As the East Coast begins the long process of rebuilding in the wake of Hurricane Sandy, business owners are focused on repairing the damage and reopening their businesses. However, these business owners will soon be turning their attention to quantifying their economic losses resulting from the storm. It is projected that Hurricane Sandy will be the second-costliest storm in U.S. history (after Hurricane Katrina), with projected economic damages that could reach $50 billion. Of that $50 billion, between $10 and $30 billion in damages is expected to be business losses. Widespread power outages and lack of transportation service have caused businesses to shut down, and in some cases power is not expected to be regained until December. Whether a business was unable to conduct business for a day or a quarter, the hurricane may have caused several types of economic damages, including lost profits.
Unfortunately, quantifying the economic effect of a loss of business is not an easy task. A lost profits analysis quantifies the economic effect of an event by determining what the earnings of the business would have been but for that event: a natural disaster such as Hurricane Sandy, an accident, or a business action such as breach of contract or patent infringement. Some factors that a lost profits analysis takes into account are historical and projected earnings, actual earnings during the damage period, the time value of money, contractual obligations, and the potential to mitigate losses. However, these calculations require a detailed analysis with sufficient and appropriate supporting documentation.
A lost profits analysis can assist a business owner in a variety of circumstances, including receiving the proper payout from a business interruption insurance policy, being made whole following a breach of contract by another party, or quantifying the damages incurred by the infringement of a patent or other intellectual property.
Schneider Downs has extensive experience quantifying lost profits for a variety of purposes. To learn more about how Schneider Downs can help you, please contact Joel Rosenthal at 412-697-5387.
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