How to Build Bottom-up Financial Projections for Your Startup Business Plan

As Robot Mascot co-founder James Church explains in Investable Entrepreneur, the numbers in your business plan don’t need to be perfect, but they do need to be grounded in logic. More than just spreadsheets, projections give “ultimate credibility” to your pitch. They show how your plan translates into real-world performance – and they help investors assess whether you understand the risks, challenges and commercial potential of your model.

Solid financial forecasts are also one of the key assets that make you an ‘investable entrepreneur’ – someone who can explain where the business is going and what it needs to get there. In short, financials aren’t about guessing the future. They’re about proving you understand how to build it.

READ: How to Develop a Startup Business Plan: A Step-by-Step Guide

This article will show you how to create credible, investor-ready financial projections using a bottom-up approach. It includes revenue modelling, cost forecasting, cashflow planning, and more to help you become an investable entrepreneur.

The importance of bottom-up forecasting

One of the most common mistakes founders make when preparing projections is starting from the top down: “If we capture just 1% of this £1 billion market…” It sounds impressive – but it rarely convinces investors. Why? Because it skips over the core commercial mechanics of how you’ll acquire customers, scale operations, or deliver your product profitably.

A bottom-up approach works the other way around. It starts with your go-to-market strategy and builds your financials from first principles:

• How many customers can you realistically acquire?
• What channels will you use to reach them and at what cost?
• What will each customer pay – and how often?
• What are the direct and indirect costs involved in delivering your service?

By answering these questions, you create a forecast that’s grounded in tangible, justifiable assumptions. This is far more persuasive to investors because it shows:

• You understand the commercial levers that drive your business
• You’ve thought through unit economics, resource planning and capacity constraints
• Your numbers are logically tied to your strategy and operational model

Strong projections reflect both ambition and realism. A well-constructed bottom-up model shows investors that you’ve mapped out not just the opportunity, but the journey – step by step. It builds trust by showing there are no gaps between your vision and your execution plan.

READ: How To Create Business Plans For Startups: The Three Cs

Next, we’ll walk through how to build bottom-up projections in practice – from customer acquisition to cashflow.

Step 1: Start with a Research-Backed Business Plan

Before opening a spreadsheet, make sure your business plan and go-to-market strategy are well developed. These should directly inform your financial model. The detail here is vital: every assumption, from growth rates to costs, needs a clear rationale rooted in your plan. Validate key inputs like pricing, market size and marketing approach through research or testing.

Most importantly, keep your narrative and numbers aligned. If your plan suggests modest early growth but your projections show a sudden spike, investors will notice the inconsistency – and it could undermine your entire pitch. Investors will be less than impressed if there’s a discrepancy. If you update your assumptions, update your business plan too. Consistency is key.

READ: How to Conduct Market Research for Your Business Plan: A Step-by-Step Guide

Step 2: Set Your Time Horizon (Typically 5 Years)

Decide how far ahead to forecast. Five years is standard – and it’s what Robot Mascot recommends. Why five? Because that’s typically the timeframe investors expect to hold an investment before exit. A five-year forecast shows that you’ve thought about how the business will scale and where it’s headed – whether that’s acquisition, IPO, or sustained growth.

While the later years will be more speculative, they still help frame your long-term vision and funding needs. Focus on the fundamentals investors care about: growth, speed and exit. Show an ambitious trajectory, hit key milestones quickly and outline a realistic endgame. A five-year model built around these principles will meet investor expectations and demonstrate strategic thinking.

Step 3: Build a Bottom-Up Revenue Model

Begin your financial model with revenues, using a bottom-up method. This means you’ll project sales based on concrete drivers and assumptions rather than saying “we’ll capture X% of a £10 billion market” (the latter is a classic top-down mistake). Start with your unit economics and growth strategy:

• Determine your pricing and/or average transaction value.
• Estimate how many customers or sales you can acquire each month or quarter, based on your marketing and sales plan. For example, if you plan to spend £5,000 on marketing in Month 1 and expect a cost per acquisition of £50, then forecast ~100 new customers in that month.
• Factor in growth rates or scaling effects. Perhaps you plan to increase marketing spend by 20% each quarter, or you expect word-of-mouth to improve conversion rates over time. Apply these assumptions to model how customer acquisition might accelerate.
• If you have multiple revenue streams or products, model each separately for clarity. For instance, a SaaS startup might have subscription fees and also one-time setup fees – forecast those on separate lines.
• If applicable, incorporate recurring revenue dynamics: For subscription models, include churn (cancellation rates) and perhaps upsell or expansion revenue. E.g. if you churn 5% of subscribers monthly, the model should remove those and only carry forward the retained customers (adding new ones each period).

Use evidence and realistic assumptions to support your projections. Investors want to see why you believe your revenue can grow – whether through market research, early traction, or pilot data. Build your forecast from the ground up using tangible inputs like sales activity, website traffic and conversion rates. This approach is far more credible than top-down claims like “we’ll capture 1% of a £1bn market,” which often lack substance and fail to convince investors.

READ: 12 most popular and effective revenue models for startups

Step 4: Forecast Your Cost of Sales (Direct Costs)

Next, project the costs directly tied to your sales, i.e. COGS or cost of sales. For each sale or customer in your revenue model, how much does it cost you to produce the product or deliver the service? Break it down into per-unit assumptions if possible:

• Technology infrastructure costs: e.g. hosting expenses, customer support and software licenses
• Materials or production costs: e.g. £X per hardware unit manufactured
• Direct labour: e.g. if you run a consultancy, this could be the salaries or contractor fees for those delivering the service, scaled by number of projects.
• Commissions or sales costs: e.g. reseller commissions, payment processing fees, or shipping costs per product.
• Remember that some costs have economies of scale. You might model volume discounts (if you buy raw materials in bulk) or other non-linear effects. For example, producing 1000 units might reduce the cost per unit compared to producing 100 units.
• Ensure the timing matches revenue. If you recognise revenue in a month, include the associated cost of that revenue in the same period for the P&L.

Forecasting your cost of sales alongside revenue lets you calculate gross profit for each period. Investors will pay close attention to your gross margin trend. Are margins improving over time due to scale or pricing power? Or are they stable? Improving margins can signal efficiency or market strength – both attractive to investors – but be prepared to explain why that improvement is realistic.

Step 5: Project Operating Expenses (Overheads)

Now, lay out your operational and overhead costs for each period. A good approach is to break these into logical categories, such as:

• Staffing costs
  • Salaries, national insurance, pensions and any new hires planned (with timing of when they join). Tie headcount growth to your roadmap (e.g. hire 2 developers in Q2, 1 salesperson in Q3, etc. and include recruitment costs).
• Sales & Marketing
  • Advertising spend, events, PR, sales commissions (if not in COGS), travel, etc. Make sure your marketing spend in the projections is consistent with the customer acquisition numbers you assumed in the revenue model – this is a common check investors do. If you projected huge customer growth with minimal marketing budget, that would look unrealistic.
• Research & Development
  • Ongoing product development costs, if not capitalised – e.g. developer salaries, contractor fees, etc. (Often, early-stage startups include these in general overhead or staff costs.)
• General & Admin
  • Office rent (or coworking fees), utilities, administrative software subscriptions, insurance, legal and accounting fees, etc.
• Other
  • Any industry-specific costs (for example, regulatory fees, manufacturing equipment maintenance, etc.).

Be thorough when mapping out costs. It’s better to slightly overestimate an expense than to leave it out entirely.

Founders often forget items like recruitment fees, training, insurance, taxes or one-off professional services. Overly lean projections – such as hitting £1 million in revenue with just two staff and no marketing – will raise red flags. Many forecasts miss key overheads or fail to account for staff turnover and hiring costs.

To avoid this, cross-check your financials against your operational plan. If you plan to open a second office or expand internationally in year two, make sure the associated costs – new hires, travel, local marketing – are included in your model.

Step 6: Compile the Profit & Loss and Calculate Key Figures

Once revenue, COGS and operating expenses are forecasted, you can compile the Profit & Loss (P&L) statement for each period:

• Start with Revenue, subtract COGS to get Gross Profit (and calculate gross margin %).
• Subtract Operating Expenses from gross profit to get your EBITDA
• Subtract any interest, tax, depreciation, amortisation to get your Net Profit. This net profit line tells you roughly when you expect to break even – e.g. a negative number means a loss, turning positive once revenue growth outpaces costs.
• It’s common for startups to project losses in the early years while they invest in growth. Investors understand this, but will look for a trend toward profitability in the long run or a clear path to positive EBITDA as the business scales.

As you compile these, also prepare the key metrics we discussed earlier (CAC, LTV, burn rate, etc.) from your model. Many of these metrics can be calculated from the P&L and your customer/revenue projections:

• CAC = total sales & marketing spend in a period / number of new customers acquired in that period.
• Burn rate = net cash flow (often roughly operating loss per month, adjusted for any non-cash items or investments).
• LTV = average revenue per customer * gross margin per customer * average customer lifespan (in months or years).
• Runway = current cash balance / monthly burn rate (you’ll determine this when you do the cashflow in the next step).

Calculate these for your own understanding first. They will often be requested by investors and you might include a table of metrics in either the financial section of your plan or the pitch deck. Presenting metrics effectively can make your projections more accessible to investors and highlight the strengths of your model.

SERVICE: Get help with your Profit and Loss Statements.

Step 7: Build a cashflow forecast

Once your P&L is complete, turn to your cashflow forecast – a critical tool for showing whether your business can meet its monthly obligations and sustain momentum. While the P&L shows profitability, the cashflow forecast focuses on when money actually moves in and out of your business.

Start by mapping cash inflows and outflows on a monthly basis (for at least the first 1–2 years). Begin with operating cashflow, using EBITDA or net profit as a base, then adjust for working capital (e.g. receivables and payables) and remove non-cash items like depreciation.

Incorporate realistic payment terms. If customers pay on 30-day terms, model that delay. Similarly, if suppliers allow 30 days to pay, reflect that lag – these assumptions will affect your balance sheet via receivables and payables.

Next, factor in:

• Capital expenditure, such as equipment purchases (cash outflows, even if depreciated on the P&L)
• Debt servicing, including loan repayments and interest
• Equity funding, such as the £300k you may be raising through this round – include it as a cash inflow in the relevant month
• Future funding rounds, if needed, with clear timing and amounts

The result is a running monthly cash balance that reveals whether and when you might run out of cash. Ideally, your forecast shows that current fundraising will provide 12–18 months of runway or take you to a key milestone (such as profitability or a major product launch).

Investors scrutinise this closely. A business can be profitable on paper yet fail due to poor cash management. Demonstrating that you’ve planned for working capital needs, financing events and strategic opportunities (like scaling production) builds investor confidence. A solid forecast proves you can meet your commitments, such as payroll, every month – and seize growth when it comes.

SERVICE: Get help with your Cash Flow Statement

Step 8: Project the Balance Sheet

This step is more technical, but it’s valuable to include. Using the information from your P&L and cashflow steps, you can derive the balance sheet over time:

• Start with the opening balance sheet (if you’re an early-stage startup, this might simply be the initial cash from the founder or previous round and perhaps some simple assets or liabilities).
• Each period, update the cash balance from your cashflow model.
• Update receivables and payables based on the timing differences you modeled (e.g. if you have sales on credit, you’ll carry some accounts receivable).
• Account for the accumulation of any fixed assets if you have capital expenditures (and depreciation if you choose to model it, though some early models keep it simple and exclude detailed depreciation).
• Include any loans (liabilities) if applicable, reducing them as you pay them off and of course the equity which increases when you take on new investment.
• Ensure that Assets = Liabilities + Equity in each period (this is the fundamental balance sheet equation).

Although building a projected balance sheet can feel fiddly, it’s a valuable step that adds rigour and consistency to your financial model. It shows your company’s net assets at the end of each period – revealing how much investor cash has been spent and what it’s been turned into, whether that’s equipment, retained cash, or accumulated losses that reflect growing intangible value.

The balance sheet gives investors a snapshot of what their equity stake is worth in terms of assets and liabilities at any point in time. Even a basic forecast signals financial maturity, showing that you understand not just cash flow, but your company’s overall financial position.

Step 9: Review and refine with realism

Once your projections are complete, review them critically. Check that each assumption is evidence-based and aligned with your business plan. Watch for inconsistencies – for example, claiming international revenue while stating a domestic focus.

Founders often lean towards over-optimism, so sanity-check your numbers through the lens of an investor. Compare against industry benchmarks and seek feedback from mentors or advisors.

Run sensitivity analyses on key variables like slower sales or higher costs to test your model’s resilience. This helps you plan contingencies and spot when to adapt.

Ultimately, your goal is to build projections that are ambitious yet credible. Robust financials show investors you’re a “safe pair of hands” – a critical quality of an investable entrepreneur.

Don’t forget that we can help you develop your Financial Projections. Get in touch today!