The forecast is typically based on the company’s historical performance and requires preparing the income statement, balance sheet, cash flow statement and supporting schedules.The output of a financial model is used for decision making and performing financial analysis, whether inside or outside of the company. Inside a company, executives will use financial models to make decisions about:

  • Raising capital (debt and/or equity)
  • Making acquisitions (businesses and/or assets)
  • Growing the business (i.e. opening new stores, entering new markets, etc.)
  • Selling or divesting assets and business units
  • Budgeting and forecasting (planning for the years ahead)
  • Capital allocation (priority of which projects to invest in)
  • Valuing a business

The main sections to include in a financial model for a startup (from top to bottom) are:

  1. Assumptions and drivers
  2. Startup Expenses and Assets
  3. Income statement
  4. Balance sheet
  5. Cash flow statement
  6. Supporting schedules
  7. Valuation
  8. Sensitivity analysis
  9. Charts and graphs.