Forensic Accountants Accurately Calculate Lost Profits

Expert analysis supports plaintiffs and defendants in civil litigation

Can you lose something you never really had? In the poetic and philosophical sense, perhaps not. But in the context of business and commercial litigation, unrealized profits are very real losses. Wrongful conduct or an insurable event that interferes with a party’s normal course of business creates a cause of action to recover the gains that party would have made but for the interference. Unfortunately, it’s often much easier to prove the interfering event than to prove there’s been any real harm or to assign a firm dollar amount to that harm. This is why forensic accounting is so important to certain types of litigation. Attorneys are generally not financial experts, who can examine a ledger and distill from it an accurate amount of damages. In fact, most accountants couldn’t arrive at a defensible number either. It takes a special kind of training and years of practical experience to be able to examine a company’s books, adjust for current market conditions, and not only produce a number, but compile a cogent report that defends the number against intense scrutiny in a court of law.

At North American Forensic Accounting, we have that specialized training and high-level experience. We are experts in forensic investigations, as well as experienced audit leaders. Moreover, we have the ability to get to the bottom of things even when a company’s record-keeping has been sloppy, erratic, and/or erroneous. We perform lost profits calculations accurately, using transparent processes, which, as expert witnesses, we can clearly explain to a judge or jury. Whether you represent a plaintiff or defendant, NAFA can produce a reliable report on lost profits to inform your litigation strategy and strengthen your position.

Cases where attorneys require lost profits calculations

NAFA performs lost profits calculations for a variety of disputes, including:

  • Breach of contract
  • Business interruption insurance claims
  • Business torts
  • Trade secret theft
  • Noncompete and nondisclosure agreement violations
  • Antitrust and unfair competition cases

When we provide services in the early stages of an investigation, our clients receive reliable data that can inform their negotiation and litigation strategy. Having firm evidence in this preliminary stage can incentivize parties to seek a reasonable settlement that saves time and expense.

Calculating lost profits in civil litigation

Every attorney knows that a trial is a competition of narratives. Each side tells its story, and the best, most plausible tale wins. In theory. However, to effectively support the narrative, a lost profit calculation must be accurate, and the process used to must be readily understandable. At NAFA, we strive for extreme clarity when reporting on each necessary component of our calculations, including:

  • Loss period — The starting point is the date the damage begins, but the end of the loss period varies depending on the nature of the interference with business.
  • Net income, aka profit — Plaintiff businesses do not recover gross lost revenue, but only the amount of revenue they would have retained after paying expenses.
  • Avoided costs — When business is interrupted, companies may not have to pay certain expenses. Labor and utility costs may be less, as well as costs of supplies or materials.
  • Mitigated losses — In many situations, the damaged party will have a duty to mitigate losses. Courts will not allow a business to recover for losses they could have avoided by taking reasonable steps in the wake of the damaging event.
  • Expected growth — Expected revenue is largely based on past performance. However, conditions may have existed that suggest the business was poised for greater than usual revenue. We apply all relevant market factors to arrive at an accurate estimate of growth.
  • Industry-specific comparisons — No one conducts business in a vacuum. If, for example, an entire industry was experiencing a slump, there’s no reason to believe the plaintiff business would have been immune. Reasonable adjustments for current market conditions are necessary to arrive at a reliable calculation.

Lost profit calculations are an important indicator of the total value of a civil action. Before you commit to a litigation strategy, have the forensic accounting experts at NAFA perform a calculation of lost profits.

Contact NAFA today to discuss lost profit calculations for your cause of action

North American Forensic Accounting performs lost profit calculations for a wide range of civil disputes. NAFA serves clients throughout the United States, from our offices in Harrisburg, Philadelphia, Pittsburgh, New York City, Atlanta, Charlotte, Miami, and the Tampa Bay Area. Call us at 347-286-4860 or contact our nearest office online to schedule an appointment.