The Illusion of Re-Forecasting: Why Leadership Mindset Matters in Stress and Distress

The Illusion of Re-Forecasting

I am no longer surprised when I hear the same story repeated. A business misses its plan, the forecast is recut, more liquidity is injected, and yet the re-forecast is missed again. On the surface, it looks like bad luck or external conditions. In practice, it is often a mindset issue.

What has really happened is that the CFO, although they may not admit it and may not even realise it, has worked backwards from the cash shortfall. They start with the liquidity gap and then re-cut the forecast to show how the business will make it through once the extra funding is in place. The logic feels reassuring, but it creates an illusion. The numbers are not anchored in operational reality. They are a narrative designed to bridge the cash hole.

The thing is, no one actually wants the business to fail. Not the CEO, not the CFO, and not the portfolio manager. Everyone wants to believe the plan will work. Psychologists would no doubt label it as bias. The outcome is familiar: the re-cut forecast goes forward, the plan reaches Internal Credit, and new cash gets invested.

At a human level it is easy to understand. There is an instinct to reduce pain quickly, even though we instinctively know it is delaying rather than fixing. Approving new money brings short-term relief, a sense of gratitude, even a temporary lift in morale. But it is pleasure bought on borrowed time. The underlying issues remain unresolved, and the cycle repeats.

If management were tougher with their assumptions, the reset might require a larger initial cash injection. That is uncomfortable, but it is often cheaper in the long run. What usually happens instead is that a smaller tranche is approved, based on softer assumptions, and when the second injection becomes unavoidable the first tranche is effectively written off. The end result is a steeper overall cash requirement, combined with damaged credibility.

The answer is not just more liquidity. It is more realism. That realism comes from pairing harder assumptions with a reset of the cost base. The goal is not indiscriminate cutting. The goal is to preserve and protect the capabilities the business genuinely cannot replace, while streamlining or removing what is non-essential. By irreplaceable, I do not mean the areas the team is attached to or the functions that feel nice to have. I mean the assets, skills, or channels without which the business cannot trade its way forward.

Handled in this way, decisive action does not hollow out the business. It restores credibility, creates breathing space, and allows investment and energy to be focused on what truly matters. That balance is what separates a credible reset from another cycle of hope and miss.

The answer is not to swing to the opposite extreme and become overly cautious. Accepting poor results as the new normal is just as damaging as clinging to unrealistic forecasts. The goal is to strike the right balance: hard-edged realism about the numbers, paired with ambition that challenges the team to deliver more than the bare minimum. The discipline lies in ensuring that ambition is rooted in what the business can actually achieve, not in what the spreadsheet suggests it might.

It is also where an external CEO Coach adds real value to stressed business teams. Internal leaders are often too close to make these calls without bias. A coach provides the perspective to distinguish between what is essential and what is optional, to challenge softer assumptions, and to support the CEO in making difficult but positive decisions with clarity and confidence.

When the Numbers Become the Story

In distressed situations the CFO is often seen as the custodian of the numbers, so they are tasked with “making it better.” The response is usually a re-cut cash flow model that shows how the business can trade through, provided the assumptions hold. On paper, it looks convincing.

The problem is that the entire management team often colludes, sometimes consciously but often without realising it. The CEO, COO, and others work with the CFO to build a model that tells a story everyone wants to believe. It is not malicious. It is human. No one wants to admit that the current plan cannot be made to work, so the reforecast becomes a collective act of reassurance.

The result is a plan that looks neat in the spreadsheet but is disconnected from operational reality. Everyone knows, deep down, that it is wishful thinking, but it buys time and postpones difficult decisions. That is why distressed businesses so often end up repeating the cycle of missed forecasts and emergency injections.

Plans Behind the Numbers

A reforecast without a plan is just arithmetic. If the model shows sales revenue ticking up in the second half, the obvious question is how. What will be done differently? Who will lead it? What resources are committed? Similarly, if production is forecast to increase, what changes will enable that? More people, more shifts, new suppliers, or process improvements?

The harder test is this: how will the business achieve more with less? Stress almost always means fewer resources, tighter cash, and restricted investment. If the numbers assume growth, above the current rate, under those conditions, the plan must spell out how it will be achieved. Otherwise, the reforecast is not anchored in reality.

This is where management teams often falter. The spreadsheet shows improvement, but the operational plan behind it is vague or missing altogether. Without clarity on actions, ownership, and timing, the reforecast becomes an exercise in optimism rather than a credible roadmap.

The discipline lies in forcing a direct link between forecast assumptions and practical actions. If the numbers say it will happen, there must be a plan that shows how, who, and when. Without that link, the model is not a forecast at all, it is a story.

Testing the Assumptions

The starting point in any reset is not the forecast itself but the assumptions behind it. Every model rests on judgements about sales volumes, pricing, margin, productivity, and costs. If these assumptions are weak, the entire plan is weak.

Before assumptions ever reach the CFO, the management team should stress-test them systematically. If sales are forecast to recover, what specifically will drive that increase? If margins are expected to hold, what is protecting them? If costs are assumed to reduce, how exactly will that happen?

Staggeringly, I have even seen sales assumptions which have been reverse engineered to make the numbers work, and even numbers which have never been seen by the sales team, those responsible for delivering them. When I ask the question around how sales assumptions have been arrived at, it is not uncommon to hear the CFO explain that they have “sensitised” the forecasts down to the current actual run rate, on the basis that sales cannot get any worse.

That logic can hold if the CFO is right, or if there is a sound reason for the seasonality of the sales curve to shift positively, or if a new contract is due to come online, meaning the forecast has “fat” built in. But if none of these factors are true, then there is likely an inherent issue with the forecast. It looks prudent on the surface but rests on an assumption that may have no operational reality behind it.

The challenge is that many of these are “obvious” questions, and that is why they often go unasked. Management Teams, and Portfolio Teams alike, assume that because something is self-evident, it must already have been considered. When asked, the answers are usually shaped by institutional history and bias: “we tried that before,” “the market will not allow it,” or “this is how we have always done it.”

This is where an external perspective is valuable. An outsider can ask the basic questions without apology, cut through the weight of history, and force clarity where insiders might accept assumptions at face value. It is not about being clever. It is about making sure that obvious questions get proper answers, not recycled justifications.

Signals the Mindset is Stuck

In boardrooms under pressure, the signs are often clear:

• Meetings are spent explaining results rather than creating solutions.

• Forecasts are revised but never re-based to reality.

• Cash management becomes reactive, with surprises rather than control.

• Conversations with funders are avoided, overly polished, or defensive.

These signals show a leadership team trapped in business-as-usual thinking while the business is no longer operating in business-as-usual conditions.

Common Traps for CEOs in Distress

Patterns repeat across businesses, regardless of sector. The most common traps I see include:

• Waiting too long to share bad news with stakeholders, hoping to “fix it quietly.”

• Confusing optimism with a plan, relying on momentum rather than action.

• Believing that BAU plus cost-cutting equals a turnaround strategy.

• Retaining loyalty to managers who cannot adapt, at the expense of the wider team.

These behaviours are understandable. They stem from deep commitment and fear of loss. But left unchecked, they narrow options and erode confidence further.

Stress and Distress

Not every challenging situation is the same. Many businesses operate under stress for long periods before they fall into full distress. Recognising the difference matters, because the mindset required from the CEO and senior team changes as the pressure rises.

• Stress: The plan is being missed, margins are tightening, and cash feels pressured. Stakeholders begin to lose confidence, but options remain open. At this stage, the shift in mindset is about facing reality without defensiveness, re-basing expectations, and tackling issues early. Leaders who handle stress well often prevent it from sliding into something worse.

• Distress: Liquidity pressures are clear, covenants may be breached, and stakeholder confidence is fragile. The mindset must now move from protecting the past to managing reality head-on. That means open communication, ruthless prioritisation, and the willingness to make difficult choices quickly.

• Severe distress or crisis: Liquidity is critical, options are narrowing, and leadership confidence may be breaking down. The required mindset is one of calm authority, where the CEO and team reset the business decisively and demonstrate clarity under pressure.

Most businesses are somewhere on the stress side of this spectrum, not in outright crisis. But left unchecked, stress often becomes distress. The ability to adapt the leadership mindset to the level of challenge is what preserves credibility and gives the business the best chance to move forward.

Shifting the Perspective

The transition is uncomfortable but necessary. Here are some mindset shifts that open the way forward:

• From “protecting last year’s plan” to “what is achievable now with the resources available.”

• From “defending past decisions” to “extracting lessons we can use immediately.”

• From “how do we make the numbers look better?” to “what structural changes reset the business.”

• From “cash preservation at all costs” to “balancing liquidity with long-term viability.”

These reframes move the leadership team out of defence and into opportunity creation.

The Tension Between Short-Term and Long-Term

In distress, the urgent often overwhelms the important. Survival measures are essential but can be costly if left unbalanced. For example:

• Freezing recruitment saves cash but risks killing future sales momentum.

• Deferring supplier payments preserves liquidity but damages trust and supply.

• Reluctance to re-base the plan creates a cycle of “hope and miss” that destroys credibility.

Strong leadership is about recognising these tensions early and making deliberate trade-offs, not just defaulting to the path of least resistance.

The Role of a CEO Coach

In these conditions, the value of a CEO Coach goes beyond being a sounding board. The role is to create space where the CEO can step out of the defensive cycle and confront reality with clarity. A coach can:

• Surface uncomfortable truths without triggering the baggage of boardroom politics.

• Help establish new rhythms of review so cash, sales, and operational drivers are clearly visible.

• Challenge assumptions that keep the leadership team stuck in old patterns.

• Balance authority and empathy, supporting the CEO to hold confidence while insisting on change.

One CEO I supported had just come out of a tense board meeting where a funder gave direct but fair feedback. His immediate response was defensive. Afterwards, I spoke with him privately, framing the feedback as a chance to rethink. An hour later he called me: “I now see it is an opportunity to re-imagine the business.” That was the moment his mindset shifted, and it unlocked the team to move with him.

Final Thought

In distressed situations, mindset is as important as money. A CEO Coach helps leaders shift from defence to opportunity, confront reality with clarity, and rebuild confidence without losing authority. With the right support, CEOs can align their teams around a re-based plan and give the business its best chance not only to survive but to recover with strength.