name: startup-financial-modeling
description: This skill should be used when the user asks to "create financial
projections", "build a financial model", "forecast revenue", "calculate burn
rate", "estimate runway", "model cash flow", or requests 3-5 year financial
planning for a startup.
metadata:
version: 1.0.0

Startup Financial Modeling

Build comprehensive 3-5 year financial models with revenue projections, cost structures, cash flow analysis, and scenario planning for early-stage startups.

Use this skill when

• Working on startup financial modeling tasks or workflows
• Needing guidance, best practices, or checklists for startup financial modeling

Do not use this skill when

• The task is unrelated to startup financial modeling
• You need a different domain or tool outside this scope

Instructions

• Clarify goals, constraints, and required inputs.
• Apply relevant best practices and validate outcomes.
• Provide actionable steps and verification.
• If detailed examples are required, open resources/implementation-playbook.md.

Overview

Financial modeling provides the quantitative foundation for startup strategy, fundraising, and operational planning. Create realistic projections using cohort-based revenue modeling, detailed cost structures, and scenario analysis to support decision-making and investor presentations.

Core Components

Revenue Model

Cohort-Based Projections:
Build revenue from customer acquisition and retention by cohort.

Formula:

MRR = Σ (Cohort Size × Retention Rate × ARPU)
ARR = MRR × 12

Key Inputs:
- Monthly new customer acquisitions
- Customer retention rates by month
- Average revenue per user (ARPU)
- Pricing and packaging assumptions
- Expansion revenue (upsells, cross-sells)

Cost Structure

Operating Expenses Categories:

1. Cost of Goods Sold (COGS)
2. Hosting and infrastructure
3. Payment processing fees
4. Customer support (variable portion)

5. Third-party services per customer

6. Sales & Marketing (S&M)

7. Customer acquisition cost (CAC)
8. Marketing programs and advertising
9. Sales team compensation

10. Marketing tools and software

11. Research & Development (R&D)

12. Engineering team compensation
13. Product management
14. Design and UX

15. Development tools and infrastructure

16. General & Administrative (G&A)

17. Executive team
18. Finance, legal, HR
19. Office and facilities
20. Insurance and compliance

Cash Flow Analysis

Components:
- Beginning cash balance
- Cash inflows (revenue, fundraising)
- Cash outflows (operating expenses, CapEx)
- Ending cash balance
- Monthly burn rate
- Runway (months of cash remaining)

Formula:

Runway = Current Cash Balance / Monthly Burn Rate
Monthly Burn = Monthly Revenue - Monthly Expenses

Headcount Planning

Role-Based Hiring Plan:
Track headcount by department and role.

Key Metrics:
- Fully-loaded cost per employee
- Revenue per employee
- Headcount by department (% of total)

Typical Ratios (Early-Stage SaaS):
- Engineering: 40-50%
- Sales & Marketing: 25-35%
- G&A: 10-15%
- Customer Success: 5-10%

Financial Model Structure

Three-Scenario Framework

Conservative Scenario (P10):
- Slower customer acquisition
- Lower pricing or conversion
- Higher churn rates
- Extended sales cycles
- Used for cash management

Base Scenario (P50):
- Most likely outcomes
- Realistic assumptions
- Primary planning scenario
- Used for board reporting

Optimistic Scenario (P90):
- Faster growth
- Better unit economics
- Lower churn
- Used for upside planning

Time Horizon

Detailed Projections: 3 Years
- Monthly detail for Year 1
- Monthly detail for Year 2
- Quarterly detail for Year 3

High-Level Projections: Years 4-5
- Annual projections
- Key metrics only
- Support long-term planning

Step-by-Step Process

Step 1: Define Business Model

Clarify revenue model and pricing.

SaaS Model:
- Subscription pricing tiers
- Annual vs. monthly contracts
- Free trial or freemium approach
- Expansion revenue strategy

Marketplace Model:
- GMV projections
- Take rate (% of transactions)
- Buyer and seller economics
- Transaction frequency

Transactional Model:
- Transaction volume
- Revenue per transaction
- Frequency and seasonality

Step 2: Build Revenue Projections

Use cohort-based methodology for accuracy.

Monthly Customer Acquisition:
Define new customers acquired each month.

Retention Curve:
Model customer retention over time.

Typical SaaS Retention:
- Month 1: 100%
- Month 3: 90%
- Month 6: 85%
- Month 12: 75%
- Month 24: 70%

Revenue Calculation:
For each cohort, calculate retained customers × ARPU for each month.

Step 3: Model Cost Structure

Break down costs by category and behavior.

Fixed vs. Variable:
- Fixed: Salaries, software, rent
- Variable: Hosting, payment processing, support

Scaling Assumptions:
- COGS as % of revenue
- S&M as % of revenue (CAC payback)
- R&D growth rate
- G&A as % of total expenses

Step 4: Create Hiring Plan

Model headcount growth by role and department.

Inputs:
- Starting headcount
- Hiring velocity by role
- Fully-loaded compensation by role
- Benefits and taxes (typically 1.3-1.4x salary)

Example:

Engineer: $150K salary × 1.35 = $202K fully-loaded
Sales Rep: $100K OTE × 1.30 = $130K fully-loaded

Step 5: Project Cash Flow

Calculate monthly cash position and runway.

Monthly Cash Flow:

Beginning Cash
+ Revenue Collected (consider payment terms)
- Operating Expenses Paid
- CapEx
= Ending Cash

Runway Calculation:

If Ending Cash < 0:
  Funding Need = Negative Cash Balance
  Runway = 0
Else:
  Runway = Ending Cash / Average Monthly Burn

Step 6: Calculate Key Metrics

Track metrics that matter for stage.

Revenue Metrics:
- MRR / ARR
- Growth rate (MoM, YoY)
- Revenue by segment or cohort

Unit Economics:
- CAC (Customer Acquisition Cost)
- LTV (Lifetime Value)
- CAC Payback Period
- LTV / CAC Ratio

Efficiency Metrics:
- Burn multiple (Net Burn / Net New ARR)
- Magic number (Net New ARR / S&M Spend)
- Rule of 40 (Growth % + Profit Margin %)

Cash Metrics:
- Monthly burn rate
- Runway (months)
- Cash efficiency

Step 7: Scenario Analysis

Create three scenarios with different assumptions.

Variable Assumptions:
- Customer acquisition rate (±30%)
- Churn rate (±20%)
- Average contract value (±15%)
- CAC (±25%)

Fixed Assumptions:
- Pricing structure
- Core operating expenses
- Hiring plan (adjust timing, not roles)

Business Model Templates

SaaS Financial Model

Revenue Drivers:
- New MRR (customers × ARPU)
- Expansion MRR (upsells)
- Contraction MRR (downgrades)
- Churned MRR (lost customers)

Key Ratios:
- Gross margin: 75-85%
- S&M as % revenue: 40-60% (early stage)
- CAC payback: < 12 months
- Net retention: 100-120%

Example Projection:

Year 1: $500K ARR, 50 customers, $100K MRR by Dec
Year 2: $2.5M ARR, 200 customers, $208K MRR by Dec
Year 3: $8M ARR, 600 customers, $667K MRR by Dec

Marketplace Financial Model

Revenue Drivers:
- GMV (Gross Merchandise Value)
- Take rate (% of GMV)
- Net revenue = GMV × Take rate

Key Ratios:
- Take rate: 10-30% depending on category
- CAC for buyers vs. sellers
- Contribution margin: 60-70%

Example Projection:

Year 1: $5M GMV, 15% take rate = $750K revenue
Year 2: $20M GMV, 15% take rate = $3M revenue
Year 3: $60M GMV, 15% take rate = $9M revenue

E-Commerce Financial Model

Revenue Drivers:
- Traffic (visitors)
- Conversion rate
- Average order value (AOV)
- Purchase frequency

Key Ratios:
- Gross margin: 40-60%
- Contribution margin: 20-35%
- CAC payback: 3-6 months

Services / Agency Financial Model

Revenue Drivers:
- Billable hours or projects
- Hourly rate or project fee
- Utilization rate
- Team capacity

Key Ratios:
- Gross margin: 50-70%
- Utilization: 70-85%
- Revenue per employee

Fundraising Integration

Funding Scenario Modeling

Pre-Money Valuation:
Based on metrics and comparables.

Dilution:

Post-Money = Pre-Money + Investment
Dilution % = Investment / Post-Money

Use of Funds:
Allocate funding to extend runway and achieve milestones.

Example:

Raise: $5M at $20M pre-money
Post-Money: $25M
Dilution: 20%

Use of Funds:
- Product Development: $2M (40%)
- Sales & Marketing: $2M (40%)
- G&A and Operations: $0.5M (10%)
- Working Capital: $0.5M (10%)

Milestone-Based Planning

Identify Key Milestones:
- Product launch
- First $1M ARR
- Break-even on CAC
- Series A fundraise

Funding Amount:
Ensure runway to achieve next milestone + 6 months buffer.

Common Pitfalls

Pitfall 1: Overly Optimistic Revenue
- New startups rarely hit aggressive projections
- Use conservative customer acquisition assumptions
- Model realistic churn rates

Pitfall 2: Underestimating Costs
- Add 20% buffer to expense estimates
- Include fully-loaded compensation
- Account for software and tools

Pitfall 3: Ignoring Cash Flow Timing
- Revenue ≠ cash (payment terms)
- Expenses paid before revenue collected
- Model cash conversion carefully

Pitfall 4: Static Headcount
- Hiring takes time (3-6 months to fill roles)
- Ramp time for productivity (3-6 months)
- Account for attrition (10-15% annually)

Pitfall 5: Not Scenario Planning
- Single scenario is never accurate
- Always model conservative case
- Plan for what you'll do if base case fails

Model Validation

Sanity Checks:
- [ ] Revenue growth rate is achievable (3x in Year 2, 2x in Year 3)
- [ ] Unit economics are realistic (LTV/CAC > 3, payback < 18 months)
- [ ] Burn multiple is reasonable (< 2.0 in Year 2-3)
- [ ] Headcount scales with revenue (revenue per employee growing)
- [ ] Gross margin is appropriate for business model
- [ ] S&M spending aligns with CAC and growth targets

Benchmark Against Peers:
Compare key metrics to similar companies at similar stage.

Investor Feedback:
Share model with advisors or investors for feedback on assumptions.

Additional Resources

Reference Files

For detailed model structures and advanced techniques:
- references/model-templates.md - Complete financial model templates by business model
- references/unit-economics.md - Deep dive on CAC, LTV, payback, and efficiency metrics
- references/fundraising-scenarios.md - Modeling funding rounds and dilution

Example Files

Working financial models with formulas:
- examples/saas-financial-model.md - Complete 3-year SaaS model with cohort analysis
- examples/marketplace-model.md - Marketplace GMV and take rate projections
- examples/scenario-analysis.md - Three-scenario framework with sensitivities

Quick Start

To create a startup financial model:

1. Define business model - Revenue drivers and pricing
2. Project revenue - Cohort-based with retention
3. Model costs - COGS, S&M, R&D, G&A by month
4. Plan headcount - Hiring by role and department
5. Calculate cash flow - Revenue - expenses = burn/runway
6. Compute metrics - CAC, LTV, burn multiple, runway
7. Create scenarios - Conservative, base, optimistic
8. Validate assumptions - Sanity check and benchmark
9. Integrate fundraising - Model funding rounds and milestones

For complete templates and formulas, reference the references/ and examples/ files.