How to use a Foresight financial model

How to get started with a Foresight Model

Here’s an overview on how Foresight models are constructed and the best way to get started with them. For more detail per model, check out the Get Started guides ›

How the model is constructed

  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.
  3. Model-wide Assumptions are on the Get Started sheet, other specific assumptions to edit over time periods are on individual sheets.
  4. Any numbers currently entered as assumptions are illustrative, and you should change them to fit your business.
  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.
  6. The revenue models are built to be detailed and flexible to use for a variety of businesses, but some users will want to modify the structure or replace the prebuilt revenue model with a custom revenue model to accurately model your business; that’s a normal use of the model that takes advantage of Bring Your Own Model
  7. The model can be used for cash or accrual accounting by GAAP, IFRS, and other accounting standards. Details on finance and accounting basics ›
  8. As with all templates, feel free to use it as an instructional tool, inspiration, and a guide to create your own model. 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.
  9. Notes on what’s changed in versions of the template are on the Changelog sheet.
  10. 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.

How to get started and build a model in less than 2 hours

  1. The model handles a wide variety of business types, the hardest part in using a spreadsheet like this is the adoption curve of understanding how things flow, what to pay attention to, and how to get started.
  2. When I look at a finished model, I always start with the Summary and Key Reports sheets, as it is the quickest way to understand the forecast. Visual charts and big picture summaries are great to communicate the big insights from the model. I start by looking at the slope of the revenue forecast - to get a sense of scale, then look at the margins (COGS, Gross Margin, SG&A) to see how they are changing as a % of revenue, trying to understand if the changes in costs makes sense given the business type. Then I look at Net Income to get an understanding of how they are thinking about profitability and scale, and to understand if that makes sense given the funding they are looking for, if that’s a part of the growth strategy.
  3. Then I review the Key Reports deeper, focusing first on the chart of burn and runway to see burn per month, when that swings from negative to positive, and cash position over time, and whether that makes sense. After that, I look at the operating expenses charts to understand the composition of expenses and how they change as a % of revenue, and then the sources and uses. What I’m trying to understand is how they are planning for costs, and if that reflects what I know about the business and how they are looking to grow.
  4. Then I scan through the rest of the Key Reports charts for any insights about the business. If applicable, the cohorts chart is really insightful because it gives me a sense of growth, churn, repeat business, and performance over time.
  5. Then I’ll look at the Breakdown sheet to see if the business has been broken down into different business lines or segments, to understand any insights that they used this sheet to communicate. Some people use this to breakdown a subscription and ecommerce business, or a software and hardware business, into their relevant business lines down to a gross margin or a contribution margin level (it’s not necessary to allocate all expenses, and usually not insightful for understanding the economics of the business lines.)
  6. Then I’ll dig into Get Started, Forecast, and Statements to see the details. Usually all the key questions are answered by the first sheets, and digging into those is about understanding and verifying the inputs and whether they make sense.
  7. When using the model from start, though, we start with the Get Started sheet. This sheet has been created to capture all the primary inputs for the business - many can be modified on a specific, month-to-month basis or shaped with manual overrides in each month - to create the base forecast. The Hooks sheet is used to help create the basic setup for operating metrics, and then to making building themes easier - but you probably don’t need to worry about that to start.
  8. So I go down the Get Started sheet, covering the basic setup - company date, set the dates for the forecast, cash on hand, and then go into forecasting revenues. The model structure in the Standard Model takes the approach of forecasting revenues by forecasting the operations of the business, and so revenues are the result in growth, adoption, conversion, and retention, then revenues.
  9. The first set of important assumptions are the inputs for growth: this sets what you are “acquiring”, and it’s tracked in terms of new per period. This could be website sessions, leads, email subscribers, anything that’s an important growth metric for forecasting revenues.
  10. From there, the model goes through adoption and conversion, then retention and churn, and then revenues and cost of sales.
  11. Once you have those settings done, you should start to see revenues show up on the Summary and Forecast sheets.
  12. Once that is set, I go to expenses. The expenses are setup on the Forecast sheet, and it takes a second to understand the structure and the setup. Each row is an expense, and this can be as detailed as you want. You could create a row for total salaries, or a department, or a type of role, or a specific individual, and then use the category dropdowns to set the accounting treatment, the expense category (for management analysis), and the business category (used on the Breakdown sheet). Then you have a couple starter parameters for forecasting the expenses, from setting the initial amount, the first date, and optionally selecting a forecasting method. Of course, you can manually overwrite any of the expenses in those cells simply by inputting what you want in the appropriate months.
  13. If I have an existing business, I’ll then setup the opening balance sheet on the Statements sheet, and potentially use Hooks to pull in any past historical financials.
  14. After that, I go back to Get Started and setup the fundraising inputs, and adjust any of the balance sheet or financing assumptions as needed (debt, equity, working capital line, etc.).
  15. Then, I go to the Summary and Key Reports, and start iterating to create the shape of a model I want.

Need Help?

For support questions, email hello@foresight.is anytime. For assistance in leveraging the models for individualized, personalized models to fit your business questions, more details at Services ›

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