Reliable projections allow business appraisers to more accurately value a company’s future cash flows.  Good projections can measure a company’s growth prospects or its future decreasing profitability.  Often companies are overly optimistic about their future prospects.  This positive bias can lead to rosy projections that overstate revenues and understate expenses.  Past projections should be compared to actual results to see if there are projection biases.  Please see our Financial Projections newsletter for more information on this topic.

Unreported income is difficult to quantify but can be estimated by analyzing a company’s bank statements, its expense records and also by analyzing the physical activities that are associated with a business’s revenues.  Please see our February newsletter on how to quantify unreported income.