How to Build a Financial Plan for a Startup Business

Know thy financial plan, know thy business.

If you can’t build a strong financial plan, it’s unlikely you’ll ever build a strong business.

But given its importance, I’m always surprised how little attention it gets from new founders and CEOs that join Highland. “Isn’t that something finance does?” Oh god no.

Running your startup without a strong financial plan is like flying a plane without an instrument panel. You’re leaving too much up to chance. Yes, you can have your finance person or accountant help you manage it, but you need to own the process as the leader of the business. Anything less is irresponsible. Especially if you’ve taken money from investors or a bank.

In this article I’m going to explain what a startup financial plan is, who’s involved in the process and how to build one. This information will be helpful for newbies and seasoned operators alike. I’ve included nuanced tips learned over 20+ years of running companies. Let’s dive in…

Key Takeaways:

• A startup financial plan is your operating roadmap for the next 12 months
• It forecasts revenue, expenses, profit, and cash so you can make better decisions
• The plan is built bottoms-up, from drivers and assumptions, not guesswork
• The CEO owns the plan. Finance & Ops support it.
• Update the plan monthly with actuals (forecast vs. actuals)
• Cash planning matters as much as profit for startups
• Strong planning improves alignment between leadership, the Board, and investors

What is a financial plan for a startup business?

A financial plan is a detailed roadmap (typically a spreadsheet) that models the financial outcomes your startup expects to achieve over a 12-month period. It forecasts revenue, expenses, profit and cash flow for the fiscal year, then breaks it into months and quarters. Most founders build it in Google Sheets or Excel.

I like to think of the financial plan as a “numerical map” that charts your path to success. It’s a critical part of the strategic planning process, and arguably, the most important tool a CEO has to manage day-to-day operations.

It also deepens your understanding of the business. If the financial plan is one big formula for success, the planning process forces you to understand and optimize every variable in that formula. This gives you command over your business. That should be the goal of any great operator.

For startups, the financial plan is a survival tool

The golden rule of startups is to not run out of money. Every startup CEO I’ve ever worked with knows their cash runway down to the month (how many months they have until the company runs out of money). The financial plan allows you to model cash runway with precision. It keeps you honest about cash burn and if you’ll need to raise money from investors or secure a loan from a bank.

If you decide to raise money from investors, the financial plan is used to explain the business model to prospective investors and how you plan to use the funds. I maintain a “base case” model (what the business looks like without investment coming in), and an investor model (what the business looks like with investment coming in). This way you can show the acceleration to prospective investors (i.e. why you want to raise money), without screwing up the base case financial plan you need to manage the current reality of the business.

Need help with your company's financial plan? I created an hour-long masterclass that goes through every step of the process in detail. It also includes a financial planning template you can use. It's available through Highland Academy (just start a one-week free trial to access). 

The 5 Building Blocks of a Startup Financial Plan

While every company is unique, the best financial plans for a startup business share similar building blocks. I use five in every plan I build:

1. Summary

What: The summary rolls up your three core forecasts (revenue, expense, profit/cash) into one view. It includes important health metrics for your business. You should get an excellent understanding of the plan by looking at this tab alone.

Details:

• Profit & Loss summary
• Cash flow & cash balance summary
• Health Metrics (including unit economics)

Health metrics measure the health of your business. I always include unit economics here. These isolate a single unit (or customer) and measure profitability, payback and lifetime value.

2. Goals, Drivers & Assumptions

What: This section includes the company’s goals for the year (priorities), the key drivers of the model, and any assumptions you’re making. Critical for your Board to understand the context behind your forecasts.

Details:

• Goals: The top three priorities for the year. The financial plan should align with, and resource these priorities. This adds strategic context to the plan. Goals must ladder up: Goals → Strategy → Vision. If your goals don’t support your strategy, something’s broken.

• Drivers: The key variables that feed your forecasts. Examples: number of qualified leads, pricing, sales win rate, number of sales reps, customer retention.

• Assumptions: The numerical estimate of each driver in the financial plan. Example: Sales win rate = 30% for the year. “Sales win rate” is the driver. 30% is the assumption.

3. Revenue Forecast

What: A projection of how much revenue your startup expects to generate in the next fiscal year, broken by quarter and month. If you have multiple revenue types, include a forecast for each.

Details:

• Total revenue by year, quarter and month
• Broken out by revenue type (subscription, transaction, service, etc.)
• Basis of estimate (how you got there)

4. Expense Forecast

What: A detailed estimate of all expenses. Two main buckets: Cost of Goods Sold (COGS) and Operating Expenses. COGS is the direct costs of delivering your product or service. Operating Expenses are ongoing costs to run the business: sales & marketing (S&M), research & development (R&D) and general & administrative (G&A).

Details:

• Total expense by year, quarter and month
• Broken out by expense type (COGS & Operating Expenses)
• Basis of estimate (how you got there)
• Headcount table (models total headcount, including anticipated hires)

5. Profit & Cash Forecast

What: The final forecast has two parts: profit and cash. The profit forecast is the difference between your revenue forecast and your expense forecast. The cash forecast projects your cash flow and cash balance.

Details:

• Profit by year, quarter and month
• Cash flow by year, quarter and month
• Cash balance by year, quarter and month
• Runway calculation (months of cash remaining)

Financial Plan Focus (Startups vs. Mature Companies)

Startup companies have a different focus than mature companies when building and managing their financial plan. Startups ($0-$10M) and Scale-ups ($10-$100M) focus on growth, defining unit economics, hiring responsibly and extending cash runway. Mature companies ($100M+) still do those things, but focus more on creating predictability in the business and optimizing their profit margins.

STARTUP FOCUS	MATURE COMPANY FOCUS
Cash runway	Margin optimization
Growth & Investment	Profit & Predictability
Hiring plan tied to cash levels	Hiring plan tied to budget cycles
Cash infusions	Cash distributions
Unit economic clarity	Unit economic steadiness

When to build your financial plan

A financial plan for a startup business typically cover a 12-month period that aligns with your fiscal year (usually January through December). You start building next year’s financial plan at the end of the current year. Then start executing against it on the first day of your fiscal year. Here’s the high-level schedule:

• Year 0: Sept – Dec – start building next year’s financial plan 
• Year 1: Jan – Dec – execute against the financial plan throughout the year 
• Year 1: Sept – Dec – start building next year’s financial plan 
• Repeat 

But it’s never too late. If you’re midway through the year, build a plan for the remaining months. Then create a fresh 12-month plan for the following year.

Rolling financial plans (advanced)

More advanced operators use a “rolling financial plan” that forecasts the next 24-36 months on a rolling basis. As you complete a month and update actuals, you forecast a new month on the back end. This gives continuous visibility into the future.

But I’d recommend nailing your 12-month financial plan first, then advancing to a rolling 24-36 month forecast. The building blocks between the two are exactly the same. The difference is simply the length of visibility into the future.

Who’s involved in your financial plan 

The financial plan should be owned by the CEO. You’re accountable to the forecast and results that follow. But you need input from leaders across the company. The revenue drivers, assumptions and forecasts must include input from the head of sales and head of marketing. Why?

• They are closest to the numbers
• They will be responsible for results 
• They need to be bought-in to the plan
• They need to believe the plan is achievable

Finance plays the biggest role, but here’s each role and how they contribute:

1. CEO: Deeply involved in building and managing the financial plan, and owns results
   
2. Head of Finance: Helps build and manage the plan throughout the year.
   
3. Head of Ops: Contributes to company-wide goal-setting process, which feeds the key drivers and assumptions in the financial model. Ops often acts like a liaison between the key internal stakeholders (marketing, sales, product, engineering) and finance.
   
4. Sales and Marketing leadership: Contributes and agrees to pipeline & bookings assumptions for the year (this part of the plan is often called the “capacity model”)
   
5. Account Management or Customer Success leadership: Contributes and agrees to retention assumptions for the year.
   
6. Product and Engineering leadership: Contributes to headcount and product delivery milestones, with associated assumptions
   
7. Board of Directors: Reviews & approves on or around January 1st.

Many startup companies require the Board of Directors to sign off on the annual financial plan, especially if the company has raised money from investors, or taken money from a bank. Here’s the process I recommend:

1. Preview next year’s goals with Board & seek feedback (November)
2. Send near-final financial plan for review & feedback (December) 
3. Incorporate December actuals (first week in January)
4. Send for final approval (first or second week in January)

Note: This assumes your fiscal year is January through December. Adjust accordingly if not.

Updating Plan vs. Actuals:

A financial plan starts as a 12-month forecast. Then, as you close out each month and quarter, your team updates the plan with your actual results (called “actuals”) and compares them to your original forecast. As a rule, you want your actuals to beat your original plan. This means you and the team are exceeding expectations.

It’s common to have several people closing the books each month and inputting actuals. But less is more. You want a small group of trustworthy people (or automations) updating the plan to avoid mistakes and broken formulas.

Here’s the system I use:

🟢 = Achieved (actuals exceeded forecast) 

🟡 = Slight Miss (actuals missed forecast by 10% or less)

🔴 = Miss (actuals missed forecast by over 10%)

Use conditional formatting so the “Delta %” cells automatically turn color based on grade.

Delta % = (Actuals – Forecast) ÷ Forecast × 100

In this example, you can see that our actuals for subscription revenue beat the original forecast by 13%. But, our actuals for both transaction fee revenue and service revenue missed the forecast. Still, we beat our total revenue forecast by 2% because subscription revenue was so strong.

Misses happen. Grade yourself honestly.

Ready to build your own financial plan? I've created a comprehensive template that includes these building blocks, plus a 60-minute video walking you through each component. It's available inside Highland Academy (grab your 7-day free trial and download it today).

How to make a financial plan for a startup business

Most financial plans are built in spreadsheet software. I prefer Google Sheets because it’s easier to share and collaborate with my leadership team and Board. Google Sheets used to have limitations, but I don’t find any serious functionality missing anymore.

I. Tab Structure

Let’s start with the tab structure. I like to organize my financial plan in a way that mirrors the 5 building blocks. Here’s my usual set up: 

• Tab 1: Summary (incl. forecast vs. actuals)
• Tab 2: Goals, Drivers, Assumptions
• Tab 3: Revenue Forecast
• Tab 4: Expenses Forecast 
• Tab 5: Profit & Cash Forecast 
• Tab 6-X: Supporting tabs

Here’s what this looks like:

The Summary tab rolls up your three core forecasts (revenue, expense, profit/cash), and includes your forecast vs. actuals comparison. It also includes important health metrics for your business. I like to track key metrics across customer acquisition and customer retention, at a minimum. For example, in B2B SaaS, acquisition health metrics could include:

EXAMPLE HEALTH METRIC	WHAT IT MEASURES
Win Rate	Percentage of deals that close successfully.
Average Deal Size	Monitors the value of each sale to assess revenue potential.
CAC Payback Period	How long it takes to recoup acquisition costs (sales & marketing costs) on a per unit basis

Supporting tabs are used for inputs to your core forecasts. You could have zero or ten. Depends on complexity. If the models are remotely complex, put them on separate tabs to keep the core forecasts clean.

For example, at my company Classy (acquired by GoFundMe in 2022), our Revenue Forecast had these supporting tabs feeding into it:

1. Sales capacity model – forecasted leads, pipeline & sales bookings at the rep level 
2. Transaction volume model – forecasted transaction volume across the platform
3. Retention model – forecasted customer retention and customer expansion 

Then I use the outputs from each of these tabs to build the Revenue Forecast (like variables in a formula).

Revenue Forecast = Outputs from (sales capacity model + transaction volume model + retention model).

Every company will have unique supporting tabs. But they all feed the three core forecasts.  

II. Columns & Time Periods

At the highest level, your financial plan should forecast your fiscal year (a 12-month period). But you also need to break down the annual forecast into quarters and months.  

This means that when you’re building out the financial plan (and each tab within), you’ll need columns for each quarter (Q1 + Q2 + Q3 + Q4) and each month (Jan, Feb, Mar, etc.). Each quarter is the sum of the three months within it (i.e. Q1 = Jan + Feb + Mar) and each year is the sum of the four quarters within it (i.e. Y1 = Q1 + Q2 + Q3 + Q4). 

Then you roll things up on the Summary tab so you can see your forecast for P&L, Cash and Health Metrics by quarter and month, all in one place. 

Since you’ll be adding actuals on the Summary tab, you’ll want to make columns for those too. This allows you to compare your forecast vs. actuals across any month or quarter, and see the year-to-date (YTD) annual summary.

Here’s how the columns look on my Summary tab. We’ll use ‘Q1’ as an example for the time period, but you’d have these same four columns for every month and quarter throughout the year: 

• Q1 Original Forecast, abbreviated as Q1 (F)
• Q1 Actuals, what actually happened, abbreviated as Q1 (A)
• Q1 Delta Percent, abbreviated as Delta %
• Q1 Year-over-Year Percent, abbreviated as YoY %

Here’s what it looks like in Google Sheets:

Delta % takes the percent difference between the forecast and actuals. Sometimes this is called Variance %, or Var %. Either way, use the following formula to calculate:

Delta % = (Actuals – Forecast) ÷ Forecast × 100

So, if your Q1 revenue forecast was $800,000, and your Q1 revenue actuals came in at $814,000, your Delta % would look like this:

(814,000 – 800,000) ➗ 800,000 x 100 = 2%

Year-over-Year Percent calculates the percent difference between actuals this year and actuals last year during the same period. So, in this example, it would be Q1 this year vs. Q1 last year. This lets you see annual growth across any metric. To calculate, use this formula

(Q1 Actuals This year – Q1 Actuals Prior Year) ➗ Q1 Actuals Prior Year

So, if your Q1 revenue actual for this year was $814,000, and your actual for last year was $506,000, your YoY % would look like this:

(814,000 – 506,000) ➗ 506,000 x 100 = 61% year-over-year growth

Want to see this in action? I've recorded a screen-share session where I go through an actual financial plan for a growing startup. I walk through each tab and column structure, and how to manage your plan correctly. It's one of our most popular resources in Highland Academy (free trial available).

III. User Experience

I treat my financial plan like a product – placing high importance on the user experience (UX). Why? Because the financial plan isn’t just for you. It’s a powerful tool that should be leveraged across your leadership team and Board of Directors (at minimum). So, if a stranger can’t figure out how to navigate it, or how you calculated things, it becomes far less effective. And, if you share a sloppy financial plan with your team, Board or investors, it sends a negative signal about your ability to operate the company. 

Here are a couple of design ideas to ensure your financial plan is top notch:

1. Keep each tab clean – Make sure each tab has a clear purpose, the structure is easy to follow and the contents aren’t too long. I like to color my tabs so its even easier for someone to navigate and understand importance. I color tab 1 and 2 in one color. Then tabs 3 through 5 in another color. Then all supporting tabs I keep in neutral gray. This tells someone which tabs go together and which ones are most important to view (the first two, then middle, then last).
   
2. Don’t ignore formatting – It may sound trivial, but spreadsheet formatting is quite important for legibility and navigation. Less is more here. You don’t want to over-design your spreadsheet with a bunch of fancy stuff. You want things clear and concise. Make sure the font is easy to read and the important columns and rows are well defined. There’s also some nice templates you can find for Excel and Google Sheets. Ditch the structure of the template, but keep the formatting you like.
   
3. Don’t hard code numbers – Most cells in the model will have formulas that pull from somewhere else. There’s nothing more annoying (and amateurish) than removing the formulas, or typing numbers directly into a cell after calculating them elsewhere. The formulas make up the logic of the model. If you remove the formulas, an external viewer will have no idea where the numbers come from.

How to manage a financial plan 

First you create your financial plan, seek approval (if needed) and launch at the beginning of your fiscal year. Then you manage your plan throughout the year which includes updating actuals, communicating results and sometimes a re-forecast.

The monthly rhythm looks like this:

1. Enter actuals into your Summary tab
2. Identify variances and find root causes
3. Review with leadership team
4. Create action plan to correct
5. Incorporate what works into your company

This process forces discipline. Do it every month without fail.

i. Setting the right expectations

Most leaders miss their forecasts because of one simple fact – the numbers were never realistic in the first place! But how can this be? 

• The leader is overly confident and aggressive;
• The leader doesn’t understand their business well enough; 
• The leader caved to pressure by the Board and/or investors. 

All three scenarios lead to big misses throughout the year, and a cycle of low confidence and morale throughout the organization. And when the wind comes out of the sails, it’s hard to get it back.

One of the concepts I teach in my founder & CEO program, Highland, is this idea of “calling your shot and hitting it”. This is a cultural mindset that the leader must instill across the organization. When all teams continuously hit their forecasts, trust goes up and momentum flows across the organization. 

This doesn’t mean sandbagging everything. But, forecasts should be credible and conservative. Something you and the team can actually achieve and are expected to hit. Misses will still happen, but they will be smaller.

Speaking of misses. Do you notice anything weird about the misses in this example?

Take a look at the year-over-year percent column. The highest revenue growth area was transaction fee revenue (a good thing!); yet, this is the one that had the largest miss. Strange. This tells me that the forecast for this particular line item was too aggressive to begin with. The other two line items were forecasted to grow 50-60% year-over-year, but we were forecasting transaction fees to grow by 100% year-over-year! It’s ok to be more bullish in one area over the next. But in this case, based on the results, it looks like we should have been more conservative in our transaction fee forecast.

ii. Missing small, not big

When you do miss, you want to “miss small” so it’s easier to recover. This means missing by less than 10%, or missing a smaller component of the forecast, but still hitting the important top line components (revenue, expense, profit, cash).

At Classy, this could mean hitting our revenue forecast by beating subscription revenue yet missing transaction revenue (Classy is a B2B SaaS company). This is similar to the example I showed above. The most important thing is hitting revenue overall, but it still means we would have work to do in the area we missed. This scenario would be considered “missing small”. 

“Missing big” would be missing your top line numbers by over 10%. If you miss big in any month or quarter, it’s harder to recover and still hit your annual numbers. This is why it’s important to reduce the variance of your misses across the board. Miss small and you can still recover the next month or quarter and have a great year! 

But the key with any miss – big or small – is to a) own it, and b) ensure you and the team are learning from it and responding. If you missed your forecast one month or quarter, you should try to fix that area by the end of the next period. If you adopt this mentality, you’ll drive continuous improvement and put yourself in a great position to hit your annual numbers by the end of the year. 

iii. Financial Plan “Outlook”

If you ever listen to a public company earnings call, you’ll often hear the CEO or CFO talk about the “outlook” for the next quarter or full year. An outlook is an updated projection for some future period (typically the full year or a future quarter). It’s not a formal change to financial plan, it’s updated guidance based on what’s happened so far, and what you see happening for the rest of the year.

The outlook combines year-to-date (YTD) actuals with a view on how the future period(s) will turn out. You should have a new outlook for revenue, expenses, profit and cash after each quarter closes. For example, you might say something like this:

“After seeing Q2 profit, our outlook for the rest of the year has increased by 10% compared to our original profit forecast.”

This means that the company expects profit to be 10% higher for the year because of the strong results in Q2 and their view of what Q3 & Q4 will produce.

iv. Financial Plan “Re-forecast”

A re-forecast, on the other hand, is a formal change to the original financial plan. It signifies that the original numbers can not be hit and the company needs a new baseline to operate to. If the financial plan was originally approved by the Board of Directors, then a re-forecast likely needs a second approval. Here are a few scenarios where it might make sense:

• Significant underperformance – your actuals were significantly off from the original forecast.
• Market changes – something fundamental changes in the market.
• Strategy change – the priorities (company goals) change and you need to pivot.

To be clear, all three of these scenarios are rare and should not be taken lightly. You never want to move the goal posts just to manufacture success. But if you must proceed with a re-forecast, here are a couple tips:

1. Never delete the original forecast. List your re-forecast next to the original in the financial plan.
2. Communicate the ‘why’ behind the re-forecast very clearly to your team and Board;
3. If your annual goals changed, make sure the re-forecast aligns with these new goals;
4. Look carefully at your expenses and consider cuts. Re-forecasts usually signal trouble.
5. Adjust company-wide bonus structure to align with the re-forecast numbers.

The better you get at “calling your shot” for the year, the less likely a formal re-forecast becomes. Keep your forecast conservative and build momentum across your organization month by month and quarter by quarter. Let your small wins compound over time and watch the magic happen!

Want personalized feedback on your financial plan? Highland members get access to live office hours where we review each other's financial plans. Plus you'll join a community of 100+ founders & CEOs, all building their companies together. Learn more about Highland membership or start with Highland Academy's free trial.

Frequently Asked Questions

What’s the difference between a financial plan and a budget?
A budget is an expense plan with a spending limit. A financial plan is a complete model of your business: revenue, expenses, profit, and cash. Budgets are a subset of the expense portion of your financial plan. They tell you (and each department) how much to spend.

How do I forecast revenue when I’m pre-revenue?
Work backwards. What’s your target revenue? How many customers does that require? What’s your expected sales cycle? Model the funnel. Your assumptions will be off, but now you have a framework to test and improve.

What financial planning software should startups use?
I default to simple. Use Google Sheets or Excel. They’re sufficient for a long time. But keep your accounting in QuickBooks or another tool as you grow.

When should I hire a CFO or Head of Finance?
Most startups need fractional CFO help around $1M ARR, and a full-time finance lead around $3-5M ARR. Before that, the CEO should own the financial plan with bookkeeping support.

How do I plan for fundraising in my financial model?
Maintain two scenarios: base case (no new funding) and funded case (with investment). Start fundraising at 12-18 months runway (if possible). Model 6 months for the process. Show investors the acceleration difference between scenarios.

Should I share my financial plan with employees? Not the full file (it contains salary data and is too complex to digest), but share elements of the Summary tab with your team. I pull the important metrics from the Summary tab (including forecast vs. actuals) into a company-wide dashboard for easy sharing. Transparency builds trust, and context drives stronger performance.

How do I model unit economics for my startup? Unit economics measure profitability at the individual customer or transaction level – essentially, do you make money on each customer? For example, calculate CAC (customer acquisition cost), LTV (lifetime value), and CAC payback period. Include these metrics in your Summary tab.

What’s the biggest mistake CEOs make with financial planning?
Not owning the process. Too many CEOs delegate the financial planning process to finance and never understand the model at a deep level. You need to know every driver and assumption. The process of building the plan makes you a better operator.

How do I present my financial plan to my Board of Directors?
Lead with the company’s goals and financial plan summary tab. Walk through major assumptions and revenue expectations for the year. Then dive into expenses, profit and cash. You’ll revisit the financial plan at every Board meeting (typically quarterly), and walk the Board through your results. Comparing original plan vs. actuals keeps everyone honest and allows for adjustments throughout the year.