Financial Model Structure

Financial Model Structure

When to Use

Use this skill when:

• The user explicitly asks to build a three-statement financial model -- income statement, balance sheet, and cash flow statement -- linked through shared assumptions
• The user needs startup financial projections for fundraising (seed, Series A/B, venture debt), board reporting, or a lender package (SBA, bank covenant compliance)
• The user wants to model a specific business type (SaaS, e-commerce, marketplace, services, manufacturing, hardware, media/content) with drivers specific to that vertical
• The user has partial financial data (actuals for some periods) and needs a forward-looking model that anchors to those actuals and projects forward
• The user needs scenario analysis or sensitivity tables to stress-test key assumptions before presenting to investors or a board
• The user wants to understand how their unit economics (CAC, LTV, payback period, contribution margin) roll up into a company-level P&L and cash position
• The user is building a financial model for a capital allocation decision -- hiring plan, geographic expansion, product line extension -- and needs to see the full cash impact

Do NOT use this skill when:

• The user needs personal budgeting, household cash flow, or debt paydown planning -- use budget-planning instead
• The user needs tax return preparation, tax optimization strategies, or entity structure advice for tax purposes -- use tax-preparation instead
• The user is asking for investment portfolio analysis, stock valuation, or DCF analysis for an acquisition target -- use investment-analysis or dcf-valuation instead
• The user only needs a standalone P&L review or variance analysis of existing statements -- use pl-analysis instead
• The user only needs to calculate unit economics in isolation (LTV, CAC, payback period, contribution margin) without rolling up to a full model -- use unit-economics instead
• The user needs accounting help to close books, categorize transactions, or reconcile accounts -- use accounting-reconciliation instead

Process

Step 1: Clarify Model Purpose, Scope, and Audience

Before building a single cell, establish the constraints that govern every architectural decision.

• Identify the primary audience and their frame of reference. A seed investor cares about TAM capture rate, payback period, and runway. A bank loan officer cares about DSCR (debt service coverage ratio, target >1.25x), tangible net worth, and cash conversion cycle. A board cares about actuals-to-budget variance and rolling 12-month forecast. Each audience requires different emphasis in the model.
• Pin down the time horizon and granularity. The standard convention is monthly for year 1 (or the next 12 months), then quarterly for year 2, then annual for years 3-5. For capital-intensive businesses or businesses with seasonal working capital swings, extend monthly granularity through year 2. Never show less than 3 years for a fundraising model.
• Establish whether the model is a bottoms-up or tops-down build. Bottoms-up anchors every revenue line to a specific activity (customers x price, reps x quota). Tops-down anchors to market share capture (TAM x penetration %). Investors heavily prefer bottoms-up because every assumption can be interrogated independently. Use tops-down only as a sanity check against the bottoms-up result, not as the primary methodology.
• Identify available actuals. If the company has 6-24 months of operating history, the model must show actuals in left-hand columns and projections in right-hand columns with a clear "actuals/forecast" dividing line. This changes the assumptions sheet -- historical growth rates become an anchor for forward assumptions.
• Clarify the exit or decision point the model is being built toward. A Series A raise implies the model must demonstrate a credible path to a specific revenue milestone (often $1-2M ARR for SaaS Series A) and justify a specific funding amount tied to runway. A profitability decision implies the model must show the crossover point at which EBITDA turns positive.
• Determine the business model archetype because this dictates which sheet to build first:
  • SaaS / subscription: Start with the cohort-based customer count model
  • E-commerce / transactional: Start with the traffic and conversion funnel
  • Marketplace: Start with GMV build-up with separate supply and demand acquisition
  • Services / professional services: Start with the headcount and utilization model
  • Manufacturing / hardware: Start with unit volume and BOM (bill of materials) cost