Creating an early-stage financial model is about striking the right balance between detail and simplicity. Here's what it should include:

🌊 Bottom-up analysis: Start with a bottom-up approach. Identify key revenue drivers, such as:

• Customer acquisition: Marketing expenses, sales team efforts, etc.

• Revenue streams: Clearly outline your pricing and main revenue sources.

🕸 Cost structure:

• Cost of goods sold (COGS): Breakdown of what percentage of your revenue goes into customer support, customer success, technology (e.g., hosting providers), or manufacturing (for e-commerce).

• Operational costs: Group key expenses into categories (e.g., salaries, office expenses). Highlight the main operational costs without going into excessive detail.

🪐 Cash flow forecast: Project your cash flow for the next 18 to 24 months.

• Cash flow gap: Calculate how much cash you’ll need to cover this period. Highlight gaps and funding requirements.

• Short-term focus: Limit your detailed projections to a three-year horizon. Investors understand that long-term forecasts (4-5 years) are often speculative.

☄️ Optional long-term forecast:

• If your growth is slow or your business is currently unprofitable, a longer forecast can show when you expect to hit key milestones like profitability or significant revenue growth. This isn't critical but can be helpful.

🧊 Key metrics (optional):

• LTV/CAC and CAC payback: Lifetime Value (LTV) to Customer Acquisition Cost (CAC) ratio and the payback period can give extra insights into your business model.

• Industry-specific metrics: Include metrics relevant to your industry based on your assumptions. These aren’t required but can add value.

🥣 Key takeaways

• Keep it simple: Focus on core revenue drivers and costs.

• Be realistic: Show a clear path for the next 18-24 months.

• Optional extras: Include detailed metrics if they provide additional clarity or simply look better than industry benchmarks.