Do not underestimate revenue or overestimate expenses, on your projections.

I hear it so often, its almost universally accepted and stated to me by so many clients with the self assurance that they are demonstrating wisdom, knowledge, prudent leadership, and not only doing what they truly believe they should be doing, but also they anticipate what I would expect and want to hear.

Since I am hard on my clients, positive feedback is valuable to them, being right is a good thing,  so what choice does any good entrepreneur have….they do what they believe they must and should, because its smart and appropriate, they cook their own projections.

They use artificial, make believe, assumptions which guaranty a commitment to achieving lower objectives. This practise builds in a back door, an escape hatch, so they do not really have to perform to a higher standard. This all results in the business owner creating a supporting business plan capable of delivering to the lower standards and accomplishments projected, the more costly less efficient and less productive plan, thus making the plan intrinsically flawed…. intentionally.

They believe that if there are additional revenues and less expenses down the line, then projected, they will have more profit and that’s good, we can spend it then, not a problem. If they project lower revenue and higher expenses they will more likely beat the projections and look good!

Isn’t that the silliest thing you have ever heard?

All it does is create a business plan which is designed to perform at the worst level as opposed to doing everything possible to reach higher expectations and achieving greater goals.

Here is how and why they do it, “….just to be conservative and not over do it, thus projecting inaccurately, they purposefully understate the revenue and overstate the expense side, to be safe, they say, so the resulting numbers demonstrate a low hurdle objective which they say they will beat, that frankly will typically yield failure. As this results in all your resources being designed to deliver this fictitious result….but they believe this approach will make them look good.

Every one does it believing this is the best way to effectively project and plan…conservatively.

I disagree 100%. Its a huge mistake and I challenge anyone to defend the action, but first let me tell you the right way to project, the way I do it.

ACCURATELY…..

I understand projections are part vision, part experience, part science, part reality, part fantasy, but we still have the responsibility of projecting as accurately as possible, neither overstating nor understating revenues or expenses. The numbers proposed should truly be the numbers that they believe will occur, so they have the right number of employees, the proper inventory, appropriate infra-structure, supplies, a sales and marketing system accurately supporting likely results, and adequate financial support and capital to implement the plan we want to deliver.

Accurate projections are an important skill the entrepreneur must develop, and had best be learned and used effectively. It can be done, it takes time, help and focus, and the correct guidelines. Underestimating is not one of them.

If lacking in any area of the business plan, or if requiring development over time, a ramp up, which was not projected accurately, there may need to make adjustments to the projections, but that still requires an accurate original presentation as a base point, with ongoing adjustments based on reality, a natural part of the ongoing  evaluation and re-evaluation process.

Its a guide, a work in process which never stands still and is always changing. Therefore misstated projections will yield a different plan then intended, a worse plan, perhaps a failing plan, but all in the name of conservatism, as if that is a benchmark or a goal…not for me.

So when you hear yourself proudly say well, lets cut the sales projections by 10% JUST TO BE CONSERVATIVE, or lets estimate expenses higher then I believe they will be, just to be on the safe side! I say bull—-!

Lets state the projections accurately as possible and make adjustment as required along the way, so we can manage the business we want and not the one we designed being conservative. That’s how I would do it….and then succeed, do it, reach the goals projected.

Be accurate not conservative….achieve greatness, plan for it. Be reasonable but not safe…safe actually creates instability and leads to failure. Projections are a planning tool, let them do their job, as a projection will only work if the numbers tell an accurate story, the one you believe.

Its a map and will take you were ever you want to and can go. Use it wisely… be accurate. Call if you need help 413-549-2966.