take last year’s numbers and apply a growth rate based on your expectations of growth.  Since that approach is quite straightforward I am not going to spend any time on that today. Our Existing Business Forecast Template will be perfect for you in this scenario.  

We are going to focus on more of a first principles approach.  I am going to outline two different approaches that I often take when building a financial model.  First a capacity approach and then a customer funnel approach.  

Capacity-Based Revenue Projections

I use a capacity-based approach to revenue projections when a company is pretty certain to have demand for their products or services and their revenue is more of a function of your price x capacity.  

Here are some examples of businesses where I would take a capacity-based approach. 

Farming Projections

For a farm, your revenue forecast is going to be based on how many acres you are farming x the yield per acre x the price per unit for your crop.  You don’t really need to worry about whether you have a customer or not.  Since most crops are commodities you won’t need to find a customer, you simply sell into the ready made market at the market price. 

Trucking Projections

Trucking is similar in the sense that as long as you have a valid license and a working truck, you will be able to find loads to deliver.  The question is more about how many trucks do you have, how many miles per day can each truck drive and what price will you be able to earn per mile.  Again this is about capacity and price, not whether or not you can find a customer.  This is the approach we take to show how a trucking business with one truck can generate $400k in annual revenue . 

Daycare Facility

A daycare facility will also be able to calculate a capacity based on the size of the facility and the teacher-to-student ratio requirements.  Once you have your capacity it is mostly a function of pricing to determine your revenue forecast.  You can see a screenshot from our daycare financial forecast tool to see how we think about modeling this type of business. 

I would say most tech businesses do not fall into a capacity-based projection approach. 

For tech companies, I typically use a customer funnel-based approach to forecasting revenue. 

Customer Funnel-Based Revenue Projection Approach

These are companies where your customer might not even know your product or service exists and might not know that they want it or need it so you are going to have to really go out and market and sell.  You will likely have a customer funnel that will have leads that convert into customers over time.  

Here are some examples of business models where I would use a customer funnel approach to financial modeling. 

B2B SaaS Projections

For a B2B SaaS product you will probably have an advertising budget and a sales team that will drive leads that your team will work to qualify.  Then some percentage of those sales qualified leads will turn into customers.  You will need assumptions for things like:

• A monthly ad budget 
• Cost per click to attract a website visitor
• Percentage of website visitors that become sales qualified leads
• Percentage of sales qualified leads that the sales team converts into customers
• Average monthly spend per customer

DTC Product Forecasting

For direct to consumer product companies you will have a similar customer funnel.  Once you get to a customer, then you might have assumptions like:

• Average order value
• % of customers that become repeat customers
• How often do repeat customers repurchase

Consumer Apps 

For a consumer mobile app you will need assumptions for things like:

• Monthly ad budget
• Cost per download
• Organic / word of mouth downloads
• % of customers that download the app that convert into active users
• % of active users that churn each year
• Average monthly spend per active user per month

So this should give you an idea of the structure of assumptions that you will need in order to approach creating projections, but I just left you with a bunch of assumptions that you have no idea how to fill in with realistic data.  

Next I want to show you what I would do in order to research and find good data for your sales projections. 

So how do you know how many people are searching on Google for terms that are relevant to your product or service?  How do you know how much it would cost to advertise and get a click for that term?  How do you know what a reasonable conversion rate is from a website visitor to a customer?  How do you know what the average order value is for an ecommerce business like yours, etc? 

I recorded an entire course on this , but I have listed some tools and some slides below to show you my typical research process. 

As you will notice in the slides, I start out be simply doing Google research to try to find reasonable assumptions for as many of the key assumptions as I can.  

From there, I like to use the following tools:

• Ahrefs - I use this tool for competitor research to determine how much organic traffic my competitors are getting and thereby how much organic traffic my website might get over time. 
• Google Trends - I use Google Trends to see seasonality trends in a business. 
• Google Adwords Keyword Tool - I use this tool to forecast how much it will cost per click to attract a website visitor, and to see search volume for certain keywords.
• Bizminer - You can use Bizminer industry reports to get an idea of key industry ratios to get an idea of whether your projections are realistic for your industry. 

When forecasting expenses I like a couple of different resources to help me forecast my expenses and ensure that my expense projections are within industry standards. 

Expenses for Small Businesses

Bizminer - You can use Bizminer industry reports to get an idea of key industry ratios.  For example, you can determine if the average company in your industry spends 10% on rent or 12% on rent. 

Expenses for Tech Startups

SaaS Capital - You can use this report from SaaS Capital to get an idea of the spending categories as a % of revenue for tech companies.  This is specifically focused on SaaS, so if you are in ecommerce or a hardware startup you will need to find a similar source for your industry.  You can see an example of the expense ratios from SaaS Capital below:

When forecasting salaries I actually take two different approaches.  I typically start out by projecting specific salaries and positions for the first 24 months of the projection.  Then after that, I simply include salaries in larger buckets of operating expenses like General & Admin, R&D, and Sales & Marketing.  When you are raising investment the investors will likely want to know your specific use of funds for the first 18 to 24 months, but after that they will understand that it is impossible to predict exact positions, timing and salaries, so transitioning to an expense as a % of revenue makes sense.  You can see how this looks in one of our financial models for a B2B SaaS company : 

Detailed Salary Projections for the First 24 Months:

Salaries included in operating expense categories as a percentage of sales for year 3 and beyond:

Startup Cost Forecasting

When forecasting your startup costs, your specific location, concept, size and scale of business will make a dramatic difference in what it costs to launch your business.  I don’t recommend that you just take the first “average startup cost” number that you find in a Google search because your specific situation matters.  You will need to do your own research for each startup cost, but I have actually found it helpful to use ChatGPT to ask for a list of common startup expenses for business XYZ so that I don’t forget any common expenses. 

I have already mentioned this before, but I commonly take a different approach to creating projections for an existing business compared to a startup compared to modeling a business acquisition.  

Existing Business Projections

When modeling a projection for an existing business I like to use our existing business budgeting template that allows me to enter in historical revenue and expenses and use that as a baseline to build a forecast by increasing or decreasing expenses and revenue based on my plans. 

Startup Projections

For a startup, I would use one of our 70+ industry specific financial projection templates and start from the ground up.  You would use the research process outlined in this article to create your projections. 

Forecasting a Business Acquisition

For creating projections for a business that you are looking to acquire I would use our acquisition financial model which will allow you to enter in historical financials from the target business, but it will also allow you to make adjustments to the balance sheet and revenue and expenses for a post acquisition pro forma. You can’t simply use the existing balance sheet and income statement because both will likely change quite a bit after the sale of the business.

Finally, I wanted to show you some example pro forma statements so that you can see what the end product should look like.  

Pro forma P&L Example

Here is an example of our 5 year pro forma income statement. 

Pro forma Balance Sheet Example

Here is an example of our 5 year pro forma balance sheet. 

Once you have a complete set of projections (if you are using a ProjectionHub template) I would suggest taking a look at the profit and loss at a glance table as seen below: 

In this example, I am looking at projections for a technology company that is looking to raise investment.  So a couple of things that I would look at for a tech company pro forma.  

• The first year should probably be a loss because that is why you are looking to raise investment right?  I would just make sure you are assuming that you will raise enough investment to cover that first year loss.  
• Next I would look at how fast revenue is growing.  For an investable company there is a rule of thumb “triple, triple, double, double” which means after investment an investor will be hoping that you triple sales the first 2 years and then double sales the following two years.  This is really hard to do, so if you are forecasting that you will do 10x every year you are probably off base! 
• For tech startups you can look at this study with our partner Story Pitch Decks where we looked at what is a reasonable projection for a tech startup .  This study will show you what other similar companies are projecting, so that you can ensure that whatever you project will fall within the norms that investors see. 

Investors and lenders will likely be looking at the following numbers and ratios to make sure your projections seem to be reasonable:

• Gross Profit Margin
• Profit Margin
• Debt Service Coverage Ratio
• Comparing to industry averages
• Do revenue projections, units sold make sense?
• Does your balance sheet balance?
• When do you reach breakeven?
• Do you have room for error?

I suggest that you simply Google these things and make sure your numbers seem “normal.”  For example, if you are opening a coffee shop you could Google “average profit margin for a coffee shop” and you would probably find our article on coffee shop profit margins .  Confirm that your forecasted profit margins are in line and reasonable. Do this same exercise with each of these key ratios and numbers.  

As a thank you for reading this behemoth of an article, you can download our free financial projection template .  Other tools that I utilized or mentioned in the article include:

• Ahrefs - For competitor research
• Google Trends - For seasonality trends
• Google Adwords Keyword Tool - For search volume and cost per click
• Bizminer - For industry expense ratios
• ProjectionHub Pro Forma Templates - You can use our library of templates built specifically for over 70 unique industries and business models. 

If you would like to learn more about my process for creating financial projections, you can watch this course that I put on for tech startups looking to create investor-ready financial projections. 

Insert Webinar video below

Well I hope this has been helpful to you.  If you have specific questions please feel free to reach out directly to us at [email protected]  

About the Author

Adam is the Co-founder of ProjectionHub which helps entrepreneurs create financial projections for potential investors, lenders and internal business planning. Since 2012, over 50,000 entrepreneurs from around the world have used ProjectionHub to help create financial projections.

Other Stories to Check out

Common troubleshooting questions about projectionhub templates.

Check out the quick and easy ways to address some of the most common troubleshooting questions we hear about the excel templates at ProjectionHub!

5 Key Tips to Make Your Startup Business Plan Shine for an SBA Loan

Learn 5 key tips to make your startup business plan stand out and secure an SBA loan, from demonstrating market potential to creating realistic financial projections.

How to Know if Your Financial Projections are Realistic

It is important for financial projections for a small business or startup to be realistic or else an investor or lender may not take them seriously. More importantly, the founder may make a financial mistake without a reliable plan.

Have some questions? Let us know and we'll be in touch.

Startup Financial Models

Numbers that Explain Your Startup’s Potential

Use our free startup financial models and free templates, or work with our experts to build a customized model for your company!

Get our free templates

Startups create financial models to raise capital, sell to an acquirer or to manage the team’s 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.

We’ve build financial models for startups that have raised billions in VC funding and gotten acquired by companies like Apple - scroll down to access our free templates and read best practices.

Free Financial Model Templates

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. 

Free Model Templates

Work with Kruze

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.

Talk with an Expert

Why Build a Startup Financial Model?

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.

Free Financial Models and Templates

We have created several financial models and model templates 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.

Simple Startup Projection Model

Simple and easy to use financial model for technology startups looking to project revenue and expenses.

Free to download

Depreciation Schedule

Straight-line, Sum-of-Years and Declining Value - all in the same model.

Startup Budget Template

Designed for a startup with multiple departments; use to budget for hiring and non-FTE spend.

SaaS Income Projection Model

This is as user-friendly and adaptable as possible to suit most SaaS businesses.

Employee Stock Options - VC Negotiation Model

This startup financial model is used to negotiate the size of the option pool needed at a venture round.

What is a Financial Model for Startups

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. 

What goes into a startup model template?

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. 

Forecasting Best Practices for Your Startup

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.

How to Create a Financial 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. Understanding your KPIs and how you track against them is one of the most important reasons to build a financial model for a startup - so don’t skip this step. 

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.

How to Format Financial Models

When it comes to building a financial model for your startup, formatting matters. A well-structured financial model is more than just a collection of numbers and projections; it’s a tool for storytelling and strategic planning. Proper formatting ensures that your model is not only easy for others to understand but also straightforward for you to update and manage. The best founders think of the numbers in the same way that they think about their pitch deck - it’s a means to explaining the strategy. 

Think of your financial model as a map guiding investors, team members, and other stakeholders through the financial landscape of your business. You don’t want to get bogged down in the minutiae of explaining how each formula works or where to find specific data. Instead, you want to focus on the bigger picture: discussing the implications of your financial data and the strategic direction of your business.

By investing time in properly formatting your financial model, you’re essentially streamlining future discussions and analyses. This approach saves valuable time and effort, allowing you and your stakeholders to concentrate on what truly matters - the growth, potential, and strategic decisions driving your startup. Let’s delve into how you can format your financial model for maximum clarity and impact.

Financial model formatting tips

• Organize with Tabs or Top to Bottom
• Use Cell Colors for Inputs and Assumptions
• Maintain Consistent Formatting
• Keep Naming Consistent
• Include a Standard Income Statement Output
• Output Key Performance Indicators (KPIs)
• Consider Including Charts

Organize with Tabs or Top to Bottom Effective Organization: Structure your model so that it’s easy to follow and find specific sections. One way to do this is with tabs for each major section. Another is by always having top-to-bottom layouts within any single sheet. Tabs can provide clear segmentation, while a vertical structure offers an easy scroll-through experience.  Benefits: This organization aids in navigating through different financial aspects smoothly, whether you’re dealing with income statements, balance sheets, headcount planning, etc..

Use Cell Colors for Inputs and Assumptions Color Coding: Assign specific colors to cells where inputs and assumptions can be modified. For example, blue cell fill with yellow text is a very common format for input cells.  Visual Guidance: This technique visually guides users to areas where they can interact with the model, reducing the risk of unintended alterations in fixed data areas. You don’t want someone manually overwriting an important formula! 

Maintain Consistent Formatting Uniform Styling: Use the same fonts, text sizes, and colors throughout the model. This consistency not only looks professional but also makes the model easier to read.  Cohesive Appearance: Consistent formatting helps in maintaining a cohesive look across all sections, enhancing overall user experience.

Keep Naming Consistent Uniform Terminology: Ensure that terms and labels are consistently used. For instance, if you use “R&D Expense” in one section, the same term should be used throughout the model.  Clarity and Continuity: This consistency in naming prevents confusion and makes it easier for users to follow and understand the model’s structure and data. You don’t want someone trying to understand if “people” and “headcount” numbers are same thing, or if they are different topics. 

Include a Standard Income Statement Output Familiar Format: Design your income statement in a standard, easily recognizable format. This familiarity allows users, especially investors, to quickly understand your financial position.  Yearly Summaries: Include a high-level summary by year to provide a snapshot of the long-term impact of assumption changes. This is the place you can go when you make a major assumption change to see the long-term implications. 

Output Key Performance Indicators (KPIs) KPI Display: Place critical KPIs, such as headcount, cash position, etc. below the yearly income statement output. This positioning aligns operational metrics directly with financial results. Strategic Insights: These KPIs offer valuable insights into business performance and operational efficiency, crucial for strategic decision-making. Putting them right next to your yearly income statement summary makes it easy to diagnose what is causing major changes to the income statement. 

Incorporate Charts Alongside Numbers Visual Representation: Use charts and graphs to complement numerical tables. This visual representation can make complex data more accessible and understandable. Engagement and Clarity: Charts can engage users more effectively and provide a clear visual interpretation of trends, patterns, and key metrics in your financial data. Putting them all onto a single page makes the model tabs cleaner, so consider having the outputs to models in their own section of the spreadsheet.

Startup Financial Models - Tips and Terms

Startup deferred revenue, startup financial modeling 101, kruze consulting simple startup financial model, startup budgeting, how to record equity investments on the balance sheet, budgeting tips, where to start your model, saas user metrics modeling tips, modeling customer acquisition costs (cac), tips for optimizing a startup’s runway, projecting working capital, calculating the cost of an employee in your model, what financial statements do startups need to produce, how to set up realistic financial projections for startups, what projections needs to go into a vc pitch deck, comparing projections to actual results, how to calculated cash out date, how to calculate your startup’s burn rate, do startups need a financial model, how to create a financial model for a startup, free financial models for startups - what to look for, option pool modeling, when to use zero-based budgeting, setting financial objectives, what kind of a financial model do you need for a venture capital pitch, should you use the same projections for a 409a as you do to raise vc funding, startup revenue model template - what goes into one, financial plan vs financial model - what's the difference, why use a template for your financial model, explore our comprehensive suite of free startup financial model templates, how to pick a startup financial model template, modeling cost of goods sold - tips for startups, modeling credit card expenses to match monthly financials.

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.

• Headcount is going to be your primary expense in most cases, so this is the place to focus the most. Understanding why your different team members get hired, and how they help you get to the next milestone, is very important.
• You should have a really strong opinion on the amount of revenue and the amount of cash burn that you’ll have in the coming years. Don’t ask your department heads what they want to spend - tell them how much is available and ask them to work within the constraints.
• Match the amount of cash you need with the size opportunity of the company that you’re trying to build. If you are building a company with modest potential, don’t burn millions of dollars!

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:

• How big is the market, and if you capture a small amount of it, do you have enough revenue to have a real business? VCs often ask this question - and it’s a good one for you as you try to decide how to formulate your business. Are you looking at a $100 million revenue opportunity in 3, 5 or 7 years? Or if you get a meaningful percent of the addressable market, will you only have a $5 or $10 million business? This will help you size how much venture funding you should think about raising (and how much you should burn in the near term).
• How many people do you need on the team to get to your first milestones? If you need a developer or engineer, is that you or one of the other founders? Or will you need to have cash on the balance sheet to afford to pay a salary for an engineer? You’ll want to model out and project the salary requirements for the business in the first few years pretty carefully, as this is usually the majority of a startup’s cash burn at first.
• Understand your product’s unit economics. How much will your clients pay, and what will your costs to deliver it be at first, then at scale? The goal is to understand when the company has a viable cash flow positive product. It’s totally OK, and normal, for a company to lose money on every sale at first, but you do eventually want to have positive cash contributions from your sales.

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:

• Income statement
• Balance sheet
• Cash flow statement

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:

• Brings real accountability and scrutiny to your organization
• Measures how you’re really doing vs. expectations
• Gives visibility to where you are leaking money by coming in over budget
• Displays where spend is not that effective
• Ensures you’re hiring correctly

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

• Average Cash Burn Rate / Cash on your Balance Sheet = # of Months to Cash Out Date
• For “average cash burn rate”, use a 3 or 6-month average
• You must know, there are different versions of restricted cash and things like that.
• So if you have a lot of cash tied up with your landlord that you’re not going to be able to access, then don’t include that in your cash on your balance sheet
• Because it can give you a false sense of security that maybe you have more cash than you actually do.

Cash Out Date Tips:

• Ideally, you always have 12 months of cash in the bank
• When fundraising, we recommend startups raise 18-24 months of cash
• Provide Cash Out Date to investors… Don’t surprise your investors. Be visible and always communicate this number with your BOD. You don’t want them to have a confidence issue with you, the founder.

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 are 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. We’ve also got a burn rate calculator you can use based on your recent bank account balances to estimate your startup’s burn rate.

2 Burn Rate Accounting Treatments:

• Income Statement Burn Rate
• Net Income on Income Statement is your burn rate
• Cash Flow Burn Rate
• Important for companies with alot of capital expenses
• Operating Cash Flow + Investing Cash Flow = true cash flow burn
• Then Think about the Average Time Period to Use To Calculate thesenumbers?
• We recommend calculating a 6 month burn rate
• Some founders prefer a 3 month burn rate

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.

• Determine model’s primary goal (fundraising, managing cash, etc) 2. Determine the KPIs for your company 3. Grab a template off the internet, like ours 4. Merge actual results into the template 5. Start with revenue 6. Project headcount needs 7. Estimate other expenses 8. Model working capital 9. Review your projections

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.

Option pools are one of the most important items a founder needs to project and model, but many founders don’t understand the importance of this exercise.

Option decrease the founder’s ownership - every extra point of option pool comes at the cost of existing shareholders, most of which will be the founder(s)!

And venture capitalists will ask founders to eat that dilution before they invest - in effect, reducing the pre-money valuation they offering at a financing round.

So understanding how many options will be needed prior to a fundraise is important.

The right way to project a pool is to build out a robust hiring plan as part of the overall financial planning exercise. Once you’ve built out your overall hiring plan, you can use our template above to right-size the employee stock option pool. We’ve written an entire article on how to model an option pool here . So download that free template above and protect your ownership!!

Zero-based budgeting can be a useful tool for organizations that are looking to improve their financial performance and increase their efficiency. It can help them to identify and eliminate waste, and to allocate their resources in the most effective manner. 

Zero-based budgeting is a method of budgeting that starts from a “zero base” and involves analyzing the needs and costs of every function within an organization. One key advantage of zero-based budgeting is that it can help to identify and eliminate waste. By thoroughly reviewing all activities and expenses, an organization can identify areas where resources are being used inefficiently and take steps to reduce or eliminate these expenses. This can help to improve the organization’s financial performance and increase its efficiency. 

This makes it a particularly useful tool for startups experiencing a difficult economic environment. 

A key issue we’ve seen multiple times (and maybe even made once or twice early in our career) is when a founder simply asks the department leaders “what will you do next year” - essentially, giving them an open book to request huge hiring and expenses and now dictating what the company needs to do to survive. Establishing clear boundaries for cash burn rates and revenue objectives are critical starting points that should be communicated to all departments before a budgeting process begins.

A common pitfall occurs when CEOs consult each department—be it sales, marketing, or R&D—about their respective needs and plans without first setting financial limits. Summing up these requirements often leads to unsustainable cash burn rates, placing the company at risk.

The smarter approach is to begin with clearly defined financial parameters. This allows your go-to-market teams to know precisely what their revenue goals are and the budget they have to achieve them. Similarly, rather than granting your R&D department an open budget, allocate a specific annual spend to help them reach their milestones.

Basically, the CEO should know what revenue targets need to be for the startup to remain default fundable. And the CEO should also know how much capital the company can burn comfortably. Giving these constraints to the teams helps avoid painful rebudgeting exercises. 

By initiating the planning phase with financial constraints, startups are better positioned to create a strategy that minimizes cash burn and maximizes the likelihood of hitting revenue targets.

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.

NO! A 409A valuation is an essential part of a startup’s financial framework. This valuation, provided by a third-party accredited valuation provider, establishes the strike price for employees’ stock options. It is crucial to maintain a conservative 409A financial model to prevent overpricing and to ensure employees are motivated by fair stock option pricing. Founders often use the same financial models for their 409A valuation as they do for their venture capital pitches, which can lead to problems as these models are typically more aggressive and optimistic to attract investors. However, third-party 409A providers cannot discount these optimistic projections, resulting in potentially inflated valuations. Therefore, founders should develop realistic financial projections for their 409A valuations to avoid overvaluing their company and overpricing employee stock options. Use a more conservative, easier to attain set of projections for your 409A projections. 

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!

Kruze has helped over one thousand startups with their accounting and finances, and we offer an exclusive collection of free financial model templates tailored to meet the diverse needs of emerging companies. Navigate through our suite of templates designed to empower startups with the tools necessary for solid financial planning and analysis.

The Kruze Simple Startup Projection Model is a battle tested template for technology startups aiming to streamline their financial planning process or impress a VC with thoughtful projections. This model is designed to be straightforward, enabling startups to effortlessly project their revenue and expenses. It’s an ideal starting point for founders who require a no-frills approach to financial forecasting.

Key Features:

• User-friendly interface
• Customizable revenue and expense categories
• Ideal for early-stage technology startups

The Startup Budget Template is crafted to accommodate the complexity of managing finances across multiple departments within a startup. We built this based on a financial model template that we used to help a client that had several departments, each spending several million a year - and that client eventually got acquired by one of the largest tech companies in the world! This comprehensive tool assists in budgeting for both hiring and non-FTE (Full-Time Equivalent) expenditures, ensuring that financial planning encompasses all facets of your growing business.

• Department-wise budget allocation Integrated hiring plan
• Suitable for startups with diverse operational units

Over 60% of our clients are SaaS businesses. This adaptable template is engineered to aid SaaS startups in forecasting revenue based on user count and other critical metrics, offering a robust framework for revenue projection and financial planning.

• Scalable user count projections
• Monthly and annual revenue forecasts
• Tailored for SaaS startups seeking flexibility and precision 

Why Choose Our Templates?

• Expertise-Driven Design: Developed by a team with deep insights into the VC funding landscape, including former VCs and seasoned CPAs.
• Customization and Flexibility: Templates designed to be easily adaptable to the unique financial landscapes of different startup models.
• Comprehensive Financial Planning Tools: From budgeting to equity management, our templates cover all critical aspects of startup financial planning.

When choosing a startup financial model template, there are a few key elements that founders should keep in mind:

• Free Financial Model Templates : The internet offers a plethora of free startup financial model templates. Don’t feel compelled to pay for one when there are high-quality, free options available. Ensure to choose a template from a reliable source to ensure accuracy.
• Excel and Google Sheets Based Templates : Excel and Google Sheets are universally used and recognized software. Choosing a financial model template compatible with these platforms ensures accessibility and ease of use for you and potential investors. VCs really expect to be able to play with your assumptions and model, and are likely to want to copy paste your numbers into their own template or into a section on their investment memo. So make it easy for them by providing a file format that they are familiar with.
• Income Statement and Cash Position Focused Templates : Select a template that emphasizes the income statement and projected cash position. These elements are critical for investors to understand the potential profitability and liquidity of your startup. The income statement shows how you’ll generate revenue and what your expenses will be, and then a simplified cash position will let the investor know when you need to fundraise again. In the earliest stages of companies, so pre-seed, seed, and even Series A, the balance sheet and cash flow statement often introduce unnecessary complexity, so we advise founders that are DIY’ing their startup’s financial model to just focus on the income statement and cash projection. 
• Customizable Financial Model Template s: Each startup is unique. Ensure the template you choose is easily customizable to reflect your startup’s specific circumstances and business model. But, it’s ideal if you can start with one that is focused around your specific business model - check out our SaaS financial model template, for example. 
• Easy to Get to Startup KPIs and Metrics : Look for a template that makes it easy to track key KPIs. The template may not actually produce these metrics, but it should make it easy for you to either add them in or let a VC back into them on their own. Remember, if you put in metrics that you can’t actually measure/track, it’s going to be hard to keep the model updated!

Some other tips for getting the most out of a startup financial model template include picking one that is easy to update - ideally, you can simply copy and paste you historical results into the template to update it. 

When building a financial model for a startup, it’s crucial to accurately forecast the Cost of Goods Sold (COGS). Not only will investors focus on the profitability of delivering revenue, you, as a founder, should care deeply about how much of the company’s revenue creates gross profit, which is used to fund the rest of the business’ activities.

For product-based startups, forecasting COGS involves calculating direct material, labor, and overhead costs, considering economies of scale and vendor relations, and accounting for inventory management. Software and SaaS startups, on the other hand, should focus on server and infrastructure costs, third-party services, support staff, and possibly allocate a portion of development costs to COGS, reflecting the direct costs of service delivery.

In any financial model, COGS forecasting should be based on historical data, align with industry benchmarks, and be adaptable to changing business conditions. Regular updates and variance analysis are vital for maintaining accuracy. Understanding the relationship between COGS, pricing strategies, and cash flow is essential, especially for startups looking to scale. An accurate COGS forecast not only informs pricing but also provides investors with a clear picture of operational efficiency and potential profitability. 

One question we get from founders is around how to project their credit cards, which can sometimes have large balances. It’s crucial to handle credit card expenses in a way that mirrors your monthly income statements. This makes it easier to compare historical figures to projections and spot any discrepancies or trends. So we suggest using your existing chart of accounts , instead of having a dedicated line on your projections for credit card bills.

In practice, this means modeling expenses on an accrual basis, recognizing them in the month they were incurred regardless of when the credit card bill is actually paid. Of course, anyone who’s used a credit card will realize that this could result in a timing difference between expenses and cash outflows.

To account for this, assuming that you’ll be running big credit card bills, you can include a “Credit Card Payable” line or a “Credit Card Liability” item in the liabilities section of your model’s balance sheet. This represents the outstanding balance you owe on the card. You can project this balance as a percentage of monthly expenses, as it will likely stay relatively constant over time.

However, there may be instances where you make large, one-time purchases on the card, such as a 12-month prepayment for an annual software subscription. In these cases, you’ll still recognize the full expense in the month of purchase on an accrual basis. But you’ll want to manually adjust the credit card payable balance to spike upward, then decrease as you pay off the card. This helps illustrate the cash impact more accurately, and will help you get a more accurate bank account balance.

How Working Capital Can Impact a Startup’s Cash Flow

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!

Information for Every Startup

Sign up with your email and get valuable information delivered right to your inbox.

Recent Blog Posts on Financial Models and Startup Finance

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! 

Startup Equipment Leasing / Financing

Posted on Sun, 14 July 2024

Something a lot of people don’t know is that the entire venture debt industry (which now holds somewhere between $20-$30 billion in startup debt) actually grew out of the equipment leasing, or equipment financing, industry.

Startup Financial Planning: Guide and Templates

Posted on Tue, 21 May 2024

Kruze Consulting's COO, Scott Orn, provides a 9 step guide to creating a financial plan for your startup, given the current financial climate.

Experts in Financial Modeling

This is our team who wrote the information on this page and who authored the financial models share on the page.

Healy Jones helps run the finance team at Kruze Consulting, and love helping founders explain their vision through financial models. His clients have raised over $1B in VC funding.

Healy Jones blends his venture capital experience with operational knowledge to support startup financial strategies. With a background in investing in over 50 startups and holding executive roles in VC-backed companies, Healy has been featured in major publications like the New York Times, Wall Street Journal, and TechCrunch. His efforts at Kruze have been crucial in helping startups collectively secure over $1 billion in VC funding, showcasing his ability to effectively navigate financial challenges and support startup growth.

Scott Orn is Kruze Consulting’s COO, and he is a CFA. A former VC, he has invested in and worked with clients that have gone public and that have exited for hundreds of millions via M&A to public tech companies.

Scott Orn leverages his extensive venture capital experience from Lighthouse Capital and Hambrecht & Quist. With a track record of over 100 investments ranging from seed to Series A and beyond in startups, including notable deals with Angie’s List and Impossible Foods, Scott brings invaluable insights into financing strategies for emerging companies. His strategic role in scaling Kruze Consulting across major U.S. startup hubs underscores his expertise in guiding startups through complex financial landscapes.

Client testimonials

We're huge fans of Vanessa and the folks at Kruze Consulting. They set up our books, finances, and other operations, and are constantly organized and on top of things. As a startup, you have to focus on your product and customers, and Kruze takes care of everything else (which is a massive sigh of relief). I highly highly highly recommend working with Vanessa and her team.

Vivek Sodera

Co-Founder @ Superhuman

Prior to Kruze, as a remote-first team, we were weighed down by a lot of the bureaucracy involved with having a distributed workforce. 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

Pequity's Head of Operations & Legal

Avochato has been growing rapidly in the past year – in fact, too quickly for us to keep up with books, taxes, and budgeting for growth. Partnering with Kruze Consulting has been fantastic to manage, track, and analyze our finances while we continue focusing on building our customer base. Kruze’s team knows what startups need.

Alex De Simone

CEO @ Avochato

Everybody, go to Kruze Consulting. They do a great job. I personally can tell you, they've done a great job for our companies, including Calm.com. I'm sure they’ll do a great job for you.

Jason Calacanis

Angel investor

A CPA Firm Specialized in Startup Accounting & Finance

Startups are our niche, and our passion. Our clients have raised over $15 billion in VC funding. We are one of only a few outsourced accounting firms that specialize in funded early-stage companies - we only offer financial and tax services to fast growing startups in the Pre-Seed, Seed, Series A, Series B and Series C stages.

The Right Accounting Partner for Your Startup’s Next Round

We know how to de-risk your startup’s next venture capital round. Our team makes sure you are ready to fly through your next VC’s accounting, HR and tax due diligence. And when you use us as your bookkeeper, we set up and keep up-to-date a due diligence folder so you can get that next round of fundraising.

A Leader in Cloud Accounting Software

Our practice is built on best of breed cloud accounting software like QuickBooks, Netsuite, Gusto, Rippling, Taxbit, Avalara, Brex, Ramp and Deel. Technology makes us more efficient, saving our clients money and letting us offer higher value services like FP&A modeling, 409A valuation, and treasury advice. Startups deserve to work with CPAs using modern software.

Trusted by Top Venture Investors

Top angel investors and VCs refer Kruze because they trust us to give the right advice. Our clients are portfolio companies of top technology and Silicon Valley investors, including Y-Combinator, Kleiner, Sequoia, Khsola, Launch, Techstars and more. With us, your books and taxes are in order when it’s time to raise another round of venture financing.

What types of startups does Kruze Consulting usually work with?

Kruze Consulting works with funded Delaware C-Corps. Our clients have secured Pre-Seed to Series C or Series D funding. We look to partner with our clients, going beyond the typical outsourced accounting relationship and seeking to provide a higher level advisory role. We feel honored to be a part of making the world a better place, even if it’s one debit and credit at a time.

Accounting, Finance, Taxes, & Payroll all in one solution

Startup CFO services , startup accounting and bookkeeping services, startup annual taxes, expense reports, payroll, state sales taxes: we've got you covered. Our software provides custom tailored dashboards that can be provided weekly or monthly, depending on your preference and plan. Founders are often so busy building their company that they don’t have time to take care of their finances. Traditionally, these companies have had to work with a basket of people to get their work done, including bookkeepers, accountants, AP clerks, CFOs, consultants, and tax accountants. At Kruze Consulting, our founders have one point person, saving time and money.

READY TO CONNECT FOR A FREE CONSULTATION?

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

$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

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

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 $15 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 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!"

Jesse Shefferman

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.

Startup Finance Q&A

• Average 409a Cost
• Startup Tax Credits 101
• Research & Development Credits
• Financial Model Templates
• Average CEO Salary
• Average CTO Salary
• Founder Salary Guide
• Startup Runway 101

Specialized Services

• Startup Bookkeeping
• SaaS Accounting
• Crypto Accounting
• Biotech Accounting
• Best CPAs for Startups
• Cloud Accounting
• Fractional CFOs
• Startup Financial Planning

Best B2B Fintech Software

• Best Startup Payroll
• Cap Table Software
• Brex vs Ramp
• Startup Accounting Software
• Best Startup Credit Cards
• Crypto Accounting Software

Venture Capital Resources

• VC Pitch Deck Templates
• Startup Pitch Deck Course
• Pre Seed Funds
• Startup Financing 101
• How much VC to Raise
• VC Return Expectations
• 409A Valuation Services
• VC Due Diligence Checklist

An official website of the United States government

Here’s how you know

Official websites use .gov A .gov website belongs to an official government organization in the United States.

Secure .gov websites use HTTPS A lock ( Lock A locked padlock ) or https:// means you’ve safely connected to the .gov website. Share sensitive information only on official, secure websites.

Start up Business - Financial Plan

Date and time.

Friday, August 9, 2024 10:00 a.m. - 12:00 p.m. EDT

SCORE North Metro Atlanta [email protected] 678-506-0718

Host organization

SCORE North Metro Atlanta

Type of event

Resource Partner event

Event description

Is your business idea profitable? Financial Planning provides the answer.

In this   Live Online Workshop  you will learn about the key financial statements needed to run your business profitably:

• Income Statement - Profit and Loss
• Balance Sheet - Assets and Liabilities
• Sales Forecast

These are the same documents required by lenders if you intend to apply for funding.

Thinking of starting a business?

Starting a business offers many benefits including being your own boss, offering a flexible work schedule, and boosting your income. In addition to these rewards, owning a business offers many personal benefits, like the opportunity to innovate or be creative, have a positive impact on your community, or make money doing something you love. It’s an exciting challenge!

How to get started

Step 1: Get your paperwork in order – Before opening for business, make sure you file the required legal, tax, and business licensing documents for your local area.

• Choose a business structure : It’s important to select the proper legal structure for your business (sole proprietorship, LLC, LLP, GP, corporation) in the beginning because it’s not easy to change it later. Each type of legal entity comes with specific requirements and restrictions.
• File your tax and employer identification documents : City, county, or state governments may require business tax filings.
• Get appropriate licensing : A city, county, or state license or professional certification may be required to operate.

Step 2: Create a business plan – Your plan creates the foundation for your business on how to structure, run, and grow it. Business plans can also help you get funding or bring on new business partners.

Step 3: Business funding – One of the greatest challenges small businesses and entrepreneurs face is accessing capital. Many small businesses are funded by loans from friends, partners, or family members. However, according to the 2020 Census, more than 68 percent of small businesses rely on banks for credit. Accessing traditional sources of capital often relies on connections or a track record of sustainable business growth. Below are some funding alternatives for small businesses:

• Government-backed loans: Microloans are good options for when a lender is not able to make a direct loan. They may also offer better lending terms and payment flexibility. The California Office of the Small Business Advocate also offers grants and financing.
• Investors and private equity: Consider capital raising through equity financing when a bank may not be an option.
• Business incubators and accelerators: Access seed grants and other resources like networking, mentorship, fundraising, and legal assistance. Be careful about signing shared equity agreements, mandatory participation contracts, or sharing proprietary information about your business, products, or services. APEX accelerators benefit underserved communities with regional offices across the state.
• Franchise opportunities : A franchise agreement grants the right to offer, sell, or distribute goods or services under a prescribed marketing plan or system. Franchising can be a relatively affordable way to start a business that provides educational resources, marketing support, and access to learn from an already established company. Most (but not all) franchises doing business in California are required to be registered with the DFPI.

Key Consumer Links

• Consumer Resources
• Consumer Insights
• Consumer Alerts
• Consumer Connection Newsletter
• Licensees and Industries Regulated by the DFPI
• Actions, Orders and Administrative Hearing Decisions
• Submit a complaint
• Submit a Public Records Request

Help us improve the DFPI website!

• Share your feedback

News & Info Links

• Press Releases
• Monthly Bulletins
• Important Notices

Information

Help us improve the DFPI website! Share your feedback .

Last updated: Jul 25, 2024 @ 2:14 pm

• Live on Sky
• Get Sky Sports
• Sky Mobile App
• Kick It Out
• Black Lives Matter
• British South Asians in Football

West Brom transfers: Championship club to be restricted by EFL business plan amid financial concerns

West Bromwich Albion made Championship play-offs last season but are in danger of failing to stay within the financial guidelines of the league set by the EFL; money issues are linked to previous owners; any new transfers will need to be cleared by EFL

Senior Reporter, Sky Sports News @RobDorsettSky

Saturday 3 August 2024 12:58, UK

West Bromwich Albion have been placed under an EFL-imposed business plan which will limit their transfer activity in this window, Sky Sports News can reveal, amid concerns that they are on course to breach the League's financial rules.

Albion made the Championship play-off semi-finals last season, losing to Southampton over two legs, but their hopes of strengthening the squad this summer for another promotion push are now in jeopardy.

Sky Sports News has been told there is no issue with the financial health of the club, or any danger of Albion being unable to pay their bills - rather, the threat is centred around whether the club can stay within the financial guidelines of the League.

The money problems are linked to the club's previous owners, and the new owners are determined to still strengthen the squad where they can - albeit with possible further outgoings.

Bilkul Football WBA - a company owned by Florida-based entrepreneur Shilen Patel and his father Kiran Patel - bought an 87.8 per cent shareholding in Albion in February, and are working through the issues directly with the EFL to ensure they comply with the rules.

• Transfer Centre LIVE! Gallagher, Wan-Bissaka, Mazraoui latest
• Papers: Liverpool join race for Guehi
• Khelif's father defends boxer and says she was born a girl
• Liverpool transfers: Reds want £12m for Salzburg target Clark
• Saturday takeaways: The latest pre-season talking points
• Man Utd agree deal for former Arsenal youngster Obi-Martin
• Olympics 2024 LIVE: Team GB win six medals as records broken on day eight
• Transfer news: Premier League ins and outs
• 'Emotional' Khelif guarantees boxing medal after eligibility row
• Man Utd face Liverpool and Chelsea take on Man City in pre-season clashes
• Latest News
• Molumby charged over punch during West Brom's friendly with Mallorca
• The EFL games live on Sky Sports+
• In full: All the 2024/25 Championship fixtures

In fact, it is understood Albion officials have been working closely with the EFL for the past 18 months on all player wage and trading issues, to try to make sure they are compliant with the rules.

Under those League rules, any club which is at risk of breaching PSR limits is given strict new guidelines to work within, with any new transfers needing to be cleared by EFL officials in advance.

Stream the Championship on NOW

Championship fixtures

Find out more about Sky Sports

The only fee West Brom have paid for a player so far is the £500k for central defender Torbjorn Heggem from Sweden. 29-year-old Devante Cole has arrived at the Hawthorns on a free transfer from Barnsley. Goalkeeper Joe Goldsmith and midfielder Ousmane Diakate were also cost-free additions, as was experienced defender Paddy McNair who has joined on loan from San Diego.

• Ad content | All you need to know - Streaming Sky Sports with NOW
• Download the Sky Sports App to watch every Sky Sports + game | Get Sky Sports

In total, nine players have so far left the Hawthorns this summer as the club tries to reduce its total wage bill.

Albion have had a difficult pre-season, with defeats against Bolton, Blackpool and Real Mallorca. Their only victory this summer has come against Peterborough.

Their final pre season match is against Birmingham City, at St Andrews, this afternoon.

• Upgrade Now

Stream world class sport with NOW - flexible contract offer available

• Get Started

Home >> #realtalk Blog >> Manage a business >> How to Start a Food …

How to Start a Food Truck Business in Texas

By Homebase Team

Starting a food truck business in Texas can be an exciting venture, but it can also feel overwhelming with all the licenses and permits you need to navigate. Understanding these requirements will set you on the right path, ensuring you can focus on what you love — serving delicious food.

You’ll need to comply with local regulations to ensure your food truck operates legally, which can be daunting. Let’s break down the necessary licenses and permits to make this process easier.

Here’s what you need to know to get started with your food truck business in Texas.

What Licenses and Permits are Required for a Food Truck in Texas?

Navigating the legal landscape can be one of the most stressful parts of starting your food truck dream. Let’s simplify this step-by-step.

Business License

A business license is mandatory for tax compliance. It ensures your business adheres to local tax regulations. Local city or county governments administer these licenses. The cost of obtaining a business license varies by jurisdiction. To apply, you need a business name, address, EIN, a detailed business plan, and proof of insurance.

Mobile Food Facility Permit

The mobile food facility permit ensures your food preparation space meets safety standards. Without this permit, you cannot legally operate a food truck. Approval depends on the types of food you prepare, your preparation methods, and how you manage waste disposal. The cost for this permit varies by city and county.

Texas Sales and Use Tax Permit

Before you can get a Mobile Food Vendor Permit, you must obtain a Texas Sales and Use Tax Permit. This permit is necessary for tax purposes. You can register and apply for this permit through the Texas Comptroller’s office.

Additional Licensing Tips

Ensuring your business complies with all licensing and registration requirements is critical for operating a food truck legally. For more detailed guidance, check out this comprehensive guide on how to keep your business licensed .

Steps to Start a Food Truck Business in Texas

Starting a food truck is a big step, and having a solid plan can alleviate some of the stress. Here’s how to get started.

Create a Strong Business Plan

Start by researching your target market and competition. Understand who your customers are and what they want. Analyze competitors to see what works and what doesn’t. Outline your costs, including initial investments and ongoing expenses. Set pricing strategies that cover your costs and generate profit. Define your profitability goals to measure success.

For more detailed steps on creating a business plan, you can refer to how to write a business plan .

Choose a Food Truck Vehicle

Decide whether to buy or rent your food truck. Buying gives you ownership but requires a larger upfront investment. Renting can be more affordable initially but may have long-term costs. Once you have your vehicle, gather the necessary details for permits. This includes the license plate number, VIN, make, model, year, and color. Register your vehicle with the Texas DMV to ensure it meets all legal requirements.

Selecting the best POS system is essential for managing sales and transactions in a food truck. Learn more about choosing the best POS system for your needs.

Form a Business Entity

Forming a business entity is a key step. Many food trucks opt for an LLC due to its flexibility and liability protection. Indicate your business type on permit applications. This helps streamline the process and ensures you meet all legal requirements.

Obtain Required Licenses and Permits

You need several licenses and permits to operate legally. Start with a business license, which ensures tax compliance. This license is administered by your local city or county government. Costs vary by jurisdiction. You will need a business name, address, EIN, a detailed business plan, and proof of insurance.

Next, obtain a mobile food facility permit. This permit ensures your food preparation space meets safety standards. Approval depends on the types of food you prepare, your preparation methods, and how you manage waste disposal. Costs for this permit vary by city and county.

Before you can get a Mobile Food Vendor Permit, secure a Texas Sales and Use Tax Permit. This permit is necessary for tax purposes. Register and apply for this permit through the Texas Comptroller’s office.

Additional Considerations for Starting a Food Truck in Texas

Starting a food truck involves more than just getting the right permits. There are other crucial steps to ensure your success.

Secure Food Truck Funding

First, estimate your startup costs. Include expenses like the food truck, equipment, permits, initial inventory, and marketing. Knowing your total costs helps you determine how much funding you need.

Next, explore different funding options. Loans from banks or credit unions can provide the capital you need. Investors might be interested in your business if you present a solid business plan. Grants are another option, especially those aimed at small businesses or food services. Research all available funding sources to find the best fit for your needs.

For more information on financing options, check out these small business loans .

Find Parking Locations

Finding the right parking locations is key to your food truck’s success. Start by researching high-traffic areas where potential customers are likely to gather. Busy streets, business districts, and popular events are good places to consider.

Once you identify potential spots, obtain permission from property owners. This step is necessary to avoid legal issues and ensure you can park your truck without problems. Always check local regulations on parking for food trucks. Some cities have specific rules about where and when food trucks can operate. Make sure you comply with these regulations to avoid fines and disruptions.

For more insights on location strategy, consider reading about transitioning from a pop-up to permanent location or this pop-up shop guide .

Develop a Food Truck Menu

Creating a compelling menu is vital for attracting and retaining customers. Focus on dishes that are appealing, profitable, and easy to prepare in a food truck setting. Consider local tastes and trends when designing your menu. Offering unique or locally-inspired dishes can set you apart from competitors.

Price your menu items competitively. Research what other food trucks and local restaurants charge for similar items. Ensure your prices cover your costs and provide a reasonable profit margin. Regularly review and adjust your menu based on customer feedback and sales data.

Build a Food Truck Team

Hiring the right team is crucial for your food truck’s success. Look for employees who have the necessary skills and reliability. Experience in food service is a plus, but a strong work ethic and a positive attitude are equally important.

All staff members must have food handler permits. This ensures they understand food safety practices and comply with health regulations. Training is also essential. Provide thorough training on food safety, customer service, and your specific menu items. This helps maintain high standards and ensures a consistent customer experience.

For more tips on hiring and building a team, check out this guide on hiring your first employee and essential interview questions for restaurants .

Keys to Food Truck Success in Texas

Standing out in a crowded market requires strategic planning and execution. Here are the essentials for making your food truck a hit.

Implement a Strong Marketing Strategy

Developing a unique brand identity sets your food truck apart. Your brand should reflect your food, values, and the experience you offer. Think about your logo, color scheme, and the overall vibe of your truck. Consistency in branding helps customers recognize and remember you.

Utilize social media to reach a broader audience. Platforms like Instagram, Facebook, and Twitter are great for sharing your location, menu updates, and special promotions. Regular posts keep your followers engaged and informed. High-quality photos of your dishes can attract new customers and create buzz.

For more effective social media strategies, check out this guide on social media marketing .

Participate in local events to increase visibility. Food festivals, farmers’ markets, and community gatherings offer opportunities to showcase your food to a large audience. These events also allow you to network with other vendors and potential customers.

Partner with local businesses to expand your reach. Collaborate with breweries, coffee shops, or retail stores to create mutually beneficial promotions. For example, offer a discount to customers who show a receipt from a partner business. This strategy can drive traffic to both your food truck and the partner business.

Control Food and Operating Costs

Minimizing waste is key to controlling costs. Track your inventory closely to avoid over-purchasing. Use inventory management software to monitor stock levels and reduce spoilage. Plan your menu to use ingredients efficiently, ensuring that nothing goes to waste.

Optimize inventory by keeping a balance between having enough stock and not overstocking. Regularly review your sales data to adjust your inventory levels. This helps you maintain freshness and reduce costs associated with excess inventory.

Negotiate with suppliers to get the best prices. Building strong relationships with your suppliers can lead to better deals and discounts. Don’t be afraid to shop around and compare prices from different vendors. Bulk purchasing can also reduce costs, but ensure you have the storage capacity to handle larger quantities.

Analyze and adjust menu pricing based on cost fluctuations and customer demand. Regularly review your food costs and adjust prices to maintain profitability. Consider offering seasonal specials to take advantage of lower prices on certain ingredients. Keep an eye on your competitors’ pricing to stay competitive.

For more tips on managing costs, check out this guide on how to keep labor costs low.

Deliver Outstanding Customer Experience

Focus on quality, consistency, and speed of service to keep customers coming back. Ensure that every dish meets your high standards, and train your staff to prepare and serve food quickly without compromising quality. Consistency builds trust and encourages repeat business.

Engage with customers and the community to build a loyal following. Greet customers warmly, remember regulars, and make them feel valued. Participate in community events and support local causes to strengthen your connection with the community.

Encourage and respond to feedback to improve your service. Ask customers for their opinions and take their suggestions seriously. Use feedback to make necessary adjustments and show customers that you value their input. Positive reviews can attract new customers, while addressing negative feedback can turn a dissatisfied customer into a loyal one.

What is the Outlook for Food Trucks in Texas?

The food truck industry in Texas shows promising growth. Analysts project continued expansion, driven by consumer demand for diverse and convenient dining options. This trend opens up various opportunities for food truck owners.

Expanding into a restaurant or franchise model presents a viable path for growth. Many successful food trucks leverage their popularity to establish brick-and-mortar locations. Franchising offers another avenue, allowing you to replicate your successful model in multiple locations. Both options can significantly increase your revenue streams and brand presence.

However, the journey comes with challenges. Securing parking remains a persistent issue. High-traffic areas are often competitive, and local regulations can limit where you can operate. Researching and negotiating with property owners for prime spots is necessary to maintain a steady customer flow.

Managing costs is another hurdle. Operating a food truck involves various expenses, from fuel and maintenance to ingredient costs and employee wages. Keeping a close eye on your budget and finding ways to optimize spending can help you stay profitable. Regularly reviewing your financials and adjusting your strategies is key to managing these costs effectively.

Standing out in a competitive market requires a strong brand. Your brand should reflect your unique offerings and resonate with your target audience. Consistent branding across your truck, social media, and marketing materials helps build recognition and loyalty.

Quality food is non-negotiable. Customers expect delicious, well-prepared meals every time they visit. Maintaining high standards in food preparation and presentation ensures repeat business and positive word-of-mouth.

Exceptional service sets you apart. Friendly, efficient service creates a positive customer experience. Training your staff to handle orders quickly and courteously can make a significant difference in customer satisfaction.

Community engagement plays a vital role in your success. Participating in local events, supporting community initiatives, and interacting with customers on social media fosters a loyal customer base. Engaging with your community builds strong relationships and enhances your reputation.

The outlook for food trucks in Texas remains bright, with growth opportunities and challenges that require strategic planning and execution.

Onboard employees, track their time, and pay them — all in one place.

Is Starting a Food Truck in Texas Right for You?

Starting a food truck in Texas can be a rewarding venture, but it’s important to assess if it’s the right fit for you. Here are key factors to consider:

Culinary Skills, Business Acumen, and Entrepreneurial Drive

First, evaluate your culinary skills. Are you confident in your ability to create and execute a menu that will attract customers? Your food needs to stand out in a competitive market. Beyond cooking, you need strong business acumen. This includes understanding finances, marketing, and operations. An entrepreneurial drive is also crucial. Running a food truck requires long hours, problem-solving, and resilience.

Financial Resources and Risk Tolerance

Assess your financial resources. Starting a food truck involves significant upfront costs, including the vehicle, equipment, permits, and initial inventory. Do you have the capital or access to funding through loans or investors? Consider your risk tolerance as well. The food truck industry can be unpredictable, with fluctuating demand and operational challenges. Ensure you’re comfortable with the financial risks involved.

Market Demand and Competition

Evaluate the market demand and competition in your area. Research your target market to understand their preferences and spending habits. Identify your competitors and analyze their strengths and weaknesses. This will help you position your food truck effectively and find a niche that sets you apart. Understanding the local market is key to developing a successful business strategy.

Challenges and Lifestyle of Food Truck Ownership

Understand the challenges and lifestyle associated with food truck ownership. Operating a food truck is physically demanding and requires long hours, often including weekends and holidays. You need to be prepared for the fast-paced environment and the need to adapt quickly to changing circumstances. Additionally, consider the impact on your personal life and whether you’re ready for the commitment.

Realistic Business Plan and Path to Profitability

Develop a realistic business plan that outlines your path to profitability. This plan should include detailed financial projections, marketing strategies, and operational plans. Set clear goals and milestones to track your progress. A well-thought-out business plan will guide your decisions and help you stay focused on achieving your objectives.

• What : Starting a food truck in Texas needs various licenses and permits.
• So What : Knowing the requirements helps you run legally and focus on food.
• Pros & Cons : Pros: flexibility, growth; Cons: high costs, regulations.
• Bottom Line : Plan well and comply to succeed with a food truck in Texas.

Ready to streamline your food truck business operations? At Homebase, we simplify employee management, scheduling, and payroll for small businesses like yours. Let’s make work easier— get started today .

Remember:  This is not legal advice. If you have questions about your particular situation, please consult a lawyer, CPA, or other appropriate professional advisor or agency.

Related posts

August 3, 2024

How to Open a Successful Bookstore Cafe

You’ve always loved books and coffee. Combining these passions into a business seems like a dream come true. But what…

How to Start a Juice Business in 2024

Thinking about starting a juice business in 2024? You’re not alone. The demand for healthy, convenient beverages continues to grow….

How to Start a Food Truck in Florida

Starting a food truck in Florida can be an exciting venture. You get to bring your culinary creations to different…

How to Start a Smoothie Business

Starting a smoothie business? You’re tapping into a market that’s growing fast. With health and wellness trends on the rise,…

How to Start a Bar Step by Step

Thinking about starting a bar? You’re not alone. Many people dream of owning a place where friends gather, drinks flow,…

How to Create a Successful Cat Cafe

Thinking about starting a cat cafe? You’re not alone. The concept has gained popularity worldwide, offering a unique blend of…

Subscribe to our newsletter

Looking for ways to stay up to date on employment laws and small business news?

Homebase makes managing hourly work easier for over 100,000 local businesses. With free employee scheduling , time tracking , and team communication , managers and employees can spend less time on paperwork and more time on growing their business.

• Hiring & onboarding
• Team communication
• Employee happiness
• HR & compliance
• Integrations
• Food & beverage
• Beauty & wellness
• Medical & veterinary
• Home & repair
• Hospitality & leisure
• Education & caregiving
• Contact sales
• Become a Partner
• Careers – We’re hiring!
• #realtalk Blog

How to Build a 5-Year Financial Plan

While short term in duration, building a five-year financial plan gives you a structured approach from which you can manage your finances in pursuit of your chosen life goals. Whether it’s aiming to buy a house, saving for higher education, or building an emergency fund , a five-year financial plan can help you make financial decisions while keeping an eye on your long-term goals. Learning how to build a five-year financial plan involves accurately assessing your current financial situation, setting clear objectives and implementing a strategy that will get you to your financial goals.

If you’d like guidance or personalized recommendations when it comes to building your own five-year financial plan, consider reaching out to a financial advisor .

5 Steps to Building a 5-Year Financial Plan

The process of building a financial plan can not only help you determine how to reach your financial goals, but also better understand your current financial position and where you’re working from. The following steps serve as a starting point for building your own five-year financial plan.

Step 1: Determine Your Financial Goals

The first step in creating a five-year financial plan is determining your financial goals. This is a good time to think about what you want to achieve in the next five years, as well as how much money you’ll need to reach those goals. Maybe it’s buying a home , starting a business , saving for a child’s education , or having a sizeable emergency fund . Having clearly defined goals helps you plan out the rest of your steps and make more-informed financial decisions along the way. You can also break down your goals into smaller, more manageable milestones that are easier to reach and track.

Step 2: Assess Your Current Financial Situation

The next step is understanding your current financial situation. Take a comprehensive inventory of your assets, income, expenses, and liabilities. This means reviewing bank statements, credit card bills and any other financial documents. Once you understand your current cash flow and net worth , you’ll be able to identify areas where you can cut costs or increase savings, which will be key to achieving the financial goals you’ve set.

Step 3: Create a Budget and Track Expenses

Now that you know your financial situation, you can create a budget . This will help you allocate income towards your financial goals while continuing to pay for the essentials. Start by looking at your monthly income, and determine how much goes toward fixed expenses such as your rent or mortgage and loan payments. Then you’ll factor in variable expenses such as utilities and groceries. Once you know how much is going out for your essentials, you can determine how much you’ll allocate towards your financial goals.

Step 4: Invest for Your Goals

Once you know how much you have to allocate towards your financial goals, you’ll need to decide what to do with that amount, or how to invest it, in order to reach those goals. You have different investment options to choose from, such as stocks, bonds, and mutual funds, and will want to choose investments that align with your timeline and risk profile. Diversification can help you balance risk and potential returns. A financial advisor can help you tailor your investment strategy and maximize your growth.

Step 5: Review and Adjust Your Plan

A financial plan is not something you set and forget. Life events such as a job change, marriage, or the birth of a child mean you might need to adjust things, as will changes in the market or economic conditions. You’ll want to regularly review your five-year financial plan to ensure it remains relevant. Consistently monitoring your plan can also help you identify spending patterns and opportunities to save more money.

Strategies to Increase Income and Reduce Expenses

Part of pursuing your financial goals, whether for a five-year financial plan or longer term, is likely going to involve finding ways to reduce your expenses and/or increase your income, so you can devote more funds to reaching those goals. The following are some of the strategies you might considering implementing, depending on your situation:

• Advancing your career: Networking and seeking out professional development opportunities can open the doors to better opportunities and salary increases in your career. You might do this by seeking promotions, acquiring new certifications, or transitioning to a higher-paying industry.
• Increasing income through side hustles: Another strategy people use to increase their income is pursuing a side hustle or part-time job. This could be in the form of freelance work, such as writing, graphic design, or tutoring, or utilizing platforms like Upwork or Fiverr to monetize your skills and interests.
• Refinancing debt: Refinancing debt, such as mortgages or student loans , can reduce monthly payments and interest, freeing up funds to invest toward your five-year financial plan. You can shop around for lower interest rates and better terms, as well as consolidate high-interest debt into a single, lower-interest loan, for example.
• Automating savings: Automating savings can also help you make consistent contributions toward your financial goals. Try setting up automatic savings account or investment fund transfers from your checking account to reduce the temptation to spend.

Tools and Resources for Creating a 5-Year Financial Plan

Leveraging the right tools and resources can aid your financial planning process, such as:

• Budgeting applications: Budgeting apps like Mint and You Need A Budget are excellent tools for tracking income and expenses. These applications categorize spending, provide insights into your financial habits, and help you set a monthly budget.
• Investment platforms: Investment platforms such as Vanguard, Fidelity and Betterment offer resources you can use to grow your wealth. Users gain access to a variety of investment options, including stocks, bonds and mutual funds, along with educational resources. Automated investment services, like robo-advisors , can also help you manage your portfolio according to your risk tolerance and financial goals.
• Retirement calculators: Retirement calculators are another valuable tool for financial planning. They allow users to input various parameters, such as current savings , or expected retirement age , to project progress toward a certain goal.

Bottom Line

A five-year financial plan can not only help you achieve short-term financial goals, but also lays the groundwork for long-term financial stability. This involves setting goals, assessing your current situation, creating a budget and investing to reach those goals. Implementing the right strategies to reduce expenses and increase income can give you more funds to work with, and leveraging the right tools and resources can help on the path.

Financial Planning Tips

• If you’re creating a financial plan, a financial advisor can help. Finding a financial advisor doesn’t have to be hard.  SmartAsset’s free tool  matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals,  get started now .
• Setting up automatic deposits into your emergency fund is one of the best ways to increase your savings. These recurring deposits build your balance and increase your interest income. SmartAsset’s  savings calculator  could show you how much your money will grow over time based on current rates.

Photo credit: ©iStock.com/Nattakorn Maneerat, ©iStock.com/scyther5, ©iStock.com/Ridofranz

More From Forbes

If You Need Money For Your Business, Here Are 7 Options

• Share to Facebook
• Share to Twitter
• Share to Linkedin

Starting and growing a business requires money, and sometimes you may find yourself in need of additional funds to keep things moving. Whether it's for expansion, covering operating costs, or investing in new equipment, getting the necessary money for your business can be challenging.

Here are a few options to consider if you need money for your business:

1. traditional bank loans.

A popular choice for getting money is through a traditional bank loan . Banks offer various loan products tailored for businesses, such as term loans, lines of credit, and equipment financing. To qualify, you’ll need a solid business plan, good credit history, and sometimes collateral. The interest rates are generally competitive, and the repayment terms can be flexible.

2. Small Business Administration (SBA) Loans

The SBA has many loan programs to help small businesses. These loans are typically easier to qualify for than traditional bank loans and often come with lower interest rates and longer repayment terms.

3. Business Credit Cards

Business credit cards can be a quick and flexible way to access funds. They are particularly useful for covering short-term expenses and managing cash flow. Many business credit cards come with rewards programs, cashback offers, and 0% introductory APR periods, making them an attractive option for business owners.

WWE SmackDown Results, Winners And Grades On August 2, 2024

Today’s nyt mini crossword clues and answers for saturday, august 2nd, friday, august 2. russia’s war on ukraine: news and information from ukraine, 4. angel investors.

Angel investors are high-net-worth individuals who provide capital to startups and small businesses in exchange for equity or convertible debt. They often offer mentorship and industry connections in addition to financial support. To attract an angel investor, you’ll need a strong business plan, a clear growth strategy, and the potential for high returns on investment.

5. Venture Capital

Venture capital (VC) firms invest in businesses with high growth potential in exchange for equity. VC funding is suitable for businesses looking to scale rapidly and is often accompanied by strategic guidance and support from experienced investors. However, securing VC funding is highly competitive, and you’ll need a scalable business model, a strong team, and a clear exit strategy.

There are numerous grants available for small businesses, especially those in specific industries or owned by minorities, women, or veterans. Grants are an excellent source of funding as they do not require repayment, but the application process is tedious and competitive. Research available grants through government websites, nonprofit organizations, and private foundations.

7. Factoring

Invoice factoring involves selling your accounts receivable to a third party at a discount in exchange for immediate cash. This option can improve cash flow quickly, especially for businesses with long payment cycles. However, it can be expensive and may affect your relationships with customers, as the factoring company will be responsible for collecting the payments.

The bottom line is that securing funding for your business requires careful consideration of your options and an understanding of the terms and implications of each. By exploring these various avenues, you can find the right funding solution to meet your business needs and drive growth. Remember to evaluate the cost of capital, the potential impact on your business, and your ability to repay any borrowed funds. With the right strategy, you can secure the funds you need to take your business to the next level.

Melissa Houston, CPA is the author of Cash Confident: An Entrepreneur’s Guide to Creating a Profitable Business and the founder of She Means Profit . As a Business Strategist for small business owners, Melissa helps women making mid-career shifts, to launch their dream businesses, and I also guide established business owners to grow their businesses to more profitably.

The opinions expressed in this article are not intended to replace any professional or expert accounting and/or tax advice whatsoever.

• Editorial Standards
• Reprints & Permissions

Join The Conversation

One Community. Many Voices. Create a free account to share your thoughts. 

Forbes Community Guidelines

Our community is about connecting people through open and thoughtful conversations. We want our readers to share their views and exchange ideas and facts in a safe space.

In order to do so, please follow the posting rules in our site's  Terms of Service.   We've summarized some of those key rules below. Simply put, keep it civil.

Your post will be rejected if we notice that it seems to contain:

• False or intentionally out-of-context or misleading information
• Insults, profanity, incoherent, obscene or inflammatory language or threats of any kind
• Attacks on the identity of other commenters or the article's author
• Content that otherwise violates our site's  terms.

User accounts will be blocked if we notice or believe that users are engaged in:

• Continuous attempts to re-post comments that have been previously moderated/rejected
• Racist, sexist, homophobic or other discriminatory comments
• Attempts or tactics that put the site security at risk
• Actions that otherwise violate our site's  terms.

So, how can you be a power user?

• Stay on topic and share your insights
• Feel free to be clear and thoughtful to get your point across
• ‘Like’ or ‘Dislike’ to show your point of view.
• Protect your community.
• Use the report tool to alert us when someone breaks the rules.

Thanks for reading our community guidelines. Please read the full list of posting rules found in our site's  Terms of Service.