The Real Reason Your Financial Forecasts Are Always Wrong
Financial forecasts are meant to guide your decisions, but too often, they mislead. And it’s not just the spreadsheet’s fault. And why it’s not just the spreadsheet’s fault
The Illusion of Precision
Most financial forecasts look impressive on the surface—sleek spreadsheets, tidy charts, and a reassuring upward curve. But beneath the formatting lies a problem: they rarely reflect reality. Founders often build forecasts with the best of intentions, but what they end up with is a polished illusion. The numbers might add up, but the assumptions don’t.
Many financial forecasts fail because founders rely on idealised assumptions rather than realistic data.
Optimism vs Accuracy
Forecasting is more than a technical exercise. It’s a reflection of how well you understand your business—and how willing you are to confront its complexities. Optimism plays a huge role here. Entrepreneurs are wired to believe in possibility, which is essential for building something from scratch. But that same optimism can distort financial planning.
Daniel Kahneman, the Nobel Prize-winning behavioural economist, described this phenomenon as the “planning fallacy”—our tendency to underestimate costs, timelines, and risks, even when past experience suggests otherwise. Read more here. In business, this fallacy shows up in forecasts that ignore seasonality, overestimate demand, and assume perfect execution.
It’s not just about fixing spreadsheets, it’s about fixing how we build financial forecasts from the ground up.
The Spreadsheet Isn’t the Villain
The spreadsheet itself isn’t the problem. It’s just a tool. The real issue lies in the assumptions baked into it. Many forecasts are built on shaky foundations: sales targets based on gut feel, cost estimates that overlook inflation or churn, and timelines that assume a level of operational efficiency that simply doesn’t exist. If your business has seasonal fluctuations but your forecast shows a smooth upward line, you’re not planning—you’re storytelling.
Why Best-Case Thinking Backfires
Comforting as they may be, best-case scenarios are misleading. When things go wrong—and they inevitably do—you need to know how bad it could get and how you’ll respond. That’s why at WrightCFO, we build forecasts that include worst-case scenarios, stress tests, and sensitivity analysis. It’s not about being pessimistic. It’s about being prepared.
Budgeting ≠ Forecasting
A budget is aspirational—it’s what you hope to achieve. A forecast is predictive—it’s what’s likely to happen based on current data. Mixing the two leads to poor decisions. You might spend based on targets that aren’t grounded in reality, and when the numbers don’t align, you’re left scrambling. Investors, by the way, can spot this a mile off. They’re not just looking at your numbers—they’re assessing your judgement.
Forecasting as a Strategic Weapon
When done properly, forecasting becomes one of the most powerful strategic tools in your business. It helps you decide when to hire, when to raise capital, and when to pull back. It gives you visibility into your cash flow, clarity around your margins, and confidence in your decision-making. It’s not just about survival—it’s about control.
Strong financial forecasts give leaders visibility, control, and the confidence to make the right calls.
At WrightCFO, we treat forecasting as a living process. It’s not something you do once a year and forget. We update models monthly, challenge assumptions, and tie forecasts directly to strategic decisions. Because numbers without context are just noise. And context is where the real insight lives.
How to Build a Forecast You Can Trust
If you’re serious about scaling, it’s time to rethink how you forecast. Start with actual data, not ambition. Build conservative assumptions. Model multiple scenarios. Include buffers for the unexpected. And most importantly, revisit your forecast regularly. A model built in January won’t help you in September if the market shifts, your costs change, or your team grows.
And if you’re too close to the numbers to see the flaws, bring in someone who isn’t. A good fractional CFO will challenge your thinking, spot blind spots, and help you build a forecast that reflects reality—not fantasy.
Final Thought: Forecasts Reflect Understanding
Your forecast should be something you’d bet your business on. If it’s not, it’s time to rebuild. The best financial forecasts aren’t just numbers, they’re reflections of how deeply you understand your business.
At WrightCFO, we don’t just build models. We build clarity. And clarity is what scaling businesses need most.
This article was originally published here on LinkedIN on September 10th, 2025.
