Five forecast assumptions a reviewer will challenge

Forecasts are necessary in a loan application because the proposed facility changes what the business can do. They become credible when key assumptions are visible and anchored to evidence.

1. Sales volume

Separate signed orders, repeat-customer expectations and new prospects. Historic monthly volume is a useful baseline; explain capacity or contract changes behind any step-up.

2. Collection timing

Revenue in the income statement is not necessarily cash that month. Use actual debtor days and distinguish cash, card and account customers. A forecast that assumes every invoice is collected immediately will overstate the balance available for instalments.

3. Gross margin

Support the margin with recent product mix, supplier quotes or contracted rates. If the loan funds equipment expected to reduce unit cost, show when that saving begins and allow for commissioning.

4. Owner contribution

State whether the contribution is cash, equipment or costs already paid. Cash should be visible in the relevant account or backed by evidence of availability. Do not show the same contribution as both opening cash and a later receipt.

5. Working-capital cycle

Growth usually requires stock or labour before customers pay. Map purchase terms, production time, delivery and collection. This timing can increase the facility need even when each sale is profitable.

Add a note beside each material assumption naming its source. A reviewer can then challenge the judgement without guessing how the number was formed.