The Numbers You Inherited Are Not the Numbers You Think They Are

The projections you were handed are probably optimistic

In my experience, business plans built by outgoing management teams are almost always optimistic — not because people lie, but because the plan was built to get approved, to get funded, or to get you hired. It was not built to be stress-tested. Across the transitions I have seen in beauty, consumer, and healthcare, roughly seven out of ten fall short of projected margins by 300 basis points or more once someone actually pressure-tests the assumptions.

Management forecast quality is one of the strongest predictors of whether a business performs after a transition. If the team that wrote the plan had a track record of missing projections by 10–20%, the plan you inherited carries that same bias. And in most cases, nobody stress-tested the plan before it was handed to you — about four out of ten due diligence processes fail to even produce an adequate roadmap, let alone a validated plan.

The question is not whether the projections are aggressive. Statistically, they are. The question is which assumptions specifically will break, and what that does to the P&L, the cash position, and the strategy you are about to commit to.

The margins are not what the P&L says

In every leadership transition I have been involved with, the first surprise is the margin. The specifics depend on sector. In beauty, it is influencer and creator fees misclassified, trade spend netted incorrectly, and DTC fulfilment costs buried in operating expenses. In consumer goods, it is freight booked as opex instead of cost of goods, slotting fees and trade promo spend accounted for inconsistently, and co-packing costs split between COGS and SG&A with no clear logic. In healthcare, it is R&D capitalised when it should be expensed, contract manufacturing variances hidden in cost of goods, and compliance costs allocated inconsistently across product lines. Once you restate for these, the real margin is typically 200 to 800 basis points lower than what the P&L shows.

The previous team had no incentive to restate. You do.

There is a second layer that is particularly acute in leadership transitions: deferred investment. Outgoing management often cuts spending in their final 12–18 months — either to hit targets or to dress up the numbers for the handover. In beauty, that means packaging redesigns and reformulation costs deferred. In consumer, production line maintenance and warehouse upgrades postponed. In healthcare, lab equipment servicing skipped and quality system upgrades delayed. That is not a rounding error. It is a structural gap you will have to fund from the budget you were told you would have.

The gap between presented EBITDA and independently confirmed EBITDA typically runs 15–30%. The board is holding you accountable for a number that may not be real.

The plan does not show where the cash goes

Across beauty, consumer, and healthcare, EBITDA-to-free-cash-flow conversion of 50–70% is normal. That means 30–50 cents of every EBITDA euro never becomes cash. The board saw EBITDA. You need to see cash.

Where the cash goes depends on the sector. In beauty, a single product launch can lock €150–400K in inventory before the first unit ships — run four to six launches per year and the cash requirement is structural. In consumer goods, entering a new retail chain can tie up €200–500K in launch inventory, slotting fees, and promotional allowances before the first purchase order clears. In healthcare, a single regulatory submission can cost €200–800K with no revenue for 12–24 months.

I have seen companies enter distress with perfectly healthy-looking EBITDA because nobody mapped the cash conversion cycle. The P&L looked fine. The bank account did not.

The normalised EBITDA you were told is probably not achievable

Every SME adds back one-off costs. In beauty, it is a brand relaunch, a failed product line, influencer contract buyouts. In consumer, a product recall, a failed market entry, supply chain restructuring. In healthcare, a clinical trial, a regulatory remediation, a product recall. The adjustments typically range from 10–25% of reported EBITDA. I have seen bridges with a dozen add-backs totalling 30–40% of stated earnings — at which point you are not looking at normalisation, you are looking at a business that structurally costs more to run than the P&L admits.

The add-backs most likely to be wrong are recurring costs labelled as one-time. In beauty, an influencer programme that runs every season is not a one-off. In consumer, trade promotion spend that appears every quarter is not exceptional. In healthcare, quality system remediation that happens every audit cycle is not temporary. When these adjustments do not hold up, the damage is multiplicative — €200K of failed add-backs at an 8x multiple is €1.6M of enterprise value that was never there.

There are rare legitimate exceptions, particularly in healthcare. Late-stage clinical trial costs are genuinely non-recurring once the trial completes. But even these get challenged by investors who are not healthcare-educated — they have seen "one-off clinical cost" too many times to take it at face value. If you cannot defend an add-back in two sentences, it should not be in the bridge.

The previous team set an expectation for normalised earnings. You are now accountable for delivering it. Find out whether that number is real before the board holds you to it.