top of page

Week 31

Different ways to forecast

Josh Aharonoff

Oct 5, 2023

Welcome to another exciting episode!

In this edition, we'll learn 9 ways to forecast, 13 cash flows formulas, and discover the 21 types of revenue.

What we’ll be covering in this edition:

  • 9 ways to forecast

  • 13 cash flows formulas

  • 21 types of revenue

Let's dive in...

Here are 9 ways that you can forecast values on your financial model

​1️⃣ 6 mo. historical average​

🤔 How it works → take the last 6 months value. Can take it one step further by adding a buffer (like a 5% increase)

💡 Why it’s useful → The future often times blends well with the past, especially in the first few months of projections

​2️⃣ Prior mo. balance​

🤔 How it works → Set your projection to last months value

💡 Why it’s useful → extra helpful when forecasting the balance sheet for accounts with minimal movements

​3️⃣ % of revenue​

🤔 How it works → Set your projection to take a % of revenue

💡 Why it’s useful → As revenue scales, expenses tend to scale as well

​4️⃣ $ per hire​

🤔 How it works → Set a $ figure for each hire

Why it’s useful → Expenses / capex often times scale with each new hire

​5️⃣ Fixed Assumption​

🤔 How it works → enter in any values or schedules you have on hand

💡 Why it’s useful → for items like insurance or rent where you have a fixed schedule, you can plug them right into your forecast

​6️⃣ YoY Growth​

🤔 How it works → take the value from 12 months prior and add a growth factor

💡 Why it’s useful → for companies with seasonality, you can match the schedule from the prior year, and add a buffer if need be

​7️⃣ Annual inputs​

🤔 How it works → Enter in assumptions for the entire year, then divide by 12 for monthly projections

💡 Why it’s useful → simple and quick way to forecast for an entire year

​8️⃣ Departmental Intake​

🤔 How it works → sit down with each department head, and come up with a bottoms up budget for their department

💡 Why it’s useful → collect valuable information that you may not have insight into, hold each department head accountable to results & performance

​9️⃣ Zeroed out​

🤔 How it works → forecast 0 going forward

💡 Why it’s useful → can be useful if you don’t expect any future values in this account, or if you project values in another account that relates to this account


These are the 9 most common ways that I forecast across the 40+ startups that I work with…

What have you seen?

Cash is king

but before you can wear the crown 👑…

you need to understand how to measure these 👇

​1. Operating Cash Flow (OCF):​

Formula → OCF = Net Income + Depreciation + Amortization + Other Non-Cash Items - Changes in Working Capital

What it means → A measure of a company's cash inflows and outflows from its primary business activities.

How to interpret → A higher OCF indicates that a company has more cash available for its day-to-day operations, investments, and debt repayments.

​2. Free Cash Flow (FCF):​

Formula → FCF = Operating Cash Flow - Capital Expenditures

What it means → measures a company's cash flow available for distribution to its investors or for future investments.

How to interpret → A positive FCF indicates that a company is generating cash from its operations and can invest in new projects, pay dividends, or reduce debt.

​3. Cash Conversion Cycle (CCC):​

Formula → CCC = Days of Inventory Outstanding + Days of Sales Outstanding - Days of Payables Outstanding

What it means → The CCC measures the amount of time it takes for a company to convert its investments in inventory and receivables into cash, minus the time it takes to pay its suppliers.

How to interpret → A lower CCC indicates that a company is efficiently managing its working capital and has cash available to meet its obligations and invest in growth opportunities.

​4. Net Cash Flow Formula:​

Formula → Net Cash Flow = Operating Cash Flow + Investing Cash Flow + Financing Cash Flow

What it means → Net cash flow measures the total amount of cash generated or used by a company from its operating, investing, and financing activities.

How to interpret → A positive net cash flow indicates that a company is generating more cash than it is using.

​5. Discounted Cash Flow (DCF) Formula:​

Formula → DCF = CF1 / (1+r)1 + CF2 / (1+r)2 + ... + CFn / (1+r)n, where CF is cash flow, r is the discount rate, and n is the number of periods.

What it means → DCF is a method of valuing an investment or a company by discounting its expected future cash flows to their present value.

How to interpret → A higher DCF indicates that the investment or the company is expected to generate more cash in the future, which makes it more valuable.

​6. Present Value Formula:​

Formula → PV = CF / (1+r)t, where CF is cash flow, r is the discount rate, and t is the number of periods.

What it means → Present value measures the current value of a future cash flow, given a discount rate.

How to interpret → A higher present value indicates that the future cash flow is more valuable today.


There's so much more I want to include, but I included them for you in the infographic below

What would you add?

1️⃣ Subscription Revenue​

Recurring revenue from customers “subscribed” to your service

​2️⃣ Product Revenue​

Revenue from product sales

​3️⃣ Implementation & Setup Revenue​

Revenue from special projects related to onboarding, often times in the first few months

​4️⃣ Affiliate Revenue​

Revenue from affiliates

​5️⃣ Sponsorship Revenue​

Revenue from sponsors, often times used with conferences

​6️⃣ Gross Revenue​

Revenue before discounts / refunds / rev share

​7️⃣ Net Revenue​

Revenue any adjustments, such as discounts, refunds, rev share

​8️⃣ Expansion revenue​

Added recurring revenue from existing customers

​9️⃣ Contraction revenue​

A reduction in recurring revenue from existing customers

🔟 Marketplace revenue (Gross merchandise value)​

Gross revenue prior to any marketplace adjustments

​1️⃣1️⃣ SaaS Revenue​

Revenue from Software as a Service (often times recurring)

​1️⃣2️⃣ Monthly recurring revenue​

Revenue customers have committed to on a recurring monthly basis

​1️⃣3️⃣ Annual recurring revenue​

Revenue customers have committed to on a recurring annual basis

​1️⃣4️⃣ Pay per usage revenue​

Revenue based off of actual usage of an activity (like AWS)

​1️⃣5️⃣ Licensing revenue​

Revenue from licensing an asset

​1️⃣6️⃣ Interest revenue (more commonly referred as interest income)​

Revenue from a loan

​1️⃣7️⃣ Grant revenue​

Revenue from a grant, often times by the government

​1️⃣8️⃣ Other revenue​

A catchall for revenue that isn’t core to a business

​1️⃣9️⃣ Multi year revenue​

Revenue on a deal that has been committed to over multiple years

​2️⃣0️⃣ Premium revenue (gross premium)​

Revenue from charged premiums, most often found with insurance

​2️⃣1️⃣ Partnership revenue​

Revenue from partnerships - example can be referrals fees, rev shares


Did I miss any?

I hope you gained valuable insights into EBITDA, Month End Close processes, and Revenue Forecasting with this week's edition of Legit Numbers!

If you have any questions or need further assistance, feel free to reach out. I reply to all my emails personally :)

Till next Thursday!

bottom of page