How to Build a Financial Model for Your Data Room

By Chang Xu, Basis Set Partner

What is the Best Way to Build a Financial Model?

Most financial models do founders a disservice. Some bury insight under layers of complexity. Others omit critical metrics, making it impossible to understand the business clearly. And many tell inconsistent stories, which can erode investor confidence.

When we help founders refine their models, we often surface insights that transform how they run their business. The best models are more than spreadsheets, they're narrative tools that support your pitch with concrete, relevant data.

Your model should tell a coherent story through numbers. By pulling accurate data from tools like Stripe, QuickBooks, and Amplitude, you can create a model that’s not only investor-ready, but also deeply clarifying for internal decision-making.

At the pre-seed stage, simplicity is fine: a clear view of headcount and burn is often enough. But by Series A — and certainly by Series B — you need a revenue model that demonstrates traction, product-market fit, and a clear path for how capital accelerates growth.

Want to build a model that does this? Let’s break it down — or jump to the end to grab our template.

📐 How Should You Structure a Financial Model?

We recommend using a 2x2 layout that puts the essential mechanics of your business on a single page:

• Top-left: revenue drivers (historical)
• Top-right: revenue drivers (forecast)
• Bottom-left: P&L (historical)
• Bottom-right: P&L (forecast)

This structure draws a clear line from past to future. Rather than relying on arbitrary growth rates, it breaks down growth into specific, operational inputs, allowing you to explain how it happens.

📈 What Revenue Drivers Should Be Included in Your Model?

Your financial model should reflect the core engine of your business. A few examples:

• Sales-led SaaS Product: Track new, churned, and ending logos. Then repeat for ARR — break down expansion, contraction, and net new ARR.
• Product-Led Growth (PLG) Freemium Product: Focus on user growth, free-to-paid conversion, ARPU, and churn.
• Marketing-Led Growth: Break down channels (organic, paid, influencer), expenses (ads, conferences, staff), and performance metrics (clicks, signups). From these, calculate CAC, LTV, and payback period.

These examples serve as a starting point. Your business may combine several approaches or follow a completely different model. Start by identifying your main revenue drivers, then break them down into measurable metrics. Tailor this framework to match your specific business model.

📊 How Should You Build and Refine the P&L?

A clean, accrual-based P&L provides investors with a true picture of operating health:

1. Use Accrual Accounting: Recognize revenue when earned (accrual-based), not when paid (cash-based).
2. Define COGS Clearly: For AI and infra-heavy companies, this matters more than usual. Include cloud infrastructure, model inference/training costs, APIs, and support costs (e.g., resolving tickets).
3. Break Out Sales & Marketing (S&M): Separate ad spend and GTM roles (SDRs, AEs, onboarding) to enable CAC and payback analysis.
4. Detail R&D: Capture engineering, product, and design headcount separately.
5. Clarify G&A: Group expenses into digestible categories for easier understanding and forecasting.

For AI companies using humans-in-the-loop, break out payroll by headcount or estimate the percentage of time spent on different tasks to properly allocate to the above categories.

Complete the picture by including operating income (from P&L), burn rate (from the cash flow statement), and key metrics like gross margin and burn multiple.

🔮 How Do You Set and Justify Forecast Assumptions?

Start with the "why" behind the numbers. Avoid lazy top-down assumptions like “5% MoM growth.” Instead, build from the bottom up: show how inputs like sales headcount or marketing spend lead to revenue.

Break down forecast assumptions into revenue drivers (e.g., marketing spend for a consumer company, sales headcount for an enterprise sales model) and supporting costs.

Set assumptions before creating line-by-line forecasts:

• Column C: State your forecasting assumption (such as percentage of revenue or dollars per headcount)
• Column D: Show historical performance for this metric
• Column E: Define next year's expectations realistically. For significant changes from historical performance, include explanatory notes (like "Expect retention to improve due to introducing lower tier price plan")

Assumptions are meant to highlight one’s thinking and are related to your strategy. This approach highlights your logic and makes tradeoffs transparent — such as prioritizing retention over ARPU, or focusing on organic channels to reduce payback.

You don’t need to be precise, especially for an early stage business. It is more important to be clear and internally consistent.

The result is a clear roadmap from current performance to next year's goals, complete with projected burn and runway.

📎 What Supporting Data Should You Include?

Investors will want to verify the core drivers behind your model. We have included two common examples in this model:

🧾 Enterprise Customers: Include a list of customers with monthly revenue to show:

• Upsells/expansions
• Contractions/churn
• Logo growth

👥 Headcount Plan: Show roles, departments, and compensation to align hiring with forecasts.

These tie your revenue and cost models to actual operational plans.

📏 Which Key Metrics Should Be Calculated From the Model?

For SaaS and subscription businesses, include these performance metrics:

• ACV Trends: Growth of average contract values over time, including expansions, contractions, and churn
• Unit Economics: CAC, payback, gross margin, LTV, LTV:CAC
• Retention Metrics: Revenue and logo retention, last 12 months vs by cohort. Each metric tells a different part of the story:
  • For example, last 12 months provides a snapshot of your overall churn and expansion; while cohort retention shows how newer cohorts are performing as your product, go-to-market, and onboarding improve.

Metrics only matter when contextualized with your strategy. For example, if your sales cycle is 30 days, match new ARR to last month’s S&M spend. If your sales cycle is 90 days, align this quarter’s new ARR to last quarter’s S&M spend. These metrics help investors evaluate your scalability and health.

Financial Model Completion Checklist

Use this checklist to confirm your financial model is fundraise-ready:

• ✅ Revenue built from clear drivers, such as logos, ARR, or users
• ✅ Accrual-based P&L with clean cost categories
• ✅ Assumptions are stated and justified
• ✅ Customer-level revenue data included
• ✅ Hiring plan matches forecast
• ✅ Key metrics: CAC, LTV, payback, retention, and ACV trends

Download the Financial Model Template

Use this open-source spreadsheet to get started:

👉 Basis Set Financial Model Template

🧠 Frequently Asked Questions

Does My Pre-seed/Seed/Series A Stage Company Need a Financial Model?

For early-stage startups, especially at the pre-seed level, it’s perfectly acceptable to keep things simple — often a well-reasoned headcount plan and a clear handle on burn are enough. But as you approach Series A, and especially by Series B, expectations shift. Investors will expect a revenue model that not only signals product-market fit and early traction, but also quantifies how additional capital will drive meaningful growth.

How Detailed Should Forecasts Be?

For early-stage startups, monthly forecasts covering the next 12–24 months are usually sufficient. Key scenarios:

• Pre-revenue: A simple model is fine — focus on who you plan to sell to and how you’ll charge them.
• Some revenue: If you have 12 months of revenue, monthly projections for the next 12–24 months are reasonable.
• Longer revenue history: You can support a longer-range forecast if your past performance justifies it.
• Big shifts: If you're making a major shift (e.g., pricing, GTM, customer segment), call it out clearly and show how it impacts the numbers.

Ultimately, investors aren’t looking for precision, they’re looking for clarity of thought. A good model reflects your reasoning, not just your spreadsheet skills. Prioritize logic over complexity.

Can You Use Your Accountant’s Financial Model?

You can use a model built by your accountant, but do so with caution. These models are often complex and have many tabs. Investors aren’t looking for every journal entry or sensitivity analysis. What matters is your clear understanding of the business: the key drivers, assumptions, and tradeoffs.

If you rely on your accountant’s model, review it thoroughly. You need to own the numbers and be able to explain them with conviction. We’ve seen models that simply project 10% MoM growth or assume CAC drops sharply without explanation. Others calculate LTV over multiple time horizons (6, 12, 24, 36 months) but offer no clarity on which one reflects the real business case. Don’t let the model speak for you, make sure it reflects your story.

Should You Convert Cash-Based P&Ls to Accrual?

Yes — especially if you collect upfront payments (e.g., annual or quarterly plans). A cash-based or mixed P&L can distort your financial picture by pulling revenue forward, making metrics like gross margin, payback period or burn look artificially strong. Accrual accounting aligns revenue with service delivery and gives investors a clearer view of true operating performance.

If there’s a meaningful gap between your cash-based and accrual-based results, show both for cash-related metrics like payback period. This lets you present an honest apples-to-apples comparison and highlight your capital efficiency driven by upfront cash collection.

To clarify, net burn and burn multiple are, by definition, cash-based metrics. For simplicity, they're forecasted the same as net income in this template. Feel free to make adjustments if your burn differs significantly from net income.

What Else Should Be in Your Data Room?

Besides your financial model, include:

• Product engagement data
• Product demo or walkthrough
• Marketing performance metrics
• Sales related collateral
• Customer call recordings
• Pitch deck
• Cap table

These materials help investors validate assumptions and product traction.

Can This Model Be Used for Internal Planning?

Absolutely. Many founders use this as their core operating model. It helps align hiring, budgeting, and strategy as you scale.

🎯 In Closing

Your financial model should do more than survive diligence, it should strengthen your story and ultimately your business.

By structuring your model around history, forecasts, drivers, and metrics, you’re crafting a narrative tied to your views on strategy and approach — one that investors can trust, replicate, and validate.

Founders often build their first model under pressure, while juggling a dozen tasks fundraising. This template turns that chaos into clarity. It’s fast, flexible, and built for how real startups operate.

If you’ve extended or improved this model, send it our way. We'll feature the best ones for others to learn from too.

Thanks to Kareem Khattab (Entendre), Michael Tam (AngelList, ex-Craft), Richard Zhang (Solvely) and Tim Paris (Dataro) for their thoughtful comments!