Financial Model

Financial Model

Before you start

Gather the following from the user. If anything is missing, ask before proceeding:

1. What is the business case? (New product launch, expansion, investment decision, fundraising)
2. What is the time horizon? (12 months, 3 years, 5 years)
3. What is the revenue model? (Subscription, transactional, marketplace, usage-based, hybrid)
4. What are the key cost drivers? (Headcount, infrastructure, CAC, COGS)
5. What assumptions exist? (Growth rates, conversion rates, churn, pricing, market size)
6. Who is the audience? (Board, investors, internal leadership, lending institution)

If the user says "just give me a spreadsheet," push back: a model without documented assumptions is a fiction generator. Every number must trace to an assumption the reader can challenge.

Financial model template

1. Assumptions Table

List every assumption explicitly. Each must have a source and confidence level.

| Assumption               | Value     | Source                      | Confidence |
|--------------------------|-----------|------------------------------|------------|
| Monthly growth rate      | 8%        | Last 6 months average        | High       |
| Gross margin             | 72%       | Current P&L                  | High       |
| CAC (blended)            | $340      | Marketing spend / new custs  | Medium     |
| Monthly churn rate       | 3.2%      | Cohort analysis (Q3-Q4)      | High       |
| Average contract value   | $1,200/yr | Sales data                   | High       |

Rules: assumptions with "Low" confidence must appear in sensitivity analysis. Never bury assumptions inside formulas.

2. Revenue Projections

Build revenue bottom-up from unit economics, not top-down from market share.

| Metric              | Month 1  | Month 6  | Month 12 | Month 24 | Month 36 |
|---------------------|----------|----------|----------|----------|----------|
| New customers       | 50       | 85       | 145      | 310      | 525      |
| Churned customers   | 8        | 22       | 48       | 95       | 155      |
| Active customers    | 200      | 420      | 780      | 1,650    | 2,850    |
| ARPU (monthly)      | $100     | $105     | $112     | $120     | $128     |
| MRR                 | $20,000  | $44,100  | $87,360  | $198,000 | $364,800 |

Show the formula for each row. MRR = Active customers x ARPU. Active customers = prior active + new - churned.

3. Cost Structure

Break costs into fixed and variable. Variable costs must link to a driver.

| Cost Category      | Type     | Driver             | Month 1  | Month 12 | Month 36 |
|--------------------|----------|--------------------|----------|----------|----------|
| Engineering team   | Fixed    | Headcount plan     | $85,000  | $120,000 | $200,000 |
| Cloud infra        | Variable | Per active customer| $4,000   | $15,600  | $57,000  |
| Sales & marketing  | Variable | CAC x new custs    | $17,000  | $49,300  | $178,500 |
| G&A                | Fixed    | Baseline ops       | $15,000  | $22,000  | $35,000  |

4. Unit Economics

| Metric                         | Current | Month 12 | Healthy Benchmark |
|--------------------------------|---------|----------|-------------------|
| CAC                            | $340    | $340     |  3x CAC          |
| LTV:CAC ratio                  | 6.6x   | 7.7x     | > 3x              |
| CAC payback (months)           | 3.4    | 3.2      |  65% (SaaS)      |

Flag any metric outside healthy benchmarks. If LTV:CAC is below 3x, the business case is weak regardless of revenue projections.

5. Scenario Analysis

Model three scenarios minimum. Vary the assumptions with lowest confidence.

| Metric (Month 36)  | Bear Case  | Base Case  | Bull Case  |
|---------------------|------------|------------|------------|
| Growth rate         | 5%/mo      | 8%/mo      | 12%/mo     |
| Churn rate          | 4.5%       | 3.2%       | 2.0%       |
| Active customers    | 1,400      | 2,850      | 5,200      |
| ARR                 | $2.15M     | $4.38M     | $7.98M     |
| Cash position       | -$800K     | $1.2M      | $4.5M      |

Name what changes between scenarios. "Bear case" is not useful — "bear case: growth drops to 5% and churn increases to 4.5%" tells the reader what to watch for.

6. Cash Flow and Runway

Highlight the month cash reaches zero under bear case. If runway is under 6 months in any scenario, flag it as a critical risk. Include quarterly revenue, costs, net cash flow, cumulative cash balance, and remaining runway in months.

Quality checklist

Before delivering a financial model, verify:

• [ ] Every number traces to a named assumption with a source
• [ ] Revenue is built bottom-up from unit economics, not top-down from TAM
• [ ] Cost structure separates fixed from variable with explicit drivers
• [ ] Unit economics include LTV, CAC, LTV:CAC ratio, and payback period
• [ ] At least 3 scenarios are modeled with named assumption changes
• [ ] Cash flow projection includes runway calculation
• [ ] The model audience (investors, board, internal) is reflected in the level of detail

Common mistakes

• Top-down revenue. "We will capture 1% of a $10B market" is not a model. Build from units: customers x price x retention.
• Static assumptions. Growth rates, churn, and costs change over time. A model with constant 10% monthly growth for 5 years is fantasy.
• Ignoring cash timing. Revenue recognized is not cash received. Annual contracts paid monthly and net-60 invoices create cash gaps the P&L hides.
• Single scenario. One projection is a guess. Three scenarios with named variables show you understand the risk space.
• Vanity unit economics. Calculating LTV with gross revenue instead of gross margin inflates the numbers. Use gross-margin-based LTV.
• Missing the "so what." A model without a recommendation is a data dump. State the decision it supports.

Source & license

This open-source skill is cataloged on AgentStack and links to its original source — we do not rehost the code.

• Author: The-AI-Directory-Company
• Source: The-AI-Directory-Company/agents-and-skills
• License: MIT
• Homepage: https://ai-directory.company

Install and usage instructions live in the source repository linked above.