Vinu: Manu, financial projections often look perfect, but reality turns out very different. Why do forecasts fail?

Manu: Because they are built on assumptions, not realities, Vinu. Most projections are overly optimistic on revenue and too conservative on costs.

Vinu: What’s the most common mistake?

Manu: Overestimating sales. For example, projecting revenue growth from ₹10 crore to ₹18 crore without capacity, market demand, or team expansion is unrealistic.

Vinu: And on the cost side?

Manu: Costs are usually underestimated. A business may budget expenses at ₹6 crore, but actuals reach ₹7.5 crore due to inflation, inefficiencies, or scale-related costs.

Vinu: How does this impact decision-making?

Manu: It creates false confidence. Based on inflated projections, businesses may take loans of ₹3–4 crore, leading to repayment stress when actual cash flows fall short.

Vinu: So how should projections be built realistically?

Manu: Start with historical trends. If the business has grown at 12% annually, projecting 70% growth needs strong justification.

Vinu: Should assumptions be documented?

Manu: Absolutely. Every number must have a logic—pricing, volume, cost increases. For example, if raw material is expected to rise by 8%, it must reflect in projections.

Vinu: What about cash flow projections?

Manu: They are critical. Even if projected profit is ₹1.2 crore, delayed collections can create cash gaps. Always align projections with cash cycles.

Vinu: How do high-performing teams improve accuracy?

Manu: They use scenario analysis.

Best case: ₹15 crore revenue

Base case: ₹12 crore

Worst case: ₹9 crore

This prepares the business for uncertainty.

Vinu: Any role for regular review?

Manu: Yes. Projections should be compared with actuals monthly. If there’s a ₹50 lakh deviation, assumptions must be corrected immediately.

Manu: Realistic projections are not about impressing stakeholders—they’re about guiding decisions.

Build them with logic, test them regularly, and stay grounded in reality.

Manu: Exactly. Accuracy in forecasting leads to stability in execution.

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