Financial Forecasting: 30 Key Terms

By Devon Coombs, CPA, MBA · Teaching Professor of Finance, Santa Clara University · Reviewed August 2026

Financial forecasting is the practice of projecting a startup's revenue, costs, and cash position forward in time so that founders and investors can estimate financing need before capital runs out. The vocabulary spans model construction, such as the assumptions section and bottom-up versus top-down builds, alongside the outputs a forecast typically produces, including gross burn, gross margin, and compound annual growth rate. Working knowledge of terms like logo churn and fully loaded cost helps a reader judge whether a model's growth and cost inputs are credible, as taught in the free Entrepreneurial Finance course.

These terms are taught in Week 4: Financial Forecasting for Startups of the free Entrepreneurial Finance course; the full course glossary collects every chapter in one place.

Assumptions section: A dedicated, labeled area holding every input, so one change flows through the whole model. A core modeling guideline.
Bottom-up vs top-down: Bottom-up builds revenue from specific activities (reps, units, price); top-down assumes a share of a market. Operating plans are bottom-up.
Cash flow model: The model that shows whether the business survives. Revenue is not cash; a company can be profitable on paper and still run out of money.
Compound Annual Growth Rate (CAGR): The constant annual rate that links a beginning and ending value over n years: (Ending / Beginning) to the 1/n power, minus 1.
Financing need: Cumulative net burn to the target milestone + minimum cash − cash on hand. The amount a pre-profit company needs to raise.
Forecast: A structured hypothesis about what could happen and a framework for responding when reality diverges, not a point prediction.
Fully loaded cost: Salary plus benefits, payroll taxes, equipment, and recruiting. A common multiplier is 1.25 to 1.4 times base salary.
Gross burn: Total monthly cash outflows across payroll, rent, hosting, marketing, and everything else.; Gross burn vs Net burn
Gross margin: (Revenue − COGS) / Revenue. The share of each revenue dollar available to fund operations, sales, and growth.
Linear vs compound growth: Linear adds a fixed amount each period; compound applies a fixed rate, so early absolute gains are small and later years accelerate on a larger base.
Logo churn: The percentage of customers who cancel in a period, counting customers regardless of their contract size.
MARCS framework: A practitioner forecasting loop: Measurable (clean data), Aspirational (build the baseline), Realistic (stress test), Controllable (isolate drivers), Sequenced (layer strategy and track).
Minimum cash balance: The floor below which the company generally cannot operate safely, often 3 to 4 months of gross burn.
Net burn: Monthly cash outflows minus monthly cash inflows. It determines how fast capital is consumed.; Gross burn vs Net burn
Next Twelve Months (NTM): The forward 12 months based on forecast or consensus estimates. It depends heavily on management assumptions.
Permanent variance: The result did not happen or the assumption was wrong. Update the model to the new reality immediately.
Pipeline conversion: The share of qualified opportunities that close. Working back from a target sets the opportunities, and thus the marketing and SDR need.
Required opportunities: Revenue target / (average deal size × pipeline conversion rate). The pipeline the team needs to generate to hit plan.
Revenue churn: The percentage of MRR lost from cancellations and downgrades. It can differ from logo churn when customers have different values.
Rolling forecast: A forecast that continuously covers a fixed forward window, dropping the completed period and adding a new one, so assumptions stay fresh.
Run-rate revenue: The most recent month or quarter annualized. Current but prone to overstating when a spike or seasonality is present.
Sales cycle: The average days from first contact to closed deal. Ignoring the lag front-loads revenue relative to reality.
Sales team headcount model: A revenue model driven by productive reps: headcount by hire date, productivity after a ramp, times units per productive rep.
Scenario analysis: Changing many variables at once to build distinct futures: bull (best), base (most likely), and bear (worst).
Sensitivity analysis: Moving one variable to measure its impact and find single points of failure. It reveals which assumption matters most.
Static budget: A fixed annual plan set once and measured against all year, which grows stale as reality diverges.
Time to productivity (ramp): The delay before a new hire is fully effective, typically 60 to 90 days for sales reps. Cost lands on the start date; revenue lags.
Timing variance: The result happened in a different period than planned. Revise the timing assumption, not the strategy.
Trailing Twelve Months (TTM): The most recent 12 consecutive months of a metric: last full fiscal year + current YTD − prior-year same YTD. Also called LTM.
Variance analysis (FvA): Forecast versus actuals: Variance = actual − forecast, then classify each variance to decide the response.

More Entrepreneurial Finance term guides

Put the vocabulary to work: the free calculators and decision guides apply these terms, and the free Entrepreneurial Finance course teaches them in context.