A quick primer on forecasts: create a forecast that looks like the inverse of your Capital Stack. The higher someone is on the Capital Stack, the more confidence they’ll want that the business is performing to plan. Therefore, you should adjust the aggressiveness of the forecasts for the audience and their relative position in the Capital Stack.

Starting with the common shareholders at the bottom of the Capital Stack, your internal forecast should be the stretch goal for the company. This plan should be at the edge of what is achievable for the business. This ambition can fuel a relentless pursuit of outsized results that can lead to a successful outcome large enough to change the lives of those at the bottom of the stack. But, being a stretch goal, there’s a higher probability of failure.

Your board forecast should be aggressive. Balance that ambition with achievability. Growth is paramount for equity investors and can’t be ignored. But, you’ve given them ownership and control in your business, and that could spell disaster if you consistently miss your overly ambitious goals. Adding in a more significant margin of error can mean the difference between looking like a hero or looking for a job.

Setting a lender forecast requires additional adjustment. The lender will use your projections to establish the requirements and covenants in your debt agreement. The goal for the lender is not to get a 10x return; it’s to get their money back at the agreed-upon rate and schedule. Therefore, when preparing a forecast to share with lenders, you should be aiming for “just right.” High confidence in achievability while maintaining aggressiveness. The framework should look something like this:

*Warning* — the different approaches to forecasting should not look like entirely different businesses! Too often, companies make the % difference between the three too stark. Managing expectations can be more art than a science, but you should not have more than a 25% difference between forecasts.

Equity investors love a significantly ambitious forecast, even if confidence to achieve it is low. Smoothing the divergence of forecasting curves between ambition and confidence is critical to building a productive working relationship with lenders. They’ll trade outsized ambition and upside for consistent and measured performance every time. Conversely, sharing an overly optimistic or pessimistic forecast with lenders can result in a worse deal for the company.