Building a 3-statement model

Building a 3-Statement Financial Model

A 3-statement model is the backbone of financial planning and analysis. It connects a company’s three core financial statements:

the Profit & Loss (Income Statement), Balance Sheet, and Cash Flow Statement into one fully linked, dynamic model.

This structure allows you to forecast how operational decisions impact not just profitability, but also cash and capital structure over time.

What Is a 3-Statement Model?

At a high level:

• The P&L (Income Statement) forecasts revenue, expenses, and net income

• The Balance Sheet shows the company’s assets, liabilities, and equity at a point in time

• The Cash Flow Statement tracks how changes in the P&L and Balance Sheet affect cash

By linking these three statements together, you can:

• Ensure your forecasts are internally consistent

• Understand the cash impact of timing differences like AR/AP and capex

• Analyze debt and equity changes alongside operating results

Why Use a 3-Statement Model?

Benefits:

• Provides a complete financial picture—profitability, liquidity, and leverage

• Enables accurate cash forecasting and runway analysis

• Forms the foundation for valuation, debt planning, and board reporting

• Aligns with GAAP and investor expectations

Drawbacks:

• More complex to build and maintain than simple operating models

• Requires careful attention to timing (e.g. depreciation, working capital)

• Often overkill for very early-stage businesses or limited-scope plans

When to Use One

3-statement models are ideal when:

• You're fundraising or reporting to investors

• You need to track both profitability and cash flow

• Your business involves long sales cycles, capex, or financing decisions

In this guide, we’ll walk through how to build a clean, connected 3-statement model in Pluvo, using dynamic variables, formulas, and links between your statements to drive an accurate and flexible forecast.

Let’s get started with the P&L.