How to forecast revenue and growth?

A top down approach starts with a macro view of the industry and refines the inputs to estimate revenues. The inputs used are the size of the industry, the expected growth rate, the market share of the company and the expect growth rate of the company’s market share.

The advantage of this method is that it can be done more quickly as there are fewer figures to deal with. An intimate understanding of the drivers is not required as you’re simply looking at the industry as a whole and forecasting it based on general trends. The downside of course is that it’s hard to determine where the sources of growth are.

• 1, Analyze the historical expenses of the company or business to begin the forecasting process. It is up to you to determine the number of years to look at, but the more years you examine the more likely the accuracy of the forecast.

• 2, Compile the yearly gross revenue figures for a certain number of previous years the company was in operation. The number of years must the same number of years gathered for the yearly expenses in Step1. Gross revenue is all income before expenses, less any depreciation.

• 3, Subtract the total expense of the business from the gross revenue figure for each year of the comparison. This figure is the net profit of the company for a given year. Net profit is total revenue minus total expenses.

• 4, Compare each yearly net profit figure with the year before. To accomplish this, divide the year2 totals by year1 totals. For instance, if the business had a net profit of a thousand dollars in year1 and a net profit of a thousand one hundred in year2, this would represent a growth rate of10 percent. Repeat this same formula for all the comparable years. For example, divide year3 totals by year2 totals and then year4 totals by year3 totals and so on. This gives you year-to-year growth of the business.
• 5, Average all of the year-to-year growth percentages together to attain the average yearly growth of the company. This number is the forecasted growth of the company

Revenue growth depends on the expected increase in number of procedures performed as well as the change in reimbursement per procedure.