Your Business and Lost Profits

Your Business and Lost Profits

If you are a business owner, you always run the risk that someone else’s actions could cause a serious disruption to your operations. Under New Jersey case law, a business owner may bring a demand for lost profits when they have suffered economic injury as the result of another person’s actions; and, when the economic loss (lost profits) is close in time and proximity to that loss. People Express Airlines, Inc. v. Consolidated Rail Corporation, 100 N.J. 246, 265, 495 A. 2d 107 (1985).

There are two extremely important elements of a lost profits case that must be established in order prevail: (1) the loss must be ascertainable, and (2) the loss must be reasonably foreseeable. The first of these elements must be backed up with sound record keeping. This will include you being able to produce copies of bills, receipts, tax returns and a written business plan. Without sufficient proof of what your business was making or was going to make, a complaint for lost profits cannot be successful. Establishing what your business was making is often easier then establishing what it was going to make in the future. Often plaintiffs have a tendency to overstate their estimates, believing that everything in a plan would have worked perfectly - resulting in enormous profits. Unfortunately, it is well known that business plans often do not work perfectly. Unexpected expenses, shortages in certain supplies, etc., can easily reduce the anticipated profits by a significant amount. Once you have accumulated the documents to support the loss, the next step is to hire an expert who can quantify your lost profits. At Bailey & Orozco, we recommend using a certified public accountant that has experience serving as an expert in economic loss cases.

Your type of business is also very important in determining the extent and nature of your lost profits. Theoretically, the larger your business the larger the lost profits. However, even small businesses can claim large lost profits if they are able to show that a plan was in place that would have assuredly resulted in an increase in revenue. Very few businesses will be able to claim pure lost profits. The reason being is that with every new business plan for expansion come with more expenses, it cannot be avoided. It would appear that the old adage is true: you have to spend money to make money.

In a lost profits case good record keeping, proof of a good business plan that would have proved an increase in profits and an economic expert with experience in the field can help you win a lost profits case and get your business get back on its feet.