Page 36 - Calculating Lost Profits

 Meeting minutes, if any, documenting discussions related to the 11th location

 Correspondence (for example, emails or letters) related to the 11th location

 Agreements with contractors or other vendors related to the 11th location

 Any market research conducted by Franchisee when preparing the development plan (this may
include data on the economic environment of the area around the proposed 11th location, a list of
competitors in the area of the 11th location, and industry association data, such as survey results
by the National Restaurant Association)

 Store information by location, such as date opened, address, size, and number of customers

 Depositions-of-fact witnesses and other expert witnesses

 Business valuations performed on Franchisee’s collective business or individual locations

In addition, it is often important for a practitioner to perform industry analysis, looking at issues like the
local economy (for example, labor costs and rent rates), performance of similar businesses, forecasts
prepared by industry analysts, and the competitive environment.

This list is not meant to be all inclusive or representative of all cases. Requests for documents and in-
formation is analysis-specific and case-specific and requires judgment by the expert.

Assess the Reliability of Available Information

Although it is normal and customary for experts to rely on information provided to them during litiga-
tion, the practitioner should consider steps to assess the relevance and reliability of the information as a
basis for the practitioner’s professional opinions. fn 2 If a practitioner does not understand the infor-
mation upon which the opinion relies, those opinions may be vulnerable to critique. The nature and ex-
tent of procedures necessary to assess the reliability of information will vary based on the facts and cir-
cumstances. In some cases, a conversation with members of management may suffice (for example,
when the financial statements of a company have been audited). In others, the practitioner should take
more substantive steps to test the accuracy and completeness of the information. If relying on the work
of others, practitioners should form a sufficient understanding of how the information was developed
and its characteristics (for example, how a local rent study was performed). Ultimately, the practitioner
should take those steps necessary to understand the information and to be comfortable that the data are
suitable to be relied on in the given circumstance.

Practitioners typically do not perform an audit, under generally accepted auditing principles, of infor-
mation on which the practitioner relies in a calculation of lost profits. However, they often perform work
to validate the data they receive from the client or other sources. The nature and extent of these proce-
dures are a matter of judgment. Practitioners can reasonably anticipate that they will need to defend the
basis for their opinions at deposition and trial, including the nature and extent of their procedures, to as-

fn 2 Relatedly, Statement on Standards for Forensic Services No. 1 requires the practitioner to “obtain sufficient relevant data to afford
a reasonable basis for conclusions or recommendations in relation to any professional services performed.” (Emphasis added)

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