When Investment Thesis Meets Repeated Budget Misses

In a recent LinkedIn post, Lee McCabe discusses how repeated budget misses can expose flaws in an acquisition thesis—and why boards should scrutinize deal assumptions as closely as management forecasts. This article reports on McCabe’s argument and analysis; it is not written by McCabe.

“By the fourth missed budget, the investment thesis should be on probation. Somehow, it’s always the CFO.”

When explanations replace revised assumptions

McCabe describes a pattern in which successive shortfalls are attributed to timing, macroeconomic conditions or difficult comparisons, while the original investment thesis remains untouched. In his account, the fourth miss can bring blame onto a finance leader rather than a fresh examination of the assumptions behind the deal.

As McCabe notes, an investment committee may remain “confident in the underlying thesis” even as results repeatedly depart from the plan. His post questions whether that confidence reflects evidence or attachment to an earlier forecast. The person who built the spreadsheet may have moved on, he observes, while the projections continue to shape decisions.

“There’s a point where resilience becomes refusal to update your assumptions.”

Why unrealistic forecasts affect operations

According to McCabe, a forecast should change when trading data contradicts its premises. If customers take longer to sign, the sales-cycle assumption should be revisited; if price increases push customers away, the pricing thesis deserves scrutiny. And growth that depends on unfilled roles should not be counted as though those employees are already in place.

Instead, McCabe warns, expected earnings may be shifted into the second half, leaving December to carry an implausible share of the recovery. He argues that this does more than produce another disappointing board-pack figure. A budget that is too optimistic can prompt hiring the business cannot sustain, delay cost reductions and leave less time to respond to a cash shortfall.

The cost to boardroom candor

McCabe also points to the message such forecasts send to management: an honest outlook may feel riskier to present than an optimistic one. That dynamic, he argues, can undermine transparency even as board members complain about its absence.

Test the original case against actual results

For McCabe, a practical response is to put the original underwriting assumptions alongside actual performance and sort them into what remains supported, what needs adjustment and what was wrong. He calls for forecasts grounded in current trading, while keeping ambition in targets and giving managers specific actions, resources and deadlines to close the gap.

“And let the deal team explain its assumptions with the same level of scrutiny applied to the CEO’s performance.”

That proposal widens accountability beyond the executives running the acquired company. McCabe argues that boards should examine the deal team’s assumptions, not simply assess the CEO against a plan that may no longer fit the evidence.

His post closes with a satirical reference to the Black Knight, whose confidence remained exemplary even as his capacity to execute had deteriorated. The image underscores McCabe’s central point: confidence in an investment case cannot substitute for a forecast that reflects current conditions and helps a board make decisions.