📊 Level 9Chapter 26 of 30 · 7 min read · +50 XP

Build a simple 3-year financial model

A financial model turns your strategy into numbers. Build one in a spreadsheet: drivers, revenue, costs, hiring plan, cash and scenarios.

Every projection is wrong. A good model is still invaluable because it makes your assumptions explicit, shows how much cash you need, and tells you which numbers matter most.

Structure (one spreadsheet, a few tabs)

  1. Assumptions / drivers: every input in one place, clearly labelled.
  2. Revenue build: customers, orders, price and churn, month by month.
  3. Costs: cost of goods sold and variable costs, marketing, tools, rent.
  4. Hiring plan: each role, start month and monthly cost (salary plus benefits).
  5. P&L summary: revenue, gross profit, operating expenses, EBITDA.
  6. Cash flow: opening cash, inflows, outflows, funding, closing cash, runway.
  7. Scenarios: conservative, base and aggressive.

Build revenue from drivers

For a subscription business:

New customers = marketing spend ÷ CAC + organic sign-ups Active customers = last month’s active × (1 − churn) + new customers Revenue = active customers × price

For a marketplace: orders × average order value × take rate. For manufacturing: units × price, limited by capacity.

Costs that founders forget

  • GST and TDS cash timing, payment-gateway fees, refunds and returns.
  • Salary increases and the time it takes new hires to become productive.
  • Compliance, audit, legal and accounting fees.
  • Working capital for inventory and receivables (Level 9, Chapter 1).

Sanity checks

  • Does revenue per employee look reasonable for your sector?
  • Do gross margins match comparable companies?
  • Is CAC realistic as you scale (it usually rises)?
  • Does the growth rate match your evidence?

Use it

  • Fundraising: the model shows how much you need and what it buys.
  • Decisions: “What if we hire 5 salespeople next quarter?”
  • Monthly review: compare actuals with the plan and update the assumptions.

Your takeaway

Build a simple driver-based model, keep the assumptions honest, and focus on cash. Next: operations, supply chain and manufacturing basics.

🎯 Your missions

Tick them off as you go — saved on this device.

🧠 Quick quiz +30 XP

1. A 'driver-based' model starts from…
2. Why build scenarios?
3. The most important output of an early-stage model is usually…

Level 9 progress 0/3

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