So who uses financial models? and specifically ones made for startups? Let's see...
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The three main users are:
- Founders and management — to plan hiring, pricing, spending, cash runway, and fundraising timing. They compare actual results with forecasts and test different scenarios. These are the types of clients I work with the most. Basically, in order to make sound and logical decisions, the decision-makers running the business should have a good mental model of the underlying business, now what levers can be pulled, and know the path to strong / sustainable growth. The goal is that actions taken result in goals reached. The goals and blueprint are in the financial model.
- Investors and the board — to judge whether the startup’s assumptions, growth targets, unit economics, and funding requirements are credible. They focus less on precise predictions and more on whether management understands the business drivers and risks. Generally, for these are the people telling the clients I work with what the model needs to show.
- Banks and other lenders — to assess cash flow, repayment capacity, financing needs, and how borrowed funds will be used. They generally emphasize downside protection and liquidity more than rapid growth. Similar to #2, these are the entities that tell my clients what the model needs to show. Here are your people that want to intimately understand the bear case. It is for good reason since it is often their money on the line if the business fails, so it is important for them to understand what has to be true for things to not work and how likely is that to happen.
What the three main users care about most:
- Founders and management: survival and decision-making. They care most about runway, burn, hiring capacity, and which operating choices help the company reach its next milestone before cash runs out.
- Investors and the board: credible growth and potential return. They focus on whether customer growth, margins, unit economics, future funding needs, and dilution support a valuable, scalable business—not merely an attractive forecast.
- Banks and lenders: repayment and downside protection. Their priority is whether predictable cash flow and available liquidity can cover principal and interest, particularly if performance falls below plan. (debt service coverage)
Put simply: founders ask “What should we do?”, investors ask “How big could this become?”, and lenders ask “Will we get our money back?”
The finance team or CFO often builds and maintains the model, but founders, investors, and lenders are its three principal audiences.
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Article found in Startups.
