Key Takeaways:
- Your startup’s financial model should support operations, performance, and fundraising.
- Build around the income statement, balance sheet, and cash flow.
- Bottom-up modeling creates accountability and helps drive execution.
- Twelve-month forecasts are best for operations; longer timelines are for investors.
- Most founders benefit from expert help to avoid common modeling mistakes.
A financial model is one of the most valuable planning tools a startup can have, but only if it’s built to support the real work of running and growing a business. At Burkland, I work with early-stage founders every week to build models that serve three key functions: they help teams plan and execute, optimize performance, and raise capital.
In this first article of a three-part series, I’ll walk through the foundations of building a strong financial model. These are the questions I hear most often from founders who need a model that supports real decisions and real outcomes.
What is a startup’s financial model?
A structured forecast built around your key financials.
A startup financial model is a spreadsheet or software-based tool that projects how your business will perform over time. It typically includes:
- Revenue forecasts
- Expense breakdowns
- Headcount plans
- Cash flow projections
Most models are built around the three core financial statements—income statement, balance sheet, and cash flow statement—with assumptions driving how each line item changes over time.
A good model is flexible, formula-driven, and structured to update easily as the business evolves. It connects key inputs (like pricing, hiring, or sales targets) to outputs (like revenue, burn, and runway), so you can see how everything fits together financially.
How do startups actually use their financial model?
Operational clarity, performance tracking, and fundraising.
Founders usually think about financial modeling in the context of fundraising, but that’s only part of the picture. A strong model supports three main things:
- Operational planning: It gives your team a roadmap for spending, hiring, and growth.
- Performance tracking: It shows how you’re doing month-to-date, quarter-to-date, and year-to-date versus plan.
- Fundraising: It helps communicate your business strategy and growth potential to investors.
When I build a model for a client, we make sure it’s easy to maintain, flexible enough to test different scenarios, and designed to be used month after month.
What are the most important inputs?
Start with the three core financial statements.
I always build models around the three core financial statements: the income statement, balance sheet, and cash flow. This structure gives us a full picture of how decisions affect cash. It also helps founders test different levers and understand the implications of each one.
Let’s say you’re considering a large hire or a new ad campaign. You want to see how that choice plays out across your cash flow, not just your P&L. A properly structured model will do that.
✅ Quick Checklist: What Your Startup Financial Model Should Include
- Income statement
- Balance sheet
- Cash flow statement
- Key metrics like burn, runway, and unit economics
- Driver-based forecasts for headcount, revenue, and expenses
- Scenario planning for multiple outcomes
- Built-in links between assumptions and outputs
What insights should a good model give me?
Visibility into burn, runway, and what’s driving them.
Your financial model should tell you your burn, your runway, and what makes up those numbers. If you’re burning $400K a month, you should know how much of that is headcount, marketing, software, or something else.
The model also helps you forecast those components at a granular level so you can adjust in real time. If something’s trending over budget, you’ll spot it early. If something’s underperforming, you’ll know before it becomes a bigger issue. And just as important, your team will have a clear plan to work from and be accountable to.
Should I build a top-down or bottom-up model?
Top-down for high-level planning and fundraising, bottom up for operations.
Top-down models are often used in the earliest stages to validate an idea or support a quick pitch. You might say, “We want to hit $1M in ARR,” and then estimate how much you’ll realistically need to spend across major categories to get there. It’s a quick way to test the viability of a business model, but it doesn’t help much when it comes to execution.
Bottom-up models are built line by line. They’re based on actual drivers of the business—how many customers you’ll acquire, what pricing you’ll use, how much each department will spend, and so on. This is the kind of model I build for clients who need a true operational roadmap. It tells you what it will take to hit your targets and shows where you’re off track if you miss.
Both approaches have their place, but if you’re actively scaling a business, you need a bottom-up financial model.
How far out should my financial projections go?
The timeline depends on the purpose of the model. Plan for 12 months, project for 3 to 5 years.
If you’re building an operational plan, keep it focused on 12 months. That’s the window where you have the most control and visibility. I’ve seen some clients go out to 18 or 24 months, but after that, the uncertainty starts to outweigh the usefulness. It’s like the cone of uncertainty concept in software development, but in reverse—the further out you go, the wider and less reliable your projections become.
If you’re fundraising, you’ll likely need to show a 3- or 5-year projection. This is where a top-down overlay can be helpful. It gives investors a long-term view without sinking hours into granular assumptions that will almost certainly change.
When I build models, I make sure they’re structured to support both: a detailed operational view and an easy bolt-on option for investor-ready projections.
How does a model actually improve startup performance?
Identify gaps, course-correct fast, and hold teams accountable.
A solid financial model gives you structure for meaningful conversations about performance. After a month ends, you can compare actuals to forecasts and ask the right questions. Did we miss revenue targets? Why? Did we experience an anomaly, or were our assumptions wrong?
This is where the real value of financial modeling shows up. You identify gaps, learn from them, and adjust your plan accordingly. If a team is falling short, you have the clarity to act on it. That might mean shifting resources, revising targets, or having tough but necessary conversations with team leads.
Your model makes it possible to catch problems early, hold people accountable, and stay aligned on your goals.
What tools should I use to build my startup’s financial model?
Spreadsheets still work, but there are other options too.
Most of the founders I work with are using Excel or Google Sheets. Spreadsheets are flexible and familiar, and they work well in many cases.
That said, more and more clients are asking about tools like Finmark, Mosaic, or Pry, especially as they scale up and want more automation or reporting capabilities. There’s no universal answer, some tools are better suited to certain industries or stages than others.
At Burkland, we help founders evaluate their options, choose the right tool for their needs, and get set up so they can actually get value from it.
I’m good with spreadsheets. Can I DIY my financial model?
Building a solid, scalable model requires special expertise.
Many founders try to build their own models. Maybe they took a finance class in college or watched a few tutorials. But what I’ve seen, again and again, is that those models usually fall short. They may look polished on the surface, but once we dig in, we find broken formulas, incorrect logic, or missing pieces that could lead to bad decisions and drastically different outcomes.
Building a good model takes real accounting and finance expertise. You need to understand how revenue recognition works, how expenses flow through the cash cycle, and how to structure things properly across all three financial statements.
Entering numbers into a spreadsheet isn’t enough to build a strong financial model. You need to understand how the financial pieces of the business connect and influence each other. This not only requires analytical skill but also deep industry expertise to ensure projections are realistic while keeping you performing at the top of your industry. While it may seem cost-effective to build it yourself, working with a professional almost always leads to a more accurate, usable model that delivers more value over the long run.
A financial model is only part of the equation—what’s a map without a cartographer? Burkland’s FP&A Team is ready to build your model and help you use it to its fullest, so you can exceed your goals. Reach out to us today!
What’s next in this series?
In the next two parts of this series, I’ll dive deeper into how we model growth and how we model for fundraising:
- Part 2: Modeling Growth
We’ll look at how to forecast revenue, headcount, expenses, and margins in a way that supports scale. - Part 3: Modeling for Fundraising
We’ll explore what investors want to see, how to tell a compelling financial story, and how to tie your model to a strong fundraising strategy.
Stay tuned—and contact Burkland if you’re ready for help building a model that works for your startup.