#1. Unrealistic projections of revenue
One of the most common types of revenue projections is the classic “hockey stick” projection. This is a type of forecast where revenue suddenly shoot up in the forecast period by applying a suddenly high growth rate. There are obviously some concerns with this. Bear in mind that this is not to say that it's not possible for a company to follow a hockey stick revenue growth trajectory, but it does require some serious scrutiny.
Some questions that should be asked:
- is the growth in line with the industry?
- what is the size of the market?
- what is the company's strategy to achieve this growth?
- what is the economic outlook for the region the company operates in?
- what is driving the growth? Is it new customer acquisition... increase in market share.... acquisitions... innovation... new product offering?
- how sustainable is it?
It is important to have a very close look at what is driving the growth in revenue. It would be prudent to look at the specific levers of growth to understand if they are realistic and sustainable. When a business valuation simply