How Do You Determine Your Lost Profits?

How Do You Determine Your Lost Profits?

Feb 23, 2018

You work hard managing your business. You proactively communicate with customers, vendors, and employees and build a culture everyone in the company is proud of—and then something unexpected happens. Perhaps a competitor impinges on a process your company has patented, a vendor violates your contract, or you experience significant construction delays for your new production facility. Whatever this unexpected event is, it causes your profits to drop dramatically.

A business suffers a loss of profits (also referred to as damages) when an act decreases its projected revenues, raises its projected expenses, or does a combination of both. It’s your legal counsel’s job to convince a judge, jury, or arbitrator that the defendant committed the act in question, but how do you know exactly how much profit you lost? To reduce the impact of the act on your business, it’s essential to know how much in damages you should ask for. 

Here’s a quick overview of how to quantify your lost profits:

  • Analyze your financials and your past profitability and then compare those numbers with your management team’s projections of future profits.
  • Review the impact the unexpected act has had on your revenue and costs and perform a breakdown of fixed versus variable expenses.
  • Determine what amount of “but for” damages would place your company in the same position it would have been in but for the unexpected act.

This process can be pretty involved, and sometimes getting an informed opinion from skilled professionals is the way to go. You can get the support your business needs from Wipfli’s Valuation, Forensics, and Litigation Services team. Contact us to learn more about how we identify damages, work with legal counsel, and get your business back to where it deserves to be.


Thomas Copley
Thomas E. Copley, CPA, CVA
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