Economic damages and lost profits experts
Lost profits and business interruption claims require experts who can tie financial models to admissible evidence, not spreadsheets that assume outcomes. Counsel should align damages theories early with subspecialists who understand GAAP revenue recognition, segment reporting, and industry KPIs. Explore the economic damages & lost profits practice description and related commercial litigation context.
Building the but-for baseline
Reliable models start with clean historical baselines: adjusted EBITDA or contribution margin streams that reconcile to tax returns, GL detail, and bank statements. Experts should explain seasonality, one-time events, and accounting policy changes that distort year-over-year comparisons before forecasting the counterfactual period.
Common attack vectors on lost-profit models
Opposing experts frequently challenge growth rates applied to the but-for period, fixed versus variable cost classification, and the treatment of one-time COVID, supply-chain, or restructuring shocks. Build your record so each assumption can be defended with contemporaneous management communications, board materials, and industry benchmarks, not hindsight narratives added after litigation began.
- Double-counting revenue already booked in overlapping periods
- Inconsistent treatment of pass-through costs in margin builds
- Ignoring capacity constraints that cap theoretical demand
- Using top-line growth without reconciling working capital drains on cash
Expert report outline (damages)
While formats vary by expert and forum, defensible damages reports usually separate facts from opinions, disclose data limitations, and present a transparent bridge from historical performance to the counterfactual. Consider asking your expert to include:
- Data inventory and reconciliation to audited or reviewed financials
- Definition of the but-for world tied to operative contract or tort theory
- Base period selection rationale and outlier adjustments
- Sensitivity table for the three to five drivers that swing the model most
- Mitigation analysis with documentary support
Mitigation and reasonableness
Courts expect credible discussion of mitigation efforts and alternative employment or substitute revenue. Sensitivity analyses that vary growth, margin, and discount assumptions help triers understand range (not false precision) and reduce exclusion risk under FRE 702.
Cross-links for your team
For admissibility framing, read Daubert & FRE 702 for financial experts. For document requests that feed models, use the discovery checklist for financial experts. Ready to retain? Contact AccountingWitness.