A new or unestablished business can claim lost profits, but it cannot prove them from its own past results, because it has few or none. The economist builds the but-for projection from other evidence: signed contracts and orders, the early-year performance of comparable businesses, industry data for the market the business was entering, the financing the venture attracted and the terms it was offered on, and whatever operating history the business accumulated before or after the event. This guide explains which of those sources carry weight, how the projection is shaped for a business that had not reached steady state, how the risk of failure and the discount rate are handled together, when the right measure is the value of the venture rather than a stream of profits, and where opposing reports on new-business claims go wrong.
The ordinary lost profits analysis starts with the business's own history: the revenue and margins of the years before the wrongful act are the base from which the but-for projection is built, and the departure of actual results from that base is the loss. A business that opened months before the event, or that never opened at all, has no such base. Older frameworks treated the profits of an unestablished business as too speculative to recover at all; most now ask instead whether the profits can be shown with reasonable certainty from the evidence available, which turns the question from a bar into a matter of proof. Whether the proof meets the standard is a question for the court; what proof exists, what it supports, and what number follows from it are the questions the lost profits and commercial damages analysis answers.
The economist's method does not change. The but-for analysis still projects what the business would have earned, compares it with what it did earn, nets the costs avoided and the profits recovered by mitigating, and discounts any future portion to present value. What changes is where the inputs come from. Every figure that an established business would supply from its own ledger has to be drawn from a source outside it, and the report has to say which source, why it is comparable, and what it does not capture.
The sources are not equal, and the report ranks them. Contracts, purchase orders, and signed leases with stated prices, quantities, and terms are the strongest evidence of revenue the business would have earned, because a counterparty had already committed to them; a letter of intent or a sales pipeline is weaker, and the report says how far it was from a binding commitment. Whatever operating history the business did accumulate, whether the months before the event or the period afterward if it survived, is the next source, and a business that reached its projected volume after a delay has itself proven what the projection assumed. Comparable businesses supply the yardstick: firms in the same line, of similar size, serving a similar market, whose early years show the ramp a new entrant in that trade actually experiences. Industry data on margins, turnover, and survival fill in what the comparables leave out.
The business plan and the financing sit last, and for different reasons. The plan's projections are the owner's expectations before the event and are useful as a statement of what the business intended to do, its capacity, and its cost structure, but they are not proof of what it would have earned, and a report that adopts them as the projection has assumed its conclusion. The financing is different: the amount lenders and investors put in, the terms they demanded, and the diligence they performed show what informed outsiders believed the venture was worth at the time, and the report uses those terms as a check on the projection rather than as its source. The tax returns post describes how a business's own filings are read where they exist.
A new business does not open at steady state, and the projection should not either. Revenue follows a ramp: the first months run below capacity while customers are found, staff are trained, and the operation settles, and the slope of the ramp comes from the early years of the comparable businesses, not from the plan's target. A projection that starts at the mature volume the plan hoped for overstates the loss by the whole difference between the ramp and the plateau, and it is the first thing an opposing economist looks for. Capacity caps the top of the ramp: the revenue cannot exceed what the location, the equipment, the staff, and the hours could produce, and the report states the constraint and the figure it implies.
Costs are built the same way. Fixed costs come from the leases, the loans, the insurance, and the contracts the business had signed; variable costs come from the industry margins and from whatever invoices the business incurred; and an owner who would have worked in the business is charged a market salary before any profit is counted, because the return to the owner's labor is not a profit of the business. The result is a year-by-year schedule of but-for revenue, costs, and net profit for the loss period, with each line tied to its source, so that a contract dispute over a supplier's breach or a landlord's default can be argued on the inputs rather than on whether a projection was possible at all.
An established business has already survived its early years; a new one has not, and the projection must reckon with the possibility that it would have failed for reasons unconnected to the wrongful act. There are two accepted ways to do it. The first weights each year's projected profit by the probability that a business of that age in that industry is still operating, drawn from published data on business survival, so the projection carries the risk in its expected values. The second discounts the unweighted profits at a rate high enough to reflect the risk of the venture, drawn from the returns investors require of businesses at that stage. Either is defensible; using both counts the risk twice, and using neither ignores it, and the report states which it adopted and why.
Past losses are stated in the dollars of each year and, where the venue allows, carry interest to the judgment date; future losses are reduced to present value at the judgment date as the present value page describes, at a rate that reflects the risk of the profits themselves rather than the risk-free rate a wage stream would carry. The loss period runs from the date the business would have opened or reached the interrupted milestone to the date it recovered or, where it never did, to the point where the evidence for the projection runs out, and the report says where that point is rather than projecting to a horizon no comparable supports.
A business that was prevented from opening, or that was destroyed before it could establish itself, presents a choice of measure. Lost profits describe a period of earnings that ended when the business recovered; a business with no recovery has no end to the period except the one the evidence imposes, and the more natural measure is often the value the venture would have had, which captures every future profit in a single figure at a single date. The lost profits versus lost business value guide works through the choice, and the diminished value comparison draws the line where a business survived but was impaired. For a venture with no results to capitalize, the value rests on the same evidence the profits would have: the contracts, the comparables, and the terms of the financing, which are direct evidence of what investors paid for a share of the venture before the event.
Counsel sometimes frames the claim instead as the money spent in reliance on the contract or the venture: the build-out, the deposits, the inventory, the salaries paid before opening. That measure needs no projection, only the records of the expenditures and a showing that they were wasted, and the report can present it beside the lost profits or lost value figure so that a court in a Texas contract dispute, or in any venue, can see what each theory is worth on the same record. The economist does not choose the theory; the report shows the number each one produces and the evidence each one rests on.
The recurring errors are visible on the schedule. A projection that begins at mature volume with no ramp. Revenue taken from the strongest comparable and costs taken from the plan, so the margin exceeds anything the industry shows. No salary for the owner's labor. A survival adjustment and a venture-level discount rate applied together, or neither applied at all. Comparables selected for their results rather than their similarity in size, market, and timing. A plan projection presented as evidence of what would have happened, when it is evidence only of what was intended. A loss period that runs to a distant horizon on the strength of a projection whose comparables cover a few years. Each of these is a question of inputs, not of whether the claim is possible, and each can be tested against the documents.
On the defense side the error runs the other way: a report that dismisses the claim as speculative without engaging the contracts and the comparables the plaintiff produced has left the projection unanswered rather than rebutted. The rebuttal guide lists the questions that expose the plaintiff-side errors, and the report review service describes how an opposing new-business projection is tested input by input.
Contracts and purchase orders with stated terms, the early-year results of comparable businesses in the same line and market, industry data on margins and survival, and the terms on which lenders and investors financed the venture. The business plan's own projections are the owner's expectations and are tested against those sources rather than treated as proof.
No. New businesses build volume over a ramp while customers are found and the operation settles, and the projection follows the ramp the comparable businesses show in their early years, capped by what the location, staff, and equipment could produce. Starting the projection at the plan's mature target overstates the loss by the difference between the ramp and the plateau.
By one of two methods, never both. The projected profits are weighted by the published survival rate for businesses of that age and industry, or they are discounted at a rate that carries the risk investors require of a venture at that stage. The report names the method it adopted, and a report that applies both has counted the risk twice.
Request a consultation on Lost Profits for a New Business: How the Claim Is Built or call (201) 343-0700. Plaintiff and defense counsel.