Many startup founders put together their first financial model when they’re preparing to raise money. They need to show investors how they plan to spend the funding and how far it will take the company. They estimate expenses associated with hiring a team, developing the technology, achieving milestones, and bringing their product to market. But those estimates can change quickly, particularly for climate and environmental startups managing grant funding, equipment purchases, and development timelines. Financial modeling for startups doesn’t stop once the round closes.
Keeping the model current is where financial planning and analysis (FP&A) comes in. FP&A includes financial modeling, but it also involves comparing forecasts with actual results, updating assumptions, and working out how changes to the plan will affect cash.
I’ll explain how financial modeling fits into FP&A, what a good model should do, and when it makes sense to bring in additional support.
What FP&A Actually Is
FP&A is an important function from a startup’s earliest days, even if there isn’t anyone with FP&A in their job title. At the pre-seed and seed stages, founders often handle the work themselves, building financial models to answer questions like “How long can we operate with this seed round?” or “Can we complete our pilot before we need more funding?”
Financial modeling is the part most founders are familiar with. FP&A goes further. It includes updating the model with actual financial results, reviewing how spending compares with the budget, revising forecasts, and testing different plans before making financial commitments.
All of this work continues after a funding round closes. And it becomes even more important as the company hires people, takes on new projects, and begins spending against its budget.
Startups in climate and environmental industries often need this kind of planning early. They may be managing grant awards, tranched equity funding, expensive equipment purchases, and technical milestones that can take months or years to complete. Each of these affects how much money the company needs and when it needs it.
How FP&A Relates to Bookkeeping, Controller Functions, and CFO Advisory
FP&A is one part of a company’s finance function. It relies on accurate accounting records and works closely with the controller and CFO to help management plan for the business ahead.
Bookkeeping provides the financial records that FP&A relies on. A bookkeeper keeps track of the day-to-day transactions, including invoices and payroll, and handles bank and credit card reconciliations. Accurate, up-to-date records are important because FP&A uses this information to build forecasts and compare them with actual results.
Controller services focus on the accuracy of the company’s financial reporting. A controller oversees the accounting function, establishes policies and internal controls, manages the monthly close, and ensures financial statements comply with GAAP. FP&A uses that financial information to compare actual results with the company’s budget and forecast.
CFO advisory focuses on broader financial decisions, including fundraising, capital planning, and major business transactions. The CFO uses forecasts and financial analysis developed by FP&A to evaluate the company’s options and advise management.
Here’s how the responsibilities generally break down:
| Role | Primary Focus | Typical Work |
| Bookkeeper | Recording financial activity | Transaction records, reconciliations, invoices, payroll |
| Controller | Financial accuracy and reporting | GAAP financial statements, accounting policies, controls, audit support |
| FP&A | Financial planning and forecasting | Financial models, budgets, cash forecasts, scenario planning |
| CFO | Financial strategy | Fundraising strategy, capital planning, investor preparation, financial decisions |
These functions work together, but they require different skills. A company can have excellent bookkeeping and accounting records and still lack a reliable forecast. The reverse is more common in my experience at ecoCFO: we often see a financial model sitting on top of books that aren’t current or reconciled.
When that happens, we usually have to start by fixing the underlying accounting records. If transaction records are incomplete or the close is months behind, there’s no reliable foundation for FP&A to build on, and the model drifts from reality no matter how well the forecasting is done. It shows up most clearly during fundraising. When an investor asks to trace a projection back to the numbers behind it and nobody can, it raises questions about the rest of the model.
More often, though, the founder sees it coming first. We often get called into the scramble before the raise: the controller cleans up the books, sometimes going back a year or two, while FP&A rebuilds the model alongside that work. The model gets dialed into the real numbers once the cleanup is done, and budget-to-actual reporting runs from there. It works, and we have done it plenty of times. However, this can be a difficult way to spend the weeks before a raise.
When a Startup Needs FP&A Support
Most founders can build an initial financial model, particularly if they have a technical background and are comfortable working with spreadsheets. The difficulty comes later, when the business becomes more complicated, and the model needs regular attention.
Here are some situations where founders typically start looking for outsourced FP&A services.
A raise is coming, whether that’s next quarter or next year. Investors will want to understand the assumptions behind the projections. What happens if the round closes later than expected, the investment is smaller, or revenue takes longer to develop? Building those scenarios for the first time in the middle of a raise is difficult. Not every company comes to us in a scramble, though. Some founders know they’ll be raising money in 12 to 18 months and want a model they can use for hiring and spending decisions now. They also know they’ll need to build it out further as the raise gets closer.
Different funding sources are running on different schedules. A DOE or SBIR award may have its own spending requirements and reimbursement schedule, while equity funding is available on different terms. A new award signed mid-year arrives on its own terms and has to sit alongside the ones already there. Once a company is layering venture investment, debt, and grant funding into a single capital picture, building a model that reflects all three cleanly is a different exercise than modeling equity alone.
The board asks a “what if?” question, and it takes too long to answer. What happens if the pilot takes six months longer than planned? What if the company delays hiring or needs to purchase additional equipment? A financial model should make it relatively easy to answer these questions without rebuilding the model.
The forecast no longer reflects the business. The model is still there, but the assumptions are six or twelve months old. Hiring plans have changed, a project has moved, or the company is spending more than expected. Unless someone regularly compares the forecast with actual results, it becomes less useful for making decisions.
The business has evolved since the original model was created. A developer that transitions to owning and operating its own assets is running a fundamentally different business than before. Tracking construction in progress, placed-in-service transfers, and asset-level economics is a different exercise than forecasting development work, and a developer-stage model was never built for it. The forecast doesn’t break overnight. It just stops answering the questions that matter once the business changes shape.
The model is solid, but it was built for a different industry. We’ve seen good models built by founders whose finance experience came from an adjacent sector, oil and gas rather than renewables, for instance. Renewable project finance carries its own variables, including tax credit structures and long-term contracted revenue, and those can meaningfully change how a model behaves. Founders coming from an adjacent industry often spot the gap before they can name exactly what’s in it.
Cash management and the long-range plan aren’t connected. A company can have good day-to-day cash visibility and a long-range model and still have nothing linking the two, so near-term decisions aren’t informed by the longer forecast. This often surfaces right after a raise closes, when there’s suddenly real money to manage.
The model can’t accommodate new business activity. As a pre-revenue company begins signing customer contracts, its financial model needs to account for revenue, payment timing, and costs associated with individual customers and vendors. The original model may not have been built to handle that level of detail. Vendor expenses can be particularly difficult to track as the company begins working with more suppliers and its cost structure becomes more complicated.
There is more than one business entity. A startup may establish subsidiaries or separate legal entities for specific projects, each with its own funding, expenses, and cash requirements. As companies add more entities, the financial model needs to account for their individual activity while still providing a consolidated view of the business. Looking only at the company’s overall burn rate makes it difficult to see where cash is being spent and how much funding each entity needs.
These are often the points where founders decide to hand the work over to an FP&A professional or an outsourced team. Keeping the forecast current takes time, and it can be difficult to give it enough attention while also running the company.
The founder still needs to be involved, particularly when it comes to technical milestones, hiring plans, and commercial assumptions. The FP&A team takes responsibility for maintaining the model and making sure those plans are reflected in the numbers. For companies that aren’t ready to hire someone internally, outsourced FP&A for climate tech startups can be an option.
For more on preparing financially for a raise, see our guide to preparing for Series A funding.
What Good Financial Modeling for Startups Looks Like in Practice
A good financial model should help founders understand where the company stands financially and what their plans will cost. It also needs to be easy to update when those plans change.
The model is built on drivers, not typed-in numbers
The difference between a model you can use and one you have to rebuild every time is how the calculations are set up. In a well-built model, the main assumptions are entered in one place, usually a dedicated inputs area, and the related calculations update automatically.
This is called a driver-based model.
For example, changing the planned number of employees should update payroll expenses, which in turn affects cash flow and runway. Changing the number of units a company expects to manufacture should affect projected revenue and production costs. Most founders start with some of this built in, but not everything.
The important thing is to identify which assumptions matter most to the business and make sure they are built into the model. For an early-stage startup, those are often hiring dates, funding schedules, revenue timing, and major expenses such as laboratory equipment or manufacturing costs. You should be able to change any of these assumptions without rebuilding the model.
For a hardware company, the model might include bill-of-materials costs, production yields, and expected manufacturing volumes. For a project developer, the construction schedule may determine when major expenses occur and when revenue can begin.
For a SaaS company, the drivers might be new customer signups, churn rate, and average revenue per user, which together determine monthly recurring revenue (MRR) and annual recurring revenue (ARR), rather than someone typing in a revenue number for each month.
When an investor asks what happens if the next round of funding takes six months longer than expected, you should be able to change that assumption and see what it means for hiring plans, cash flow, and runway. That’s the kind of question a good driver-based model should help you answer.
Monthly updates
A financial model needs to be updated regularly to stay useful. Typically, this happens each month after the accounting team completes the month-end close.
The controller reviews and finalizes the financial results. The FP&A team then uses those numbers to update the model, compare actual spending with the budget, and revise the forecast for the months ahead. The two teams work together to explain any significant differences between what was planned and what actually happened.
FP&A also checks in with the founder or management team about changes that may not yet appear in the accounting records. Perhaps a key hire has been delayed, equipment will cost more than expected, or a pilot project has moved into the next quarter.
Those changes need to be included in the forecast, even if the money hasn’t been spent yet.
This monthly process keeps the model tied to the company’s actual financial results and its latest operating plans.
A three-statement model keeps the numbers connected
A financial model generally includes three connected financial statements:
- Income statement (P&L): Shows revenue and expenses over a period of time.
- Balance sheet: Shows what the company owns and owes at a particular point in time.
- Cash flow statement: Shows how cash comes into and leaves the business.
The statements serve different purposes, but the numbers need to agree.
For example, hiring another engineer increases payroll expenses and affects how much cash the company will have in six months. Buying laboratory equipment may reduce cash immediately, even though the full purchase price doesn’t appear as an expense on the income statement that month.
When the statements are connected, changes to the model’s assumptions flow through the relevant calculations.
This matters when preparing projections for investors, who will expect the income statement, balance sheet, and cash flow forecast to be consistent.
Understanding cash runway and burn rate
For an early-stage startup, one of the most important questions is how long the company can operate before it needs additional funding. This is its cash runway.
Most founders are familiar with burn rate, or how quickly the company is using cash. But for companies with grants, equity investments, and other funding sources, looking at a single burn rate can be misleading.
A startup might have $2 million in the bank, but some of that money may be restricted to a particular research project or committed to expenses under a grant award. It may not be available to cover general operating costs or work outside the grant budget.
The model should show how much cash is available for general operations, what funding is designated for specific projects, and when additional money is expected to arrive.
It also helps to distinguish between gross and net burn. Gross burn generally measures total monthly cash spending. Net burn reflects cash spending after accounting for cash coming into the business. The calculation should be consistent with how the company reports its financial results.
For a company receiving grant reimbursements, the timing of those payments can make a substantial difference. A grant may cover certain costs, but the company could still need enough cash to pay those expenses while waiting for reimbursement.
The forecast should help founders see how long their available cash will last and when they may need to raise more capital.
Accounting for grants and reimbursement schedules
Grant funding creates additional considerations for startups in climate and environmental industries.
Many government grants, including certain DOE and SBIR awards, operate on a reimbursement basis. The company pays for eligible expenses, submits the required documentation, and then receives reimbursement.
Receiving a $1 million grant award does not necessarily mean the company has $1 million available to spend immediately.
The financial model needs to account for when expenses will be paid and when reimbursement is expected.
There are several other items to consider:
A company managing multiple grants may have different budgets, reporting deadlines, reimbursement schedules, and spending rules for each award.
The FP&A team needs to reflect these requirements in the forecast, using the grant expense information maintained by accounting.
Making sure the model follows the accounting records
Some financial modeling decisions depend on how expenses and revenue are treated under accounting rules.
Take the purchase of a $300,000 piece of laboratory equipment. The company may pay for it immediately, but under GAAP, the equipment may be recorded as an asset and depreciated over several years rather than treated as a single expense.
That affects what appears on the income statement. The full cash payment still needs to be reflected in the cash flow forecast.
Revenue recognition can create similar differences. A company may sign a customer contract or receive an advance payment before it can record the amount as revenue.
The controller typically determines the appropriate accounting treatment, and FP&A uses those policies to prepare the forecast. But the order can run the other way for an early-stage company that hasn’t signed its first contracts yet.
In that case, revenue recognition depends on decisions the company hasn’t made, like what the business model will actually look like and what a customer contract will include. Those are questions for the founder and the finance team to work through together. As customer contracts take shape, the controller reviews their terms and determines the appropriate revenue recognition treatment, which FP&A then reflects in the model.
Either way, the forecast has to reflect the accounting treatment, which is why the controller and FP&A work through it together.
Scenario planning: what happens when plans change?
Early-stage startups rarely follow their original schedules exactly. Technical work takes longer than expected, suppliers delay deliveries, or a fundraising round closes later than planned.
A financial model should help founders understand what those changes mean for the company.
There are two common ways to test assumptions:
Sensitivity analysis looks at the effect of changing one variable. For example, what happens to cash runway if equipment costs increase by 20%?
Scenario planning looks at what happens when several parts of the plan change. Say a pilot project runs three months behind schedule. The company may need to pay its engineers for another three months, wait longer for a grant payment, and push back its first customer revenue. The model should show how those changes affect spending, cash flow, and runway.
Founders can use these forecasts to weigh decisions about hiring, equipment purchases, fundraising, and project timing. They can also answer questions from investors and board members without rebuilding the model.
The output needs to be useful to the founder
A financial model may have hundreds of calculations behind it, but the information a founder needs should be easy to find and understand.
At a minimum, founders should be able to see their projected cash balance, monthly burn rate, runway, major spending categories, and budget-to-actual results. For companies generating revenue, the model should also include the relevant revenue and bookings metrics.
They should also be able to see what has changed since the previous forecast and why.
For companies with multiple funding sources, that may include how much grant funding remains, what expenses are still expected, and whether the company has enough cash available for general operations.
The founder doesn’t need to know how every formula works. But they should understand the assumptions behind the projections and be comfortable explaining them to investors or board members.
Frequently Asked Questions About Startup FP&A
Is financial modeling the same as FP&A?
Not quite. A financial model contains the company’s assumptions, calculations, and financial projections. FP&A is the work of building and maintaining that model, comparing forecasts with actual results, and using the information to support financial decisions.
A financial model built for a fundraising deck and never updated is only a snapshot of the company’s plans at that time.
Is a pro forma the same as a financial model?
The terms are closely related, but they’re not the same. A pro forma usually refers to projected financial statements, such as the income statement, balance sheet, and cash flow statement.
A financial model is broader. It includes the assumptions and calculations behind those projections and can be used to test different scenarios. In practice, founders and investors sometimes use the terms interchangeably.
Do I need FP&A before I have revenue?
Yes. Even if a company has no revenue, it still needs to plan how it will use its funding and how long that money will last.
For a climate startup working on a new technology, that might mean forecasting R&D spending, equipment purchases, hiring, and the cost of reaching the next technical milestone.
If the company also has DOE, SBIR, or other grant funding, the forecast needs to account for grant budgets, spending requirements, and reimbursement schedules.
Founders often handle this work themselves in the beginning. As the company grows, it may make sense to bring in dedicated FP&A support.
Isn’t this what my accountant, bookkeeper, or controller already does at a startup?
Not necessarily. A bookkeeper maintains transaction records, and a controller oversees accounting and financial reporting. FP&A focuses on financial forecasting for startups and the planning side.
Some finance professionals handle more than one of these responsibilities, particularly at smaller companies. But maintaining the accounting records and building a forward-looking financial model require different skills.
Our guide on Bookkeeper vs. Controller explains these roles in more detail.
The Bottom Line
Your financial model should reflect the company you’re running today, not just the plans you made when you last raised money.
Hiring schedules change, equipment costs come in higher than expected, and technical milestones move. Keeping the model current helps you understand what those changes mean for your spending, cash runway, and the decisions ahead.
At ecoCFO, we’ve worked with founders at different stages, from companies preparing their first financial model to those managing multiple funding sources and much more complex operations. We’ve seen firsthand how much difference it makes when a founder can rely on the forecast instead of questioning whether the numbers are still accurate.
You don’t need to spend your time managing every detail of the model. But you should be able to sit down with your finance team, ask a question about the business, and get an answer you can use.
Need Help With Your Financial Model?
Whether you’re building a model for an upcoming raise or trying to get more useful forecasts from the one you already have, ecoCFO’s FP&A team can help. We work with climate and environmental startups at different stages, from early financial planning to ongoing modeling, budgeting, and forecasting.
Schedule a call with our team to talk through what you need.
About the Author
Kate Dervan | ecoCFO
Kate Dervan is Director of Operations at ecoCFO, where she leads marketing, communications, and client proposals. Since joining in 2020, she has worked closely with the firm’s finance team and with founders navigating the financial and operational challenges of building climate and environmental companies. She writes about the accounting, financial planning, and fundraising questions that come up as these companies grow.