Case Studies

Validating Two Years of Revenue Without Financial Statements

Validating Two Years of Revenue Without Financial Statements

Situation

A long-term private equity client engaged MMG to perform Quality of Earnings analysis on a B2B services acquisition target with approximately $2.6 million in revenue.

Early in the engagement, MMG discovered a significant diligence challenge: the target maintained no formal financial statements, operated primarily on a cash basis, and deposited customer receipts into both business and personal bank accounts.

With conventional financial reporting unavailable, the buyer needed an independent way to determine whether the revenue and gross profit supporting the Letter of Intent could be substantiated.

Solutions
1

Reconstructed Two Years of Revenue

MMG analyzed bank deposits, customer invoices, and other available source documentation to reconstruct and validate two years of historical revenue. The team also reviewed credit card and banking activity to support its assessment of operating costs.
2

Built a Financial Picture from Source Documentation

Rather than relying on financial statements that did not exist, MMG traced underlying financial activity to available source records. This provided an independent basis for evaluating the target’s reported historical performance.
3

Supported Transaction Due Diligence

MMG translated fragmented financial records into usable diligence findings, giving the private equity buyer greater visibility into the financial performance underlying the proposed acquisition.
Results

MMG successfully validated two years of historical revenue for the $2.6 million B2B services business despite the absence of formal financial statements and the use of both personal and business bank accounts.

The analysis gave the private equity buyer additional financial support for evaluating the target, and the acquisition ultimately closed.

$2.6MM

Target company revenue

2 Years

Historical revenue validated

Acquisition Closed

Following transaction diligence

Consulting ServicesDue DilligenceQuality of EarningsB2B Services
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