The short answer
A startup financial forecast is a month-by-month projection of revenue, costs and cash, usually for the next 12 to 24 months. To build one:
- Start with the cash in the bank and what your books say about the last few months, if you have them.
- Build revenue from drivers you can explain, like customers times price, not from a growth percentage.
- Plan headcount by name and start month, then add the other costs, split into fixed and those that grow with revenue.
- Convert profit into cash by adding timing: when customers pay, when you pay, taxes, and one-off purchases.
- Read off burn and runway, then build a downside and an upside case by changing a few drivers.
Then compare it with your actual results every month and roll it forward.
What a startup financial forecast is
A forecast is your best estimate of what will happen to revenue, costs and cash over the coming months. It is built from assumptions you write down, so anyone reading it can see why the numbers are what they are.
It is not the same as a budget. A budget is a target you commit to spending against. A forecast is an estimate you update as you learn more. Many startups use one document for both, which is fine as long as you know which job it's doing at the time.
A full forecast has three linked parts: an income statement (revenue, costs, profit), a cash flow statement (what actually moves in and out of the bank), and a balance sheet (what you own and owe at each month end). Early on, the cash view matters most. The balance sheet is what proves the other two are consistent.
Why you need one earlier than you think
The forecast is how you answer the questions that come up in the first year of a company. Can we afford this hire? How long does the money last? What happens if our biggest customer pays late? When do we need to raise, and how much?
Without one, those decisions still get made. They just get made on a feeling. The forecast doesn't need to be right to be useful. It needs to show you which assumptions matter, so you know what to watch.
Moments when you will be asked for one
- Raising a round. Investors will ask for your plan and test the assumptions behind it.
- Applying for a loan, a line of credit or some government programs.
- Making a senior hire, or any hire that changes your runway by more than a month or two.
- Signing a large contract, a lease, or a commitment you can't easily undo.
- Board or advisor meetings, once you have them.
What you need before you start
You don't need clean books to start a forecast. You do need to be honest about which numbers are known and which are guesses, and to label them.
Gather these first
- Cash in the bank today, and any money you know is coming (a closed round, a grant, a refundable tax credit).
- Your books for the last 3 to 12 months if you have them: revenue, costs by type, and what customers owe you and what you owe suppliers.
- Pricing: what you charge, how you bill (monthly, annually, per project) and when customers actually pay.
- Pipeline: deals in progress, how likely each is, and when it would start.
- Team: everyone on payroll or contract, their cost, and who you plan to hire and when.
- Fixed commitments: rent, software, insurance, loan payments.
Step 1: Build revenue from drivers
The most common mistake in an early forecast is revenue that grows by a fixed percentage every month. It is easy to type and impossible to defend, because it doesn't say what has to happen for the number to be true.
Instead, build revenue from the things that produce it. Work out how many customers, units or billable hours you get, and what each is worth. Then each assumption can be checked against reality, and when you miss, you know which one was wrong.
| Business model | Revenue is built from | Watch for |
|---|---|---|
| Subscription software (SaaS) | New customers per month x price, plus expansion, minus churn | Annual prepayments change cash timing, not revenue |
| Services or agency | Billable people x hours x utilization x rate | Revenue can't grow faster than you can hire |
| E-commerce | Orders x average order value | Returns, payment fees and shipping come out of every order |
| Marketplace | Transactions x average value x your take rate | Only your take is revenue, not the full transaction |
| Hardware | Units x price, limited by production capacity | Inventory is paid for long before it is sold |
Tie new customers to something that produces them. If you rely on sales, new deals depend on how many salespeople you have and how long they take to ramp. If you rely on marketing, they depend on spend and what a customer costs to acquire. A forecast where customers appear with no cost to get them is the first thing an investor will question.
Step 2: Plan headcount, then everything else
At many startups payroll is the largest cost, so plan it first and plan it by person. List each role, the start month, the salary, and the employer costs on top: benefits, and payroll contributions such as CPP and EI in Canada or payroll taxes in the US.
Then split the remaining costs into two groups. Fixed costs stay roughly the same whatever revenue does: rent, most software, insurance. Variable costs move with revenue: hosting, payment processing, contractors who deliver the work, cost of goods. Getting this split right is what makes your downside case realistic, because variable costs fall when revenue falls and fixed costs don't.
Check the link between revenue and team. If revenue doubles, who is doing the extra work? If the answer is people who aren't in the headcount plan, the forecast is missing costs.
Step 3: Turn profit into cash
Profit and cash are different, and startups run out of cash, not profit. The difference is timing.
The timing items that matter most
- Customer payment terms. If you invoice on 30 or 60 day terms, cash arrives a month or two after the revenue.
- Annual prepayments. A customer paying a year up front gives you the cash now, while the revenue is recognized month by month.
- Supplier terms. Paying on 30 days holds cash in your bank a little longer.
- Sales tax. GST/HST or US sales tax you collect belongs to the government. Keep it out of your spendable cash.
- Equipment and other one-off purchases, which leave the bank at once even though they are expensed over time.
- Refundable tax credits, such as SR&ED in Canada, which arrive months after the spending that earns them.
- Loan draws and repayments, and any equity you have raised or plan to raise.
If you are building the balance sheet too, this is where it earns its place. When it balances every month, your profit and cash numbers agree with each other. When it doesn't, something is double counted or missing.
Step 4: Read off burn, runway and default alive
Gross burn is everything you spend in a month. Net burn is what you spend minus what comes in. Runway is how many months your cash lasts at the current net burn: cash in the bank divided by monthly net burn. A forecast gives you a better answer than that formula, because it knows burn will change as you hire and grow.
Paul Graham's question "default alive or default dead?" is worth answering from your forecast. If revenue keeps growing the way it has and costs stay on plan, do you reach profitability before the money runs out? If not, you are depending on raising again, and the forecast should show when.
For companies with recurring revenue, David Sacks's burn multiple is a common efficiency check: net burn divided by net new annual recurring revenue over the same period. It shows how much you spend to add each dollar of recurring revenue. Lower is better.
Raising takes months, so the date you need to start a round is well before the date the cash runs out. Put both dates in the plan.
Step 5: Build a downside and an upside
One forecast is a guess. Three show you the range. Keep the base case as your honest best estimate, then build a downside and an upside by changing only a few drivers: new customers, price, churn, the timing of a big deal, the start month of key hires.
The useful question for the downside is what breaks first. Usually it is cash, and the answer tells you which cuts you would make and when you would have to make them. Decide that now, while it is a spreadsheet exercise.
How to check your forecast before someone else does
The first person to stress test a founder's forecast is often an investor, in the meeting. It is better if it's you, or someone on your side, beforehand.
A checklist
- Opening cash matches the bank. Opening balances match your books.
- The balance sheet balances every month.
- Every new customer has a cause: a salesperson, marketing spend, or a named deal.
- Growth in revenue is matched by growth in the team or costs needed to deliver it.
- Gross margin looks like your actual margin, not a target.
- Cash timing reflects real payment terms, and collected sales tax is kept aside.
- Hiring plans include employer costs, not just salary.
- You can explain every major assumption in one sentence, and say where it came from.
- You know which three assumptions move runway the most.
Common mistakes
- Revenue as a percentage growth rate with nothing behind it.
- A hockey stick that starts next month.
- Hires that appear in the revenue logic but not in the cost plan.
- Treating revenue and cash as the same thing.
- Leaving out taxes, payment fees or employer payroll costs.
- Only one scenario.
- Building it once for a fundraise and never opening it again.
Keep it alive: compare, then roll forward
A forecast gets more useful each month you keep it. When a month closes, compare actual results against the plan line by line. The differences tell you which assumptions were wrong and by how much. Update those assumptions, move the forecast forward a month, and the next version is better than the last.
This monthly comparison, usually called variance analysis, is what turns a fundraising document into a tool you run the company with.
When to get help
Plenty of founders build their first forecast themselves, and it is worth doing once to understand your own business. Help makes sense when the forecast starts driving real decisions and nobody is checking it.
A spreadsheet on your own
Free and flexible. Nobody checks it, and it goes stale fast.
Self-serve forecasting software
Structure and checks without the cost of a person. June for founders builds the forecast with you, flags the risks and prepares you for investor questions.
See June for founders →A fractional CFO
An experienced person part-time, for when you need board reporting, fundraise support and someone accountable.
See fractional CFO →A full-time finance hire
Right once finance work fills a week, usually well after the first institutional round.
Build yours in one sitting.
June for founders walks you through every step on this page, then checks the result the way a CFO, a CPA and an investor would.