# 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](/guides/building-a-3-statement-model/profit-and-loss-p-and-l.md).


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