This approach is based on what the damaged business was able to achieve both before and after the damaging act occurred.
Yardstick Method
Using industry metrics, comparisons to similar companies, and/or market data, yardstick (Benchmark) methodologies are modeled to present the levels of operating performance that could have been achieved if the damaged entity could have grown as its industry peers.
Revenue Projections
Under this methodology limiting conditions and assumptions are prepared to indicate, under current (sometimes hypothetical) market conditions, what the damaged company could have achieved, were it not for the damaging act that took place.
Regardless of the methodologies chosen, Lost Profit Calculations also require that:
1) Accounting records, business tax returns, financial statements issued to third parties such as creditors, and internal business records can support the loss of profits claimed
2) The loss period be clearly established
3) In most cases, a business must also establish that it was profitable before the loss period
4) The lost profits were not caused by market forces, changes in consumer trends, industry trends, changes in economic conditions, and similar causes
5) A careful analysis of expenses be made to isolate incremental revenues, variable expenses, fixed expenses as well as any expenses that could have been avoided or "saved" during the loss period
6) The lost profits were unequivocally lost. In addition, any make up possibilities must be considered, accounted and quantified
7) The cause for the lost profits must be established. This requires that legal counsel be consulted early on to determine the legal facts connecting the wrongful acts, or events, causing any alleged lost profits and the effects of any contractual considerations on the way the methodology is to be construed
8) Usually, unreported revenues and expenses cannot be used to establish lost profits
9) In many instances, mitigation must be established that clearly indicates the efforts undertaken by a damaged party to reduce or diminish, as reasonably as possible, the effects of the claimed loss
In some instances, a loss may also be determined by comparing the value of a business before versus the value of the business immediately after the occurrence of an alleged event
Find out how we can help you email us, inquiry@valfor.net
