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Get Started with the Standard Model

The Standard Model is the base model for all entrepreneurs to use for business planning and fundraising. Here's how to use the Standard Model

The Standard Financial Model is the base model for entrepreneurs of all stages to create five year forecasts, with consolidated financial statements, funding forecasts, cap tables, and returns to investors. Prebuilt to handle many types of businesses, including ecommerce, SaaS, marketplaces, advertising businesses, subscription services, retail, hardware, hardware and subscription services, consulting businesses, apps, and mixtures of different business models.

The Standard Model contains many sheets, but is essentially separated into two integrated components:

  • The financial core, consisting of the consolidated financial statements, operating costs, cash forecast, cap table, valuation, actuals reporting, summary, key reports, and funnel reporting
  • The revenue forecast, consisting of the revenue model Get Started sheet and the revenue calculations on Forecast.

The revenue forecast feeds into the financial core through the Hooks sheet, which exposes the key integration points into the financial core of the model and allows you to feed any revenue forecast into the financial model without having to figure out all the integration points. Learn more about modularity ›

How it works

Here’s the background on the model:

  1. The Outline sheet explains the different sheets and how the model flows. Each sheet has detailed notes on each input and explaining calculations.
  2. Any number in blue with grey shaded background is an input (i.e. an assumption or data point that can be changed), anything in black is the result of a formula. Change blue at will, change anything in black with caution. More on colors and formatting.
  3. Model-wide Assumptions are on the Get Started - Financial Model sheet, other specific assumptions to edit over time periods are on individual sheets
  4. All assumptions are illustrative ONLY, do not assume they are market data or standard unless specifically noted
  5. This model is built to accommodate some business decisions very flexibly: when the model starts, when the business begins, what type of revenue model the business uses. The revenue models are intended to cover many different business models, but you may need to make changes and tweaks to accurately model your business.
  6. The model is meant to true back to generally accepted accounting principles, but the primary focus is on cash, and so some accounting may be done in simplified ways.
  7. As with all templates, feel free to create your own model from scratch, using this as a guide. The intent is for this model to be easy to plug and play and answer the major business questions, but I would expect you to need to make changes or build custom analyses for your specific business.
  8. Notes on what has changed from previous versions of the template are on the Changelog sheet. V3 starts with a brand-new, rebuilt template that breaks from the v1 and v2 versions originally available from 2011 to mid-2018. This is a completely new Standard Model that combines the goal of the earlier Standard and Starter Models to create a solid, consistent, powerful but easy to use base for building a financial model.
  9. The model is constructed to fit a wide variety of businesses, and therefore, some sections may or may not be relevant to yours. I have grouped together sections on all sheets so that you can review different sections and see all the possibilities, but also easily hide the sections not relevant for you. Simply click on the “+” button on the left-hand side to unhide a section, and click on the “-” button to hide it.
  10. The model is built to be modular to allow you to create your own growth and revenue forecasts however you want. Simply build your own revenue forecasts and link them into the model through the Modelhooks sheet, and that will “integrate” your custom revenue forecasts into the model.
  11. The model starts with a couple sheets hidden - Actuals, Actuals + Forecast, External Data, Valuation - for you to unhide if you wish to use those features. Just command-click (Mac) or control-click (PC) on any sheet tab at the bottom of your Excel, select Unhide from the popup menu, and select the sheet(s) you want to unhide and use.

Get Started

The Standard has one key assumption sheet, called Get Started, as well as more detailed inputs on Forecast.

On Get Started, the initial inputs are structured for model level assumptions:

  • Currency. The model works for any currency, as there are no currency-specific calculations in the model. This field is used throughout the model for information purposes to denote the units used for each row.
  • Timescale. You can set the start date for the monthlt periods in the model and the end date for the fiscal year. The model works for any fiscal year-end and will change the year summaries automatically. The model by default runs for 72 months and sums to quarters and years automatically.

How to extend the model for more months, quarters, and years ›

How to use historical financials in the Standard Model ›

Forecast

The Standard works for many different types of businesses through its extensive prebuilt revenue model, featuring a two-step conversion funnel that models 1 “average” product, order, customer, subscription, SaaS plan, at each conversion step, and allowing you to model transaction or subscription-based businesses easily just by using a dropdown selection that changes the labels and formulas accordingly.

Learn more about the Revenue Model ›

If you need more detail or more advanced methods for forecasting growth and revenues for specific business types, then it is easy to customize and add in more growth channels, conversion steps, or revenue streams. The Standard model by default supports any transaction or subscription business, and can support modeling up to hundreds of different subscription plans, products, SKUs, enterprise clients, projects, or more, using the Pricing and Pipeline sheets.

Expenses

The model is built to be easy to use to enter expenses. All expenses are entered in the Expenses section on the Forecast sheet.

Hiring

The expenses section allows to easily calculate salaries for roles. Use 1 line per employee, and simply type in the monthly salary in the first month when the person is hired. The model will automatically continue that cost going forward. If there are raises or changes in salaries, simply use the forecasting methods in the dropdown in Column G to select the appropriate period and change in salaries.

In Column D you have a choice in the drop-down: SG&A, COGS, or CAPEX. For most people, the salary expense will be SG&A for accounting purposes. For some roles, perhaps Customer Support, that could be COGS. The reason it is done this way is to allow you to account for the cash expenses easily, and then the model will determine the correct accounting treatment for financial statement purposes.

Column E allows you to set the team that the person works in. This allows you to look at summary views of how the salary expenses balances by teams. You can set the categories of teams under all the hiring inputs.

In Column J you can also break out the hires into Employees and Contractors, so that 1) employee benefits and bonuses are only calculated based on employee salaries, and 2) so that you can account for some contractors in COGS (developers, support, etc., many contracted service providers can be accounted for as COGS). If a person switches from contractor to employee, or vice versa, I usually use two rows for that person, one for when they are an employee, another for when they are a contractor, and simply start and stop the monthly salaries when they switch.

Optional - Forecast Hiring based on Financial or Operational Metrics

There’s an optional method for calculating hires and costs based on the growth of the company, using:

  • Hires tied to percentage of revenues
  • Hires tied to some operational performance in the business

These are powered by the forecasting methods in column G; for hires tied to operational performance, you can set the number of people hired per N number of the operational metric (in the forecast method section), then set the monthly salary, and the model will automatically calculate the total spend on that role. Then in the Headcount section on Forecast, it will calculate the number of hires that spend represents.

For most forecasting methods that works flawlessly, for hires based on a percentage of revenues, you have to alter the monthly salary in the Headcount section.

Operating Expenses

Simply enter in the list of expenses you want to forecast in the rows, select whether it is an SG&A expense (i.e. “running the business”) or COGS expense (i.e. “cost of providing the goods that earn revenue”) or CAPEX expense (i.e. “investing in building the business”, an expense type that is subject to different accounting treatment and has specific allowances in how to use it.

More at The Essentials of Finance and Accounting for Financial Modeling ›

The model uses those selections to handle the accounting, but you can simply enter in the expenses on a month by month basis or use the forecasting methods dropdown to select a way to forecast the expense. Pay attention to which rows are labeled as inputs and which ones are not, and only edit the rows that are labeled as inputs. If you need to add in more lines, simply insert a row, copy the formulas from an adjacent row, and all the summaries and calculations will work.