Nothing is worse than a forecast that is hopelessly unrealistic.
If the results cannot be achieved or are over optimistic they should not be used. If someone does lend money, or relies on your forecast, you may destroy a relationship at best, or default on a repayment schedule.
Financial forecasts must be based on realism. If they are too good they will not be believed. You need to check where the business is and has been, and why it will be different.
As one ex Banker says to me “All the business plans I have read start, once upon a time and end happily ever after”. He will say the same for the financial forecasts associated with them.
There are three components, sales, gross margin and overheads.
Are the sales realistic? What makes you think they will grow at that rate or be maintained if the sector outlook is bleak? There must be a rationale.
Is the gross margin correct? What is the labour content, the material content and the subcontractors? How do your figures compare with others or the market? If they are better, what are you doing or offering that is so special it gains a premium? If they are really high, how long will it last before others come in with competing products.
What are your overheads compared with the market and the best in class. If they are far out why is this? It is quite normal to say that you can do without things, that you subsequently find you need.
You must have a fall back position. What will you do if the plan does not work?
Finally, forecasts are forecasts- events outside your control will affect them. However, if you follow careful practice they will not be hopelessly wrong from the start. Plan away!