Financial model glossary: startup finance terms explained

Revenue

The money you earn from selling your products or services in the period. It is counted when the sale is made, not when the cash arrives, and it never includes VAT or the share a retailer keeps.How it's calculated: Units sold × the price you keep per unit, plus subscription fees.

Cost of sales

What it costs you to make or buy the things you sold: materials, manufacturing and delivery. It only covers units actually sold, so it rises and falls with sales.How it's calculated: Units sold × unit cost (after any bulk discount).

Gross profit

What is left from revenue after paying for the products themselves. It is the money available to pay your team, rent, marketing and everything else.How it's calculated: Revenue − cost of sales − channel commissions.

Gross margin

Gross profit as a percentage of revenue: how many pence of every pound of sales you keep after paying for the product. A higher margin means each sale does more to fund the business.How it's calculated: Gross profit ÷ revenue.What good looks like: Software typically 70%+, hardware 30–50% (rule of thumb).

Channel commissions

The cut a marketplace, retailer or agent takes when they sell on your behalf and you book the full price as revenue. It is a direct cost of each sale.How it's calculated: Revenue through the channel × the channel's commission rate.

Operating expenses (overheads)

The day-to-day costs of running the business that don't depend directly on each sale: rent, software, marketing, insurance, professional fees and so on. They are paid whether you sell one unit or a thousand.How it's calculated: The sum of every overhead line for the month.

Payroll

Everything you pay for your team: salaries plus employer costs such as payroll taxes and pension. Usually the biggest cost in an early-stage company.How it's calculated: Salary ÷ 12 × FTE, plus employer on-costs, for each hire.

EBITDA

Earnings Before Interest, Tax, Depreciation and Amortisation. Earnings = profit; Interest = the cost of loans; Tax = corporation tax; Depreciation and Amortisation = spreading the cost of equipment and IP over time. It shows whether the core business makes money from its everyday trading.How it's calculated: Gross profit − payroll − overheads.What good looks like: Turning positive within the plan, before the cash runs out.

Depreciation

Spreading the cost of physical equipment (computers, tooling, machines) over the years you use it, instead of counting it all as a cost on the day you buy it. It is a cost on paper; no cash leaves the bank.How it's calculated: Asset cost ÷ useful life in months, each month.

Amortisation

The same idea as depreciation but for things you can't touch, such as software you built, patents or other IP. Their cost is spread over their useful life.How it's calculated: Intangible asset cost ÷ useful life in months.

EBIT (operating profit)

Earnings Before Interest and Tax: profit from running the business after the wear and tear of equipment and IP, but before loan costs and tax.How it's calculated: EBITDA − depreciation − amortisation.

Interest

What borrowing costs you: the charge lenders make for the money you owe them. It depends on how much you owe and the interest rate.How it's calculated: Loan balance × annual rate ÷ 12, each month.

Profit before tax

The profit left after every cost, including interest, but before corporation tax is taken off.How it's calculated: EBIT − interest (± any gain or loss on selling assets).

Corporation tax

The tax a company pays on its profits (income tax for companies in some countries). Losses from earlier years can usually be used to reduce it, and it is normally paid some months after the year ends.How it's calculated: Taxable profit (after past losses) × the tax rate.

Losses carried forward

Past losses you haven't yet used. When the company starts making a profit, these losses are set against it so you pay less tax at first.How it's calculated: Running total of tax losses, reduced as profits use them up.

Net income

The bottom line: what the company earned, or lost, after every cost and tax. Also called net profit or profit after tax.How it's calculated: Profit before tax − corporation tax.

Dividends

Profit paid out to shareholders as cash. Most start-ups pay none, because they need every pound to grow.How it's calculated: Positive profit for the year × the payout percentage.

Gain or loss on disposal

When you sell equipment, the difference between what you sold it for and what it was still worth in the books.How it's calculated: Sale proceeds − net book value.

Retained earnings

All the profit (or loss) the company has made since it started, minus any dividends paid. It shows how much of the business has been built from its own earnings.How it's calculated: Opening retained earnings + net income − dividends.

Assets

Everything the company owns or is owed: cash, equipment, IP, stock and money customers still owe you.How it's calculated: Cash + fixed assets + intangibles + goodwill + debtors + stock.

Fixed assets

Physical things the business owns and uses for more than a year, such as equipment and machinery. Shown at cost less the depreciation so far.How it's calculated: Cost of assets bought − accumulated depreciation − disposals.

Intangible assets

Valuable things you can't touch: software you built, patents, designs or other intellectual property. Shown at cost less amortisation so far.How it's calculated: Capitalised development − accumulated amortisation.

Goodwill

The extra paid when buying another business over the value of its separate assets, for things like its brand or customers. Most start-ups have none.How it's calculated: Purchase price − fair value of net assets acquired.

Debtors (receivables)

Money customers owe you for things they have already received but not yet paid for. It is earned, but not yet in the bank.How it's calculated: Recent sales not yet paid, based on debtor days.

Stock (inventory)

Products and materials you have bought or made but not yet sold. It ties up cash until it is sold.How it's calculated: Upcoming cost of sales held, based on stock days.

Creditors (payables)

Money you owe suppliers for things you have received but not yet paid for. Paying later keeps cash in the bank for longer.How it's calculated: Recent purchases not yet paid, based on creditor days.

Accruals

Costs you have already incurred but haven't been billed for or paid yet, such as wages earned this month but paid next month.How it's calculated: Costs for the period not yet paid.

Prepayments

Money paid before the goods or service arrive. Customer prepayments (deposits or pre-orders) are cash you hold before you have earned it, so they are owed back as product.How it's calculated: Share of next month's revenue received in advance.

Loans

Money borrowed that must be repaid, usually with interest. Shown as what is still owed at the end of each month.How it's calculated: Opening balance + drawdowns + PIK interest − repayments.

Liabilities

Everything the company owes: suppliers, tax, wages due, loans and leases.How it's calculated: Creditors + accruals + tax owed + loans + lease obligations.

Net assets

What the company is worth on paper: everything it owns minus everything it owes. It always equals total equity, which is how you know the balance sheet balances.How it's calculated: Total assets − total liabilities.

Equity

The owners' stake in the business: money put in by shareholders plus profits kept (or minus losses made).How it's calculated: Share capital + retained earnings.

Balance check

A safety test. Net assets must equal total equity in every month; if the difference isn't zero, a number somewhere is wrong.How it's calculated: Net assets − total equity (should be 0).What good looks like: Exactly zero in every month.

Cash flow from operations

The cash the everyday business actually brought in or used up. It differs from profit because customers may pay late, you may pay suppliers later, and some costs (like depreciation) aren't cash.How it's calculated: EBITDA ± changes in working capital − tax paid.

Investing cash flow

Cash spent on long-term things such as equipment, tooling or building software, less any cash from selling them.How it's calculated: − capital expenditure + disposal proceeds.

Financing cash flow

Cash coming in from investors and lenders, and going out to repay loans, pay interest or pay dividends.How it's calculated: Equity raised + loans drawn − repayments − interest − dividends.

Net cash flow

The overall change in your bank balance for the period: operating, investing and financing cash flows added together.How it's calculated: Operating + investing + financing cash flow.

Free cash flow

The cash the business generates after paying for the equipment it needs, before any funding. It is what would be left for investors and lenders. Negative means the business still needs outside money.How it's calculated: EBIT after tax + depreciation − capex − increase in working capital.

EBIAT

Earnings Before Interest, After Tax: operating profit with tax taken off as if the company had no loans. It is the starting point for free cash flow.How it's calculated: EBIT − tax on EBIT.

Closing cash

How much money is in the bank at the end of the month. If it goes below zero the company has run out of cash and needs more funding.How it's calculated: Opening cash + net cash flow.What good looks like: Stays above your cash buffer in every month.

Burn rate

How much cash the company loses each month while it is not yet profitable. A burn of 50k means the bank balance falls by about 50k every month.How it's calculated: Average monthly fall in cash, before new funding.

Runway

How many months the company can keep going before the cash runs out, if nothing changes. It is the time you have to hit milestones and raise again.How it's calculated: Cash in the bank ÷ monthly burn.What good looks like: 24+ months after a round (median seed to Series A is about two years).

Capital expenditure (capex)

Money spent on things that last more than a year, such as equipment, tooling or building your own software. It leaves the bank straight away but is spread over several years in the profit and loss.How it's calculated: Sum of capital items bought in the month.

Change in working capital

Cash tied up or released by timing: customers who owe you, stock on the shelf, and bills you haven't paid yet. Growing businesses often tie up more cash here.How it's calculated: Increase in debtors and stock is a cash outflow; increase in creditors is an inflow.

PIK interest

Payment-in-kind interest: instead of paying interest in cash, it is added to the loan and repaid at the end. It saves cash now but the debt grows.How it's calculated: Loan balance × rate ÷ 12, added to the balance.

Equity round

Selling shares in the company to investors for cash. You don't repay it, but you give up part of the ownership and future profits.

Term loan

A bank-style loan for a fixed period, repaid in instalments or all at the end, with interest charged along the way.How it's calculated: Monthly interest on the balance; capital repaid on the agreed schedule.

Shareholder loan

Money lent to the company by a founder or shareholder rather than paid in for shares. It must be repaid and often has flexible terms.

Bond / PIK note

A loan raised from investors, often repaid in one go at the end. With PIK (payment-in-kind) interest, the interest is added to the amount owed instead of being paid in cash.

Finance lease

Paying for equipment in instalments while using it, much like a loan secured on the asset. The asset appears on your balance sheet and the lease as money owed.How it's calculated: Lease payments split between interest and repaying the obligation.

Cash buffer

The minimum cash you want in the bank at all times as a safety margin, for late payers or surprises. Three to six months of costs is a common target.

Funding requirement

Extra money the plan still needs to keep cash above the buffer in every month. Zero means the funding you've entered is enough.How it's calculated: Buffer − the lowest cash point, if cash falls below the buffer.

Working capital

The cash tied up in running the business day to day: money customers owe you plus stock, less what you owe suppliers. More working capital means less cash in the bank.How it's calculated: Debtors + stock − creditors − accruals − customer prepayments.

Debtor days

How long customers take, on average, to pay you after a sale. Zero for card payments at checkout; retailers often take 30 to 90 days.How it's calculated: Debtors ÷ revenue × days in the period.What good looks like: As low as your customers will accept; card payments are 0.

Creditor days

How long you take, on average, to pay your suppliers. Paying later helps cash, but pushing too hard can upset suppliers.How it's calculated: Creditors ÷ purchases × days in the period.

Stock (inventory) days

How many days of sales you keep in stock. More stock means fewer missed sales but more cash sitting on the shelf.How it's calculated: Stock ÷ cost of sales × days in the period.

VAT payable or receivable

VAT is a tax on sales that you collect for the government, not your money. Each period you pay over the VAT you charged customers minus the VAT you paid on purchases. If you paid more than you charged, you get a refund.How it's calculated: Output VAT − input VAT, settled monthly or quarterly.

Output VAT

The VAT you add to your prices and collect from customers. You hold it for the government and pay it over.How it's calculated: Taxable sales × the VAT rate.

Input VAT

The VAT you pay on your own purchases. Where it is reclaimable, it is taken off the VAT you owe.How it's calculated: Taxable purchases × the VAT rate.

Employer payroll taxes

Taxes the company pays on top of salaries, such as employer National Insurance in the UK or FICA in the US. They make each hire cost more than the salary alone.How it's calculated: Salary above the threshold × the employer rate.

Employment allowance

A UK relief that lets smaller employers knock a set amount off their employer National Insurance bill each year.How it's calculated: Employer NI reduced until the annual allowance is used up.

Employer pension

What the company pays into employees' pensions on top of their salary. In the UK most employees must be auto-enrolled; some countries use end-of-service gratuity instead.How it's calculated: Qualifying salary × the employer contribution rate.

On-costs

Extra costs of employing someone beyond their salary: payroll taxes, pension, benefits and equipment. A rough rule is 15–30% on top.How it's calculated: Salary × on-cost percentage.

Unit margin

What each single sale earns you after VAT, the retailer's share and the cost of making it. If it is negative, every sale loses money.How it's calculated: Price you keep per unit − unit cost after bulk discount.What good looks like: Positive on every unit; 20%+ is a common rule of thumb.

Channel (retailer) margin

The share of the price before VAT that retailers and distributors keep for selling your product. It comes off before you see any money.How it's calculated: Price before VAT × retail share × retailer margin.

Bulk discount

A lower unit cost from your supplier once you buy in larger volumes. It is one of the main ways margins improve as you grow.How it's calculated: Unit cost × (1 − discount) once volume passes the threshold.

Unit cost

What it costs you to make or buy one unit, including materials, assembly and packaging.

CAC (customer acquisition cost)

How much you spend on sales and marketing to win one new customer. Include ads, sales salaries and promotions.How it's calculated: Sales and marketing spend ÷ new customers won.What good looks like: Paid customers should earn back their CAC within about a year.

LTV (lifetime value)

The total margin you expect to earn from a customer over the whole time they stay with you.How it's calculated: Monthly margin per customer ÷ monthly churn.

LTV:CAC

Compares what a customer is worth to what it costs to win them. A ratio of 3 means each customer earns three times what you spent to get them.How it's calculated: LTV ÷ CAC.What good looks like: Above 3× (best SaaS 7–8×).

CAC payback

How many months it takes for a customer's margin to repay what you spent to win them. Shorter means growth needs less cash.How it's calculated: CAC ÷ monthly margin per customer.What good looks like: Best 5–7 months; above 12 months weakens profitability.

Churn

The share of subscribers who cancel each month. Even small churn adds up: 5% a month loses almost half your customers in a year.How it's calculated: Subscribers lost in the month ÷ subscribers at the start.What good looks like: Low single digits per month for consumer subscriptions (rule of thumb).

Burn multiple

How much cash you burn to add each pound of new annual recurring revenue. Lower is better: it shows how efficiently spending turns into growth.How it's calculated: Net cash burned ÷ increase in annual revenue run-rate.What good looks like: About 2× is reasonable early; 5× is poor.

T2D3

A growth path seen in the best software companies: triple revenue for two years, then double it for three. Plans growing faster than this need strong evidence.What good looks like: Triple, triple, double, double, double from ~$2m ARR.

Market size (TAM, SAM, SOM)

TAM is everyone who could ever buy; SAM is the part you can actually reach with your product and channels; SOM is the share you can realistically win soon. Investors trust a bottom-up count of real buyers.What good looks like: Bottom-up sizing, top-down only as a sanity check.

Units sold

How many products you sell (or new subscribers you sign) each month, after any market or capacity limits.

Active subscribers

Customers paying a subscription at the end of the month: last month's subscribers plus new sign-ups, minus those who cancelled.How it's calculated: Opening subscribers + new − churned.

Price

What the customer pays for one unit. If prices include VAT, Caiflo strips the VAT out before counting revenue.

Growth rate

How fast sales grow from one month to the next. Growth usually slows as you get bigger, so long forecasts should taper it.How it's calculated: This month's units ÷ last month's units − 1.

Break-even

The point where the business stops losing money: income covers all running costs. In Caiflo it is the first month EBITDA turns positive.How it's calculated: First month with EBITDA ≥ 0.What good looks like: Within the funded runway.

Scenarios (Base, Downside, Stress)

Different versions of the future. Base is your best realistic guess; Downside assumes things go worse than hoped; Stress tests a really bad case. Investors want to see you survive the downside.How it's calculated: Each scenario multiplies volume, price, unit cost and operating costs.

What-if

Sliders that flex volume, price, unit cost and operating costs up or down so you can see the effect instantly. Nothing is saved.

Seasonality

Regular ups and downs in demand through the year, such as a Christmas peak or a quiet summer. A factor of 1 is a normal month; 1.5 is 50% busier.How it's calculated: Underlying volume × the month's seasonal factor.

Capacity

The most units you can make or deliver in a month. Demand above this can't be sold, so sales are capped.How it's calculated: Units sold = the lower of demand and capacity.

Headcount (FTE)

How many people work for the company, counted as full-time equivalents: a full-timer is 1, a three-day-a-week part-timer is 0.6.

Forecast period

The months the model covers. Investors usually expect three to five years, monthly at first.

Investor readiness score

A score out of 100 for how ready the model is to show investors. It weighs four areas (business concept, financial model, market opportunity and commercial viability) against published benchmarks. It is guidance, not a valuation.How it's calculated: Weighted average of the four area scores.What good looks like: 70+ is generally investable.

Go / no-go recommendation

The overall verdict: go (investable), start with a pilot, revise the model, or rethink the idea. It comes from the four parameter scores together.

Business concept

Is it clear what you are selling, who buys it and what problem it solves? Investors need to understand the idea in one sentence before they look at the numbers.

Financial model

Do the numbers hold together? Start-up costs, revenue assumptions, running costs, margins, cash flow and break-even all need to be believable and consistent.

Market opportunity

Is the market big enough, is there real demand, and is the share you expect to win believable against the competition?

Commercial viability

Can you win customers for less than they are worth, and keep making money on each one? This is where unit margin, CAC and payback matter.

Model completeness

How much of the model you have filled in. Missing parts, such as no funding or no market size, lower the score because investors will ask about them.

Pre-investor check

A founder's preview of what an investor's review is likely to flag: broken maths, optimistic growth, weak unit economics, thin teams, funding gaps, working capital and tax slips. Each item shows the numbers behind it and why it matters, so you can fix it before you share the model.

Spreadsheet check

When you import an Excel model, Caiflo also checks the file itself for the slips investors look for: numbers typed over formulas, numbers saved as text, broken links and errors. Each one names the sheet and cell, so you can fix your original file before you send it to anyone.

X-ray

An investor's check of a model: dozens of automatic tests for broken maths, optimistic growth, weak unit economics, thin teams, risky debt, odd working capital, tax slips and unconfirmed assumptions. Each finding shows the numbers, why it matters and a question to ask the founder.

Anomaly score

How many concerns the X-ray found, from 0 (nothing found) to 100 (many serious concerns). Higher is worse. Red flags and broken maths weigh most; analyst-review findings can add only a little.How it's calculated: Each finding scores by severity (watch, concern, red flag), weighted by category and capped per category, then scaled to 0–100.What good looks like: Under 12 is clean; 12–34 some concerns; 35–74 significant concerns; any red flag (or 75+) is graded red flags.

X-ray grade

A one-line verdict on the X-ray: Clean, Some concerns, Significant concerns or Red flags. Any deterministic red flag, such as a balance sheet that doesn't balance or cash running out, makes the grade Red flags.

Interest cover

How many times the year's EBITDA covers the interest bill. Below 1× the interest is being paid out of investors' cash rather than earnings.How it's calculated: EBITDA ÷ interest for the year.What good looks like: Lenders usually look for at least 2–3×.

Leverage

How much debt the business carries compared with what it earns. High leverage makes the company fragile if growth slows.How it's calculated: Debt at the end of the forecast ÷ final-year EBITDA.What good looks like: Above about 4× EBITDA is usually seen as highly leveraged.

Dilution

The share of the company existing owners give up when new shares are sold in a funding round. Without valuations in the model, the X-ray assumes a typical 20% per round.How it's calculated: Ownership kept ≈ 0.8 to the power of the number of rounds.

Revenue per employee

Revenue divided by the number of full-time staff. Very high figures usually mean the hiring plan is too thin for the revenue it promises.How it's calculated: Final-year revenue ÷ full-time equivalents at year end.What good looks like: Scaled software companies typically make £150k–£300k per employee (rule of thumb).

Spreadsheet forensics

Checks on an uploaded Excel workbook itself: typed numbers inside formula rows, formulas that change across a row, #REF! and other errors, circular references, totals that don't add up, links to other files, hidden sheets and rows, extreme growth rates and sign flips. Each finding cites the sheet and cell.

Hard-coded number

A typed number sitting in a row of formulas. It doesn't update when the assumptions change, so it is a common way for a model to show a figure that its inputs don't support.

Due-diligence questions

Questions to ask the founder before investing, generated from the X-ray findings (and the analyst review when available). Each one targets a specific number in the model.

Deal room

An investor's list of every model shared with them or uploaded for an X-ray, with the anomaly score, the founder's readiness score, unread comments, a status pipeline and private notes. Founders never see it.

Portfolio

Every company in your deal room, grouped by company with all of its models: its most advanced stage (new, reviewing, diligence, invested or passed), the latest readiness and X-ray scores, and when anything last changed. Teams also see the readiness of every client here.

X-ray

Investor-only: automatic anomaly checks on this model, with the evidence behind each finding, why it matters and the question to ask. The founder never sees this page.

Executive summary

The one-page view an investor reads first: headline revenue, profit, cash and funding, with charts and the main warnings.

Pre-investor check

See what an investor will spot before they do. The same automatic checks an investor runs on a model, shown as a to-do list for you to fix before you share it. Only you see this page.

Insights and score

How investable the model looks, why, and one-click suggestions to make it stronger, each measured against a published benchmark.

Assumptions

Every input behind the model in one place: company details, tax, working capital, products, team, overheads, capex and scenarios.

Unit economics and market

What each product earns per sale after VAT, the retailer's share and unit cost, and how much of its market it wins.

Revenue forecast

Units, subscribers, revenue and gross margin for each product, month by month or year by year.

Overheads and launch costs

Every running cost line by line, and the headcount schedule showing who is employed when.

Year 1 investment

How much money the first year needs, where it goes month by month, and how much cash is left at the end.

Income statement

Also called the profit and loss (P&L). It shows what you earned, what it cost and whether you made a profit in each period.

Cash flow statement

Where cash actually came from and went each period. Profit and cash differ because of timing, equipment spend and funding.

Balance sheet

A snapshot at each month end of what the company owns, what it owes and what belongs to shareholders. It must always balance.

Free cash flow

The cash the business generates after tax and equipment spend, before any funding. Investors use it to value the company.

VAT and corporation tax

When VAT is collected and paid over, and how much corporation tax is charged on profits and when it is paid.

Funding and debt

All the money raised from investors and lenders, the terms, and the repayment and interest schedule.

Fixed assets

Equipment and IP bought, how their cost is spread over their life (depreciation and amortisation), and what they are worth now.

Working capital

Cash tied up in customer payments, stock and supplier bills, and how it changes as the business grows.

Scenario comparison

The headline numbers side by side for every scenario, so you can see how bad the downside gets.

Founder intake link

A team's own public link where founders submit their financial model (an Excel file). Each submission lands in the team's deal room with its X-ray already running.

Co-labelling

Your logo next to Caiflo's. Founders and investors can add a logo; founders' logos also appear on models they share with investors.

White label

For teams: your logo and brand colour replace Caiflo's for your team, your clients' logins and your founder intake page, with a small "Powered by Caiflo" line.

Team

A workspace for accountants, finance firms and freelancers who build models for clients. Each client company has its own models and tax settings; everyone in the team can work on every client. Owners and admins invite colleagues and manage clients.

Client company

A company a team builds models for. It keeps its own country, currency and tax settings, its own list of models and its own logins.

Cash position

Your bank balance at the end of each month. The line must stay above zero, and ideally above your cash buffer, or you need more funding first.

Revenue, gross profit and EBITDA

Three layers of the business each year: what you sell (revenue), what's left after product costs (gross profit), and what's left after running costs (EBITDA).

Where the money goes

Your costs each year split into product costs, team and other overheads, so you can see what drives spending.

Company and timeline

Names the company and model and sets the start month and length of the forecast. Everything else is laid out month by month from here.

Tax and opening position

Sets the tax rules for your country (VAT, corporation tax, payroll taxes) and what the business already owns or owes on day one.

Products and pricing

What you sell, the price, the cost to make it and the retailer's share. This sets the margin on every sale.

Demand and market

How many units you sell each month, how fast that grows, and the limits from market size, seasonality and capacity.

Scenarios

Better and worse versions of the plan, so investors can see what happens if sales are slower or costs higher.

Team

Who you will hire, when, and what they cost including employer taxes and pension. Usually your largest cost.

Overheads

The running costs of the business, such as rent, software and marketing, set as fixed, per person or a share of revenue.

Capital spend

Larger purchases that last years, such as equipment or building software. Their cost is spread over their useful life.

Funding

The money coming in from investors and lenders, its terms, and the minimum cash you want to keep in the bank.

Working capital

Payment timings: how fast customers pay you, how fast you pay suppliers and how much stock you hold. These drive cash, not profit.

Review and generate

Checks the essentials are in place, then builds the full income statement, cash flow and balance sheet.

Financial model glossary

Income statement

Balance sheet

Cash flow

Funding

Working capital

Tax

Unit economics

Planning

Investor readiness

Investor X-ray

Pages

Teams

Charts

Wizard