The hardest part of building a financial model isn't the math. It's starting. A blank spreadsheet with infinite flexibility is paralyzing. You don't know where to begin, what to include, or how to structure it. Most founders either spend weeks building something overly complex or avoid the whole thing until a board meeting forces their hand.
There's a better approach: start with structure, then add detail.
Step 1: Lock in your business type
The first decision in any financial model is what kind of business you're modeling. A SaaS company has fundamentally different revenue mechanics than a marketplace, a professional services firm, or a land development project. The revenue drivers, cost structure, and key metrics are all different.
Choosing your business type isn't just an organizational decision — it determines which inputs matter. A SaaS model needs monthly recurring revenue, churn rate, and customer acquisition cost. A marketplace model needs GMV, take rate, and buyer/seller acquisition costs. Starting with the right template means you're building on a structure that matches your actual business.
Step 2: Set your acquisition assumptions
Once you have your business type, the most important inputs are your acquisition assumptions: how many new customers do you expect to acquire each month, and what does it cost to acquire them? These numbers drive everything downstream — revenue, burn rate, runway.
Don't spend too long trying to get these perfect. Use your best current estimate and build the model. You can refine the assumptions later. The goal at this stage is to get a working model, not a perfect one.
Step 3: Build your cost structure
Costs fall into two buckets: the cost of delivering your product or service (COGS), and your operating expenses (sales, marketing, R&D, G&A). For most early-stage companies, the biggest cost is headcount — so your staffing plan is the most important part of your expense model.
Add your current team members with their actual salaries. Then add the roles you plan to hire over the next 12–18 months with estimated start dates and compensation. This gives you a projected burn rate that reflects your actual hiring plan, not just your current expenses.
Step 4: Review your outputs
Once you have acquisition assumptions, pricing, and a cost structure in place, your model will generate a projected income statement, cash flow statement, and key metrics like runway, burn rate, and LTV:CAC ratio. Review these outputs critically.
Does the revenue trajectory look realistic given your acquisition assumptions? Does the runway calculation match your intuition about how long your current cash will last? If something looks off, trace it back to the input that's driving it.
What to do after you have a working model
A working model is a starting point, not a finished product. Once you have the structure in place, the next step is to build scenarios — optimistic, base, and pessimistic — so you understand the range of outcomes your business might face.
Then update it monthly. Close your books, compare actuals to projections, and update your forward assumptions based on what you're learning. A model that gets updated regularly is a decision tool. A model that gets built once and forgotten is just a document.
Horizon's guided setup walks you through each of these steps in sequence, with explanations of each input and its downstream impact. You can have a working model in under 30 minutes.
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A financial model is a chain of connected assumptions. Here's how the pieces connect — from customer acquisition all the way down to your bottom line.