business
Financial Model
Build financial models for business cases — with revenue projections, cost structures, unit economics, DCF analysis, and scenario modeling that make assumptions explicit and outcomes testable.
financemodelingDCFunit-economicsprojectionsbusiness-case
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financial-model/
SKILL.md
Markdown| 1 | |
| 2 | # Financial Model |
| 3 | |
| 4 | ## Before you start |
| 5 | |
| 6 | Gather the following from the user. If anything is missing, ask before proceeding: |
| 7 | |
| 8 | 1. **What is the business case?** (New product launch, expansion, investment decision, fundraising) |
| 9 | 2. **What is the time horizon?** (12 months, 3 years, 5 years) |
| 10 | 3. **What is the revenue model?** (Subscription, transactional, marketplace, usage-based, hybrid) |
| 11 | 4. **What are the key cost drivers?** (Headcount, infrastructure, CAC, COGS) |
| 12 | 5. **What assumptions exist?** (Growth rates, conversion rates, churn, pricing, market size) |
| 13 | 6. **Who is the audience?** (Board, investors, internal leadership, lending institution) |
| 14 | |
| 15 | 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. |
| 16 | |
| 17 | ## Financial model template |
| 18 | |
| 19 | ### 1. Assumptions Table |
| 20 | |
| 21 | List every assumption explicitly. Each must have a source and confidence level. |
| 22 | |
| 23 | ``` |
| 24 | | Assumption | Value | Source | Confidence | |
| 25 | |--------------------------|-----------|------------------------------|------------| |
| 26 | | Monthly growth rate | 8% | Last 6 months average | High | |
| 27 | | Gross margin | 72% | Current P&L | High | |
| 28 | | CAC (blended) | $340 | Marketing spend / new custs | Medium | |
| 29 | | Monthly churn rate | 3.2% | Cohort analysis (Q3-Q4) | High | |
| 30 | | Average contract value | $1,200/yr | Sales data | High | |
| 31 | ``` |
| 32 | |
| 33 | Rules: assumptions with "Low" confidence must appear in sensitivity analysis. Never bury assumptions inside formulas. |
| 34 | |
| 35 | ### 2. Revenue Projections |
| 36 | |
| 37 | Build revenue bottom-up from unit economics, not top-down from market share. |
| 38 | |
| 39 | ``` |
| 40 | | Metric | Month 1 | Month 6 | Month 12 | Month 24 | Month 36 | |
| 41 | |---------------------|----------|----------|----------|----------|----------| |
| 42 | | New customers | 50 | 85 | 145 | 310 | 525 | |
| 43 | | Churned customers | 8 | 22 | 48 | 95 | 155 | |
| 44 | | Active customers | 200 | 420 | 780 | 1,650 | 2,850 | |
| 45 | | ARPU (monthly) | $100 | $105 | $112 | $120 | $128 | |
| 46 | | MRR | $20,000 | $44,100 | $87,360 | $198,000 | $364,800 | |
| 47 | ``` |
| 48 | |
| 49 | Show the formula for each row. MRR = Active customers x ARPU. Active customers = prior active + new - churned. |
| 50 | |
| 51 | ### 3. Cost Structure |
| 52 | |
| 53 | Break costs into fixed and variable. Variable costs must link to a driver. |
| 54 | |
| 55 | ``` |
| 56 | | Cost Category | Type | Driver | Month 1 | Month 12 | Month 36 | |
| 57 | |--------------------|----------|--------------------|----------|----------|----------| |
| 58 | | Engineering team | Fixed | Headcount plan | $85,000 | $120,000 | $200,000 | |
| 59 | | Cloud infra | Variable | Per active customer| $4,000 | $15,600 | $57,000 | |
| 60 | | Sales & marketing | Variable | CAC x new custs | $17,000 | $49,300 | $178,500 | |
| 61 | | G&A | Fixed | Baseline ops | $15,000 | $22,000 | $35,000 | |
| 62 | ``` |
| 63 | |
| 64 | ### 4. Unit Economics |
| 65 | |
| 66 | ``` |
| 67 | | Metric | Current | Month 12 | Healthy Benchmark | |
| 68 | |--------------------------------|---------|----------|-------------------| |
| 69 | | CAC | $340 | $340 | < LTV/3 | |
| 70 | | LTV (gross margin / churn) | $2,250 | $2,625 | > 3x CAC | |
| 71 | | LTV:CAC ratio | 6.6x | 7.7x | > 3x | |
| 72 | | CAC payback (months) | 3.4 | 3.2 | < 12 months | |
| 73 | | Gross margin | 72% | 74% | > 65% (SaaS) | |
| 74 | ``` |
| 75 | |
| 76 | Flag any metric outside healthy benchmarks. If LTV:CAC is below 3x, the business case is weak regardless of revenue projections. |
| 77 | |
| 78 | ### 5. Scenario Analysis |
| 79 | |
| 80 | Model three scenarios minimum. Vary the assumptions with lowest confidence. |
| 81 | |
| 82 | ``` |
| 83 | | Metric (Month 36) | Bear Case | Base Case | Bull Case | |
| 84 | |---------------------|------------|------------|------------| |
| 85 | | Growth rate | 5%/mo | 8%/mo | 12%/mo | |
| 86 | | Churn rate | 4.5% | 3.2% | 2.0% | |
| 87 | | Active customers | 1,400 | 2,850 | 5,200 | |
| 88 | | ARR | $2.15M | $4.38M | $7.98M | |
| 89 | | Cash position | -$800K | $1.2M | $4.5M | |
| 90 | ``` |
| 91 | |
| 92 | 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. |
| 93 | |
| 94 | ### 6. Cash Flow and Runway |
| 95 | |
| 96 | 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. |
| 97 | |
| 98 | ## Quality checklist |
| 99 | |
| 100 | Before delivering a financial model, verify: |
| 101 | |
| 102 | - [ ] Every number traces to a named assumption with a source |
| 103 | - [ ] Revenue is built bottom-up from unit economics, not top-down from TAM |
| 104 | - [ ] Cost structure separates fixed from variable with explicit drivers |
| 105 | - [ ] Unit economics include LTV, CAC, LTV:CAC ratio, and payback period |
| 106 | - [ ] At least 3 scenarios are modeled with named assumption changes |
| 107 | - [ ] Cash flow projection includes runway calculation |
| 108 | - [ ] The model audience (investors, board, internal) is reflected in the level of detail |
| 109 | |
| 110 | ## Common mistakes |
| 111 | |
| 112 | - **Top-down revenue.** "We will capture 1% of a $10B market" is not a model. Build from units: customers x price x retention. |
| 113 | - **Static assumptions.** Growth rates, churn, and costs change over time. A model with constant 10% monthly growth for 5 years is fantasy. |
| 114 | - **Ignoring cash timing.** Revenue recognized is not cash received. Annual contracts paid monthly and net-60 invoices create cash gaps the P&L hides. |
| 115 | - **Single scenario.** One projection is a guess. Three scenarios with named variables show you understand the risk space. |
| 116 | - **Vanity unit economics.** Calculating LTV with gross revenue instead of gross margin inflates the numbers. Use gross-margin-based LTV. |
| 117 | - **Missing the "so what."** A model without a recommendation is a data dump. State the decision it supports. |
| 118 |