Your budget sets out a trajectory.
Has it allowed for variances ?
Revenue is growing. Margins remain stable. A new hire is planned. An investment is due to be committed in the first half of the year.
Taken as a whole, the forecast is coherent.
But what happens if growth is weaker than expected? If payment periods lengthen? If two percentage points of margin are lost, or if a hire is made several months before the increase in activity it was intended to support ?
A budget can be perfectly well constructed and still rest on a much more fragile balance than it may appear.
The question, therefore, is not simply whether the assumptions adopted for 2027 are reasonable.
You also need to know which one would be enough to force a decision to be reconsidered.
The current environment makes this even more important. According to the Banque de France, revenue among SMEs excluding micro-enterprises increased by only 1.5% in 2025, compared with an average of 4.2% between 1997 and 2019. Financial fundamentals remain broadly sound, but the debt-servicing capacity of some businesses has weakened, while the apparent cost of debt for SMEs rose slightly again in 2025.
Test what could actually undermine your budget
A forecast becomes a management tool when it makes it possible to identify the variances that could force a decision to be reconsidered.
A budget can be coherent and still be fragile
A forecast necessarily relies on assumptions.
Activity levels, selling prices, margins, payroll costs, investments, payment terms and financing costs : each variable contributes to the expected outcome.
The risk emerges when several decisions simultaneously depend on the same favourable assumption.
Expected growth may, for example, justify a new hire, finance an investment and enable the business to absorb an increase in fixed costs.
As long as the assumption holds, the model works.
But if activity grows more slowly than expected, several balances may be affected at the same time : margins, cash flow, investment capacity or the ability to meet financial commitments.
Testing a budget is therefore less about multiplying scenarios than identifying the assumptions on which its robustness genuinely depends.
Not all assumptions carry the same weight.
Do not simply forecast the downside scenario. Identify the breaking point.
The traditional budgeting approach often involves building several scenarios : base, upside and downside.
This method remains useful, but it can be complemented by a different question :
At what level of variance does the planned decision cease to be sustainable ?
In the financial sector, this approach is used in particular in reverse stress testing exercises. The analysis starts with a situation that one wants to avoid, then identifies the events or combinations of factors that could lead to it.
The European Central Bank notably used this method in 2026 to assess how banks could be affected by different geopolitical risks.
Applied to business management, the principle is straightforward.
Instead of asking :
« What happens if our revenue falls by 10 % ? »
the question becomes :
« How far can our activity slow before the planned investment has to be deferred ? »
The same analysis can be applied to the other variables in the budget.
A decline in margin can undermine the company’s ability to self-finance.
Longer customer payment periods can create a cash requirement even while the business remains profitable.
An increase in payroll costs incurred too early can significantly reduce the company’s room for manoeuvre.
A higher cost of financing can alter the economics of an investment.
The objective is not to systematically look for the worst-case scenario.
It is to identify the limits beyond which the company needs to act.
The most important number is not always the one in the budget
A budget may forecast €10 million in revenue, a given margin and an expected level of cash at the end of the financial year.
These figures establish a trajectory.
But when managing the business, other figures may become even more important :
The margin level below which an investment should be reassessed.
The average payment period beyond which working capital requirements become a concern.
The cash level that requires financing to be anticipated.
The level of activity required before triggering a new hire.
The level of debt beyond which a new project should be postponed.
These thresholds change the way the forecast is interpreted.
The company no longer simply observes that it is moving away from its budget. It knows at what point a variance should trigger the reassessment of a decision.
This distinction is particularly important given that business failures remain at a high level. At the end of July 2026, the Banque de France recorded 70,605 business failures over a twelve-month period. The Banque de France nevertheless points out that this situation also comes against a backdrop of growth in the number of businesses, meaning that this figure should not be interpreted in isolation.
The objective is not to build a defensive budget.
It is to identify, early enough, the variances that could affect the company’s ability to act.
A good budget should include decisions prepared in advance
A forecast becomes particularly useful when the thresholds identified are linked to specific actions.
If margins deteriorate beyond a defined level, which investment can be deferred ?
If customer payment periods increase significantly, at what point should collection efforts be stepped up or working capital financing be reviewed ?
If activity grows more slowly than expected, which hires can be postponed without affecting operations ?
If cash falls below a defined threshold, when should discussions with financing partners begin ?
These decisions are easier to make when they have been considered before the variance occurs.
Conversely, waiting until the difficulty appears in the accounts often places management in a reactive position.
A budget should therefore do more than forecast numbers. It should prepare decisions.
KAERUS analyses in particular
– The assumptions that genuinely determine expected performance
– Their impact on margins, working capital requirements and cash flow
– The consistency between activity levels, recruitment and investment
– The financing capacity available for planned decisions
– The thresholds beyond which certain trade-offs should be reassessed
– The indicators that make it possible to identify a significant variance early enough
This makes it possible to distinguish between variations with no major consequences and those that can genuinely alter the company’s trajectory.
It also helps avoid a common pitfall: continuing to measure the variance against the budget when the decision based on that budget should already have been reviewed.
Forecasting 2027 is not about guessing 2027
No forecast can predict twelve months of business activity with complete precision.
Its quality therefore does not depend solely on how close the actual outcome is to the figure originally forecast.
It also depends on its ability to reveal the variables to which the company is genuinely exposed and to give management enough time to act.
A robust budget is not one in which every assumption proves correct.
It is one that remains useful when they do not.
Kind regards,
Rabah Lamraoui
Chartered Accountant
www.kaerus.fr
