Business Loss 201:
Quantifying Past Business Loss
Published May 21, 2019
Associated Areas of law
This and the next article deals with the quantification of business losses caused by expropriation or government works. It should be read in conjunction with our previous article “Business Loss 101“. Our next article will be: “Business Loss 301 – Quantifying Future Business Loss”.
Assuming that a landowner can prove that the expropriation has caused business loss to the business operation, the amount of that loss must be quantified to establish the compensation payable. There are two main losses that can be compensated: past loss of profit and future loss of profit. This article deals with past losses.
Past loss of profit means the profit lost from the date of the expropriation to the date of the compensation hearing. It is quantified by a Professional Accountant or a Chartered Business Valuator. It is calculated by assuming that the expropriation had not occurred and that the business would have continued in the normal course. The expert will use the historical profitability of the business as the basis of the quantification and the subject that profitability to a number of other real world factors present in the specific business community. At law those other factors are referred to as “contingencies” and can increase or decrease the projected profit for the period of the pass loss.
Examples of “negative” contingencies include those factors discussed in the previous article as bearing on causation: did the business change ownership; lose key employees, suppliers or clients; did the economy drastically change. The expert will then quantify the effect of all known negative contingencies and deduct that amount from the expected profit for the past loss period.
Similarly, the expert will asses “positive” contingencies, factors that would have occurred to increase the profitability of the business. These can include: the completion of debt repayment; new clients; less costly supply of input goods; a reduction in processing costs; etc. The effects of these positive contingencies are quantified and added to the expected profit for the past loss period.
The total of these amounts becomes the past loss amount. Generally at law, the claimant is entitled to interest on the past loss amount. However, that specific issue is debatable currently in expropriation law and has to be definitively determined by judicial or administrative determination (a decision of a Court and/or tribunal).
Our next article will be: “Business Loss 301 – Quantifying Future Business Loss”.
If you have questions or would like to discuss this topic further, please contact Robert Pineo.
Please note that this article is meant to provide information only and is not intended to confer legal advice or opinion. If you have any further questions please consult a lawyer. Please note as well that many of the statements are general principles which may vary on a case by case basis.