How to Build Your First Financial Model

A financial model is not a prediction — it is a structured set of assumptions that generates a financial picture of your business at different levels of performance. The model's value lies in the assumptions and the logic connecting them, not in the output numbers themselves. Investors spend more time interrogating your assumptions than reading your projected revenue. Step-by-step guide to building a 12-month model in Google Sheets: Tab 1 — Assumptions: list every assumption in one place. Revenue assumptions: pricing per unit/customer, number of customers in month 1, monthly customer growth rate, churn rate. Cost assumptions: fixed costs (salaries, rent, SaaS subscriptions) and variable costs (cost per unit sold, agent commissions, delivery costs). Headcount plan. Funding assumptions (when investment arrives and how much). Tab 2 — Revenue Model: for each revenue stream, calculate monthly revenue as (price × volume). If you have multiple customer segments or products, model each separately. Link all inputs to the Assumptions tab. Tab 3 — Cost Model: separate fixed costs (same regardless of volume) from variable costs (scale with revenue or units). Labour is almost always the largest cost line — build a headcount plan with salary, tax, and benefits per person. Link variable costs to revenue drivers on the Assumptions tab. Tab 4 — P&L (monthly): revenue minus costs equals EBITDA (earnings before interest, tax, depreciation, and amortisation). Add depreciation and interest to reach net profit/loss. Tab 5 — Cash Flow: start with opening cash balance, add operating cash flow (broadly: net profit plus non-cash charges minus working capital movement), subtract capital expenditure, add fundraising proceeds. Closing cash balance must never go negative — if it does, you need to raise more, cut costs, or grow faster. Tab 6 — Three scenarios: copy the model into conservative, base, and optimistic versions. In conservative, assume 50% of base case growth; in optimistic, assume 150%. The range tells investors how sensitive your model is to growth rate assumptions — critical in early-stage African markets where growth is genuinely uncertain. Common modelling mistakes: confusing revenue with cash (revenue recorded when earned; cash arrives when paid); not modelling working capital (a business that grows fast and has 60-day customer payment terms will run out of cash even if profitable); and setting growth rates that are not grounded in any observable market data. --- *Track 1 — I am just starting out · Foundations of Finance · Article 28.* Browse related [funding opportunities](/opportunities) on MaxWith filtered to your country and sector.