LOST PROFIT CALCULATIONS

Our forensic accountants specialise in delivering precise lost profit calculations that promise to provide you with total transparency.

Understanding Lost Profit Calculations

Lost profit calculations are indispensable in various scenarios, including breach of contract claims, business interruption disputes, and insurance claims. Whether you’re a business owner seeking to recover losses or a solicitor representing a client, understanding the true impact of lost profits is essential.

Primary Reasons for Lost Profit Claims

Lost profit claims generally arise in legal disputes or adverse events. Some common situations include: 

  • Breach of contract 
  • Tortious interference
  • Negligence 
  • Infringement of Intellectual Property
  • Fraud 
  • Business interruption  

Each scenario will require both careful analysis of the circumstances surrounding the case in question and expert testimony in order to establish the amount of damage accrued. 

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Need Our Assistance?

If you seek clarity on lost profit calculations for your business, our specialist accountants are ready to assist you. Contact our team today.

Why Use a Forensic Accountant for Lost Profit Calculations

Emotionally charged disputes and scenarios involving loss of money will often cloud judgement. A forensic accountant offers an impartial and experienced viewpoint, delivering an objective assessment that can stand up to scrutiny in legal proceedings. 

The role of a forensic accountant revolves around ensuring the best service possible. No stone is left unturned in an extensive pursuit of  accurate lost profit calculations. This information will be communicated to you as transparently and regularly as possible.

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How to Calculate Loss of Profit

When it comes down to it, lost profit calculations are an intricate process. There are various steps involved to A) ensure that the claimed profits exist in the first place, B) work out the baseline amount the company would have expected to profit from during the period, and C)  determine the true amount of lost profits. 

The natural first step during lost profit calculations is to establish that the claimed losses are legitimate. To do so, our forensic accountants will gather financial records (income statements, balance sheets, cash flow statements) and revenue streams (sales recipes, invoices, signed contracts, etc.) and cross-referencing this against historical data and forecasts in order to demonstrate whether expected profits are realistic or not.  

Defining the relevant time-period, from start to finish, is crucial for accurate lost profit calculations. This usually involves pinpointing the period affected by the incident or whatever circumstances resulted in the loss.

Determining some form of baseline for expected profits is an excellent way to provide a reference point for assessing the impact of the loss. The best method of doing so is by reviewing historical financial data (sales trends, production costs, expenses, etc.). Projected growth and any business plans that have been produced can also be effective to determine the baseline profits and offer an insight into the businesses expected trajectory.

A thorough and accurate assessment of the actual revenue and expenses incurred during the relevant time-period is essential. This will involve meticulous scrutinising of financial records in order to uncover and account for all incomings and outgoings. This includes sales, expenses, taxes, and any other financial transactions. The more accurate a figure at this stage, the more accurate the final lost profit calculations can be.

Documenting any efforts that were made in order to mitigate the losses during the relevant period can provide additional valuable context to the loss of profit claims. This includes cost-saving measures implemented, any pursuits of alternative revenue streams, or implemented business continuity plans.

Any external factors that could influence the business’s profitability must be considered. Economic conditions, industry and consumer trends, market competitiveness, and any regulatory changes that may have been implemented at the time, should all be considered. Quantifying the impact of these factors on the business’s financial performance will allow for fine-tuning of the baseline profit and final lost profit calculations.

Calculating lost profits will involve subtracting the actual profits the business earned during the relevant time-period from the baseline profit. Any additional costs incurred during the period, mitigation efforts, and external factors must be factored in. Accurate data and calculations are imperative to ensure credibility in legal proceedings and during negotiations.

How Our Lost Profit Calculation Professionals Can Help

Our team of forensic accountants specialise in providing comprehensive assistance with a number of different legal issues, including with lost profit calculations. Due to extensive expertise in financial analysis, our professionals can meticulously review records and identify any relevant data, as well as accurately conducting any necessary calculations 

Inquesta Forensic’s team possesses the skills necessary to navigate complex financial scenarios and evaluate any factors, both internal and external, to provide as thorough an assessment of damages as possible. We are proud to offer expert testimony that effectively communicates complex financial concepts, while collaborating closely with you to ensure that our approach aligns with your goals, strengthening your position

Frequently Asked Questions

Lost profits are generally considered to be consequential damages. In legal terms, consequential damages are losses not directly caused by breach of contract/wrongful acts, but are instead a foreseeable consequence of it. Lost profits often arise as a result of the actions or negligence of another party, or stem indirectly from the breach/wrongful act.

Proving lost profits involves the thorough process of documenting baseline earnings, identifying the cause of the loss, calculating the actual lost profits, and gathering key evidence to support the claim. 

Evidence that you can use includes: 

  • Financial records 
  • Contracts with suppliers, employees/employers, clients, etc. 
  • Market research 
  • Expert testimony

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