The three columns
Actuals must agree with the audited statements exactly. If they do not, the bank will find the difference, and everything after it becomes suspect.
| Column | Means | Source |
|---|---|---|
| Actual | Completed years | Audited financial statements |
| Estimated | The year currently in progress | Actuals to date, extrapolated to year end |
| Projected | Future years | Assumptions applied to the estimated base |
Seven checks on the projected columns
- Does every projected year balance, not just the first?
- Do reserves move by exactly profit after tax less drawings?
- Do loan balances reduce in step with the repayment schedule?
- Does the net block reduce by the depreciation charged in the P&L?
- Do current assets and liabilities reflect the stated holding assumptions?
- Does closing cash agree with the cash flow statement?
- Is each assumption stated rather than implied?
Why year three is where errors surface
Year one is usually built carefully. Year two inherits year one. By year three, a small break in one link — depreciation not carried forward, a loan balance not reducing — has compounded into a visible imbalance. Anyone reviewing a manually built projection should check the later years first, because that is where a broken chain shows.
Optimism is not the problem
Banks expect projections to be positive; nobody applies for a loan projecting decline. What draws scrutiny is optimism that is unexplained — margin improving every year with no stated reason, or receivables shortening while turnover grows. Growth is credible when the report says what drives it.