How to Build a Financial Model

Chapter 1: The Purpose of Financial Projections

Your company’s financial projections document, also called the pro forma, is a key document you’ll need for your fundraise. Investors will want to see a detailed, five-year financial projection to show that you’ve thought through the financial side of the business.

A quality financial projection shows investors you know your business and have a good idea about what things cost and what customers will pay. Investors also glean from the financial projections how you are going to use the funds they offer you.

Financial projections are not about predicting the future with great accuracy, but instead showing the causalities and interdependencies of your business. This document answers questions such as:

  1. If sales double, what is the impact on costs?
  2. If sales drop by 50%, what happens to cash flow?

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