A financial model for a new venture doesn’t need to be a 50-tab spreadsheet. It needs to answer three questions clearly. How much money will you need before the business sustains itself? When will you break even? And what has to be true for the business to be profitable?

Start with revenue. This is where most people get it wrong by being too optimistic. Don’t start with “if we capture 1% of a $10 billion market.” Start from the bottom up. How many customers can you realistically serve in a week? What will you charge? How long does it take to ramp up? Build your revenue month by month for the first year and quarter by quarter for years two and three. Be specific about what drives revenue and honest about how long it takes to build a customer base.

Next, map out your costs. Separate them into fixed and variable. Fixed costs happen regardless of revenue: rent, insurance, software subscriptions, loan payments, your own salary if you’re planning to pay yourself. Variable costs scale with revenue: materials, labor for delivery, commissions, transaction fees. Most new business owners underestimate fixed costs and forget about things like business licenses, accounting fees, and the random expenses that always show up.

Cash flow projection is the most important part of the model. Revenue on paper doesn’t mean cash in your account. If you invoice clients, there’s a delay before you get paid. If you buy inventory, you pay for it before you sell it. Map out when cash actually comes in and when it goes out, month by month. This tells you your real cash need, which is almost always more than people expect. Many businesses that look profitable on an income statement fail because they run out of cash.

Build a break-even analysis. Take your fixed monthly costs and divide by your gross margin per unit or per job. That tells you how many sales you need each month just to cover overhead. If the break-even number looks unrealistic given your capacity or market, you need to rethink pricing or your cost structure before you launch.

Run at least three scenarios. A base case with your best estimates, a conservative case where revenue comes in 30% lower and costs run 20% higher, and an optimistic case. The conservative scenario is the one you should plan around. If the business works in the conservative case, you’re in a strong position. If it only works in the optimistic case, that’s a warning sign.

Keep the model updated once the business is running. Actual results will differ from projections immediately. That’s expected. The value of the model is comparing what happened to what you planned, understanding why the gaps exist, and adjusting. A financial strategy that evolves with real data is far more useful than a static plan you built before opening day.

The assumptions behind the numbers matter more than the spreadsheet itself. A beautifully formatted model built on wishful thinking is worthless. A simple spreadsheet built on researched, conservative assumptions will actually help you make decisions. Talk to people in the industry. Get real quotes on your major expenses. Understand your pricing relative to competitors. The more grounded your inputs, the more useful the output.

If you’re not sure where to start or want someone to pressure-test your assumptions, working with a QuickBooks ProAdvisor in Chandler who has financial planning experience can save you from building a model that tells you what you want to hear instead of what you need to know.