Building a financial model investors will believe

Investors do not believe your forecast. They know it is wrong; every forecast is. What they are reading is whether you understand the machine you are running — which levers move which numbers, what it costs to win a customer, when the business stops burning cash. A model that shows that understanding, even if every number turns out optimistic, gets funded. A model that shows a hockey stick and no working does not.

The five drivers

Every business model, stripped down, is five things:

1. Customers — how many you have, how many you add each month, how many you lose.
2. Price — what each pays, how often, and whether it changes.
3. Gross margin — what it costs to deliver each pound of revenue.
4. Fixed costs — people, premises, software, everything that does not scale with sales.
5. Cash timing — when money actually arrives and leaves, which is not when it is earned or spent.

Revenue is customers × price. Gross profit is revenue × margin. Net is gross profit minus fixed costs. Cash is the running total, plus the raise when it lands. That is the entire model. The cashflow tool on Find is built on exactly these five; the value is in what you put in, not the spreadsheet.

Assumptions you can defend

Each driver needs a number and a sentence. "We add 12 customers a month" needs "because we added 9, 11 and 13 in the last three months and we're hiring a second salesperson in month four". If the sentence is "we assume", the number is a guess; label it as one and show what happens if it is half as good.

• Growth rates — monthly, from actuals. If you have no actuals, use a comparable business's early rate and say so.
• Churn — the one founders forget. 4% a month means you lose half your customers in seventeen months; the model must add enough new ones to replace them before it adds growth.
• Hires — named roles, start months, all-in cost (salary plus 15% employer's NI plus pension plus equipment — roughly salary × 1.25).
• Payment terms — if customers pay on 60 days, month one's revenue is month three's cash.

The sanity checks investors run in their heads

• Revenue per head. Year-three revenue divided by year-three staff. Under £80k a head for a software business, or under £50k for a services business, means the cost base is wrong.
• Growth versus hires. Revenue that triples while headcount stays flat, or the reverse.
• The month everything turns. If net goes from −£30k to +£40k in one month, something happened. What?
• Gross margin creep. A margin that rises from 40% to 70% over the forecast needs a reason.
• Cash never below zero. If it does, you have not raised enough — see how much to raise.

Three scenarios, not one

Base case: what you believe. Downside: growth at half, one hire delayed, churn up two points. Upside: growth at 1.5×. Investors want to see that the business survives the downside with the money raised. If it does not, raise more or cut the plan. Present the base case; have the other two ready.

When the model says no

Sometimes the honest model shows a business that never makes money at this price, or needs three times the raise to reach the milestone. That is the model doing its job. The options are: change the price, change the cost base, change the milestone, or change the business. Raising money on a model you have quietly adjusted until it works is how founders end up in month nine with no cash and no story.

Questions founders ask

"Monthly or annual?"

Monthly for the first 24–36 months. Annual thereafter if you must show five years; nobody believes year five anyway.

"Should I include the raise in the model?"

Yes, as a cash inflow in the month it lands. It is not revenue and must never appear above the net line.

"My accountant built a model. Is that enough?"

If you can explain every assumption in it without looking, yes. If you cannot, it is their model and investors will find out in the first five minutes of a call.

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