Scaling Success: How Scrubbed Transformed MCG Capital Advisory's Operations and Growth
MCG Capital Advisory is a financial due diligence firm focused on buy-side and sell-side transaction advisory for clients.
The Challenge
Increasing Capacity & Bandwidth Needs
The Partnership
Seamless Collaboration & Deep Value Creation
Scrubbed's expertise means that they add value throughout every step of the transaction process. "The tasks that the Scrubbed team helps us with are the same things we do on a daily basis. They take all the data, put it into our databooks, analyze it, and provide us opinions we can feed our clients," says Vincent Unklesbay, Director.
"They help us think through different things along the way, certain analyses that might make sense for a particular deal."
Matt Johnson
Managing Director, MCG Capital Advisory
The Results
How Scrubbed Transformed MCG Capital Advisory's Operations
Databook Preparation & Quality
Scrubbed takes raw source data, puts it into custom databooks, analyzes it, and provides actionable opinions. "The tasks that the Scrubbed team helps us with are the same things we do on a daily basis." — Vincent Unklesbay, Director.
Fresh Eyes on Big Picture Strategy
By handling initial databooks and analyses, Scrubbed allows leadership to step back. "By having Scrubbed create those initial databooks, we can look at it with fresh eyes and think about the big picture." — Matt Johnson.
Big Data Capabilities
For complex transactions involving massive datasets, Scrubbed's specialized in-house big data team quickly digests data to produce valuable outputs that would otherwise be challenging to analyze. — Tom Ferry, Senior Director.
Overnight Output ("Like Christmas")
The favorable time zone gap allows Scrubbed to pick up work as MCG finishes their day. "It's like Christmas; you just come in, and your inbox has some gifts in it readymade!" — Tom Ferry.
Why Scrubbed
Why MCG Capital Advisory Recommends Scrubbed
Ex-Big Four Talent Pool
Scrubbed provides access to former PwC and Big Four professionals with direct audit and transaction consulting experience.
Rapid & Effortless Onboarding
Transitioning is seamless, with Scrubbed teams producing refined, high-quality output consistent with internal standards within just a couple of weeks.
Scalable Growth Engine
Outsourcing to Scrubbed removes U.S. hiring hurdles, providing a greater bench of resources to handle significantly higher project volumes.
Fueling Growth & Scaling Book of Business
"Scrubbed has been paramount to our success over the last five years and our ability to grow our book of business... Our business was slowly growing, growing. And then when we got Scrubbed, it was like adding fuel to the fire."
Matt Johnson
Managing Director, MCG Capital Advisory
Related Insights
What Types of Reporting are Important to Investors?
Whether you’re preparing to raise funds for the first time or you’ve already secured investors, proper reporting is critical. When angel investors, venture capitalists, or private equity (PE) firms want to determine whether your company could offer a good return on their investment, they rely on various reports to evaluate your business model, assess your current state, and gauge your growth potential. Once they’re on board, they’ll expect periodic reports to keep tabs on your progress and financial health—and spot brewing problems before they become bigger issues. So what type of reporting is important to investors? It’s a combination of financial data and non-financial metrics that, together, paint a picture of your business’s performance now and your future outlook. Developing solid, investor-ready financials and other essential reports is key to securing capital and keeping your investors informed, engaged, and confident. You might want to checkout outsourced bookkeeping and accounting services at Scrubbed The Financial Reports Investors Expect Financial data is at the heart of what investors need to know about your business, both before they decide to back you and ongoing. The financials investors expect to review may vary based on your company’s stage of maturity, business model, and industry. For instance, they may look at very different financial data for a company that’s in the pre-revenue stage vs one that’s already brought products to market. Recurring revenue will be an important metric for a company with a subscription-based business model. However, there are several standard financial measures that most investors will want to review, either before investing or after they’ve provided your business with capital. Your ability to report on those figures accurately makes a big difference in gaining and maintaining their confidence. If your capital comes from a PE or VC firm that will take an active role in the company, these financial reports also will help them identify how and where the operation could use their expertise and involvement. At a minimum, expect to provide investors with the financial statements that form the core of financial reporting. The income statement (also called the P&L) reports on your revenue, expenses, gains, and losses for the current accounting period. This statement tells investors how your net revenue is translating to net income, ideally. The balance sheet provides a snapshot of what your company owns and owes, as reflected by your assets, liabilities, and shareholder equity. The cash flow statement shows how cash and cash equivalents move in and out of the business and how well you’re managing cash to cover operating expenses and pay debt. Together with a detailed annual budget, these core financial statements give investors a sense of your business’s financial health. While statements for the current period are essential for understanding the company’s performance right now, investors also look for projected financials. If you don’t have the bandwidth or expertise to develop key financial statements and forecasts in-house, an outsourced accounting firm like Scrubbed can take on this crucial task especially for industries that demand specialized knowledge, such as those needing real estate accounting solutions or technical accounting support to perform complex regulations and transactions. Within these core financial statements lies a wealth of information that can help investors gauge how your business is doing today and the outlook for tomorrow. They’ll likely zero in on key financial data points like the following:Revenue Investors want to see that your top-line revenue is growing, which is indicative of your ability to scale the business. They also want to see how your monthly recurring revenue (MRR) is trending, especially for SaaS and other subscription-based businesses. Expect investors to look at both your current and forecasted revenue to determine whether you’re heading in the right direction. Net profit marginA ratio that compares your profit to your revenue, net profit margin tells investors how stable the company is and how effectively you’re deploying the capital they’ve provided.Cost of goods sold (COGS)At a time of incredibly high inflation, investors will be interested to see if your COGS is running at a reasonable level, whether it’s rising or remaining stable, and whether there are ways to reduce or stabilize your costs. Debt positionInvestors want to be confident that you aren’t getting into debt too deep and to gauge whether your debt position is reasonable in relation to your assets. Cash positionYour ability to maintain a positive cash flow is critical to running a sustainable company. Without it, you can’t meet your current obligations and you certainly can’t invest in growing the business the way your investors expect.Burn rateIn the early stages, your company is likely to spend cash faster than you generate revenue (or even before you generate any revenue). The rate at which you’re running through cash each month—your burn rate—tells investors how long you can operate before you need another infusion of capital. Non-Financial Reports and Data That Matter to Investors Beyond standard financial statements and reports, be prepared to deliver reports on the non-financial data investors expect to review regularly. Reports that compile data and key performance indicators (KPIs) like the following can help investors monitor your company’s performance and identify early trouble signs. Also read: 5 Proven Tips for Better Financial Reporting How Scrubbed Can Support Your Investor Reporting Needs Whether you’re preparing for a fundraising round or already have investors on board, it’s essential to provide the financial statements and non-financial reports they expect to see as part of their initial due diligence and ongoing monitoring. But producing accurate, comprehensive financial statements and other investor reports takes time and expertise you may not have in-house. As many early-stage companies have found, Scrubbed is the right partner to take on this all-important task! The Scrubbed accounting and finance team is highly experienced in developing financial reports and non-financial data reports that instill confidence in investors—before they decide to provide your business with capital and ongoing. Beyond our standard financial reporting services, we offer Financial Planning & Analysis and Financial Modeling services that help you forecast revenue and expenses and report on your company’s outlook based on accurate historical data and sound business assumptions. Contact Scrubbed to learn how we can develop both financial and non-financial reports that help you secure capital and keep your investors informed!
What Triggers a Financial Instrument Revaluation?
A balance sheet is often viewed as a financial snapshot, a static picture of a company’s health at a point in time. But for the financial instruments on that balance sheet, the values are anything but static. They are constantly shifting, driven by market volatility, credit risk, and global events. A “set it and forget it” approach to valuation is a significant liability, creating a direct path to non-compliance. The real challenge is that many organizations struggle to identify the specific events that require a revaluation. Missing a trigger, or simply misinterpreting one, can cascade into misstated financial statements, qualified audit opinions, and poor strategic decisions based on inaccurate data. Understanding the “why” and “when” behind financial instrument revaluation is essential for sound financial governance. This post outlines the primary triggers, from initial classification to sudden market shocks, to help you maintain an accurate and transparent financial picture. The Key Triggers That Demand a Revaluation These are the specific events and decisions that force a company to reassess the value of its financial instruments. Trigger 1: Initial Classification The revaluation requirement is locked in from day one. How an instrument is classified under standards like IFRS 9 or ASC 820 dictates its accounting treatment for its entire life. FVTPL (Fair Value Through Profit or Loss): This classification requires the most frequent revaluation. These instruments must be revalued to fair value at each reporting date, with all gains or losses hitting the P&L. FVOCI (Fair Value Through Other Comprehensive Income): These are also revalued to fair value at each reporting date. However, the changes typically go to Other Comprehensive Income (OCI), bypassing the P&L (except for specific instances like impairment). Amortized Cost: These instruments, like a simple loan, are generally not revalued to fair value. The major exception, and a critical trigger, is impairment (see Trigger 4). However, experience shows that a critical mistake occurs here: classifying a hybrid instrument, most commonly a convertible note, wholly as amortized cost. A hybrid instrument combines a debt component (measured at amortized cost) and an embedded derivative (measured at fair value). By incorrectly treating the entire instrument as amortized cost, the company fails to monitor the fair value of the embedded derivative. Consequently, this leads to audit comments that force significant, volatile movements in P&L or OCI to correct the valuation, or results in unexpected dilution of equity value when the company is eventually sold or exited. Trigger 2: Required Reporting Dates This isn’t a surprise, but it’s the most common and non-negotiable trigger. For all instruments classified as FVTPL or FVOCI, revaluation is a standard part of the process for: Month-end close Quarter-end close Year-end reporting This ensures the financial “snapshot” presented to stakeholders is accurate as of that specific date. Trigger 3: Significant Market Changes The market doesn’t wait for your quarter-end. Sudden shifts in key variables can trigger the need to revalue (or at least assess) immediately, especially for risk management. Interest Rates: A sudden hike from a central bank can materially decrease the fair value of fixed-rate bonds (debt instruments) your company holds. Foreign Exchange (FX) Rates: This is a major source of volatility. In fact, a Kyriba report revealed that North American and European companies reported a collective $6.80 billion in negative currency impacts (headwinds) in just Q4 2023. A sharp currency devaluation directly impacts the value of any asset or liability denominated in that foreign currency. Equity Prices: A market crash or a surge in a specific stock price directly and immediately impacts the value of your equity holdings classified at fair value. Trigger 4: Changes in Credit Risk (Impairment) This is a key trigger for instruments held at Amortized Cost or FVOCI. It’s not about market price but about the market’s perception of recoverability. Issuer Risk: The creditworthiness of the entity that issued a bond or loan declines. This is often signaled by two common red flags.Performance Deterioration: A trend of declining or negative profitability and cash flow. This indicates a significant risk of default, particularly if cash reserves and collateral assets are insufficient to cover the debt.High Leverage: An increase in debt leverage resulting from excessive borrowing or a declining equity cushion.These indications trigger an impairment assessment under the Expected Credit Loss (ECL) model. The complexity here is significant; the European Banking Authority (EBA) noted that the calibration of ECL models “often relies on a high degree of judgement”, making it a high-risk area for reporting. Counterparty Risk: The counterparty to a derivative contract (e.g., an interest rate swap) faces financial distress. This increases the risk they won’t pay, requiring a fair value adjustment known as a Credit Valuation Adjustment (CVA) or Debit Valuation Adjustment (DVA). Trigger 5: Business Model & Contract Changes Sometimes, the trigger isn’t external but is based on an internal business decision. Change in Business Model: The company decides to actively trade a portfolio of bonds it previously planned to “hold to maturity” (Amortized Cost). This strategic shift forces a reclassification (e.g., to FVTPL) and an immediate revaluation to fair value. Substantial Instrument Modification: The terms of a loan are significantly restructured (e.g., maturity extended, interest rate lowered). This modification is more than a minor tweak; it may be considered an “extinguishment” of the old debt and the creation of a new instrument, triggering a new valuation and P&L impact. Gain Confidence and Clarity: How Scrubbed Can Help Identifying these triggers and executing complex revaluations is a significant burden on in-house finance teams, especially when 83% of CFOs cite accounting talent shortages as a pressing concern. Scrubbed provides the specialized expertise to lift that burden. Technical accounting support: We help you navigate complex standards (IFRS 9, ASC 820) to ensure accurate classification, compliant impairment testing, and proper accounting for modifications. Valuations: Our team delivers independent, defensible, and audit-ready valuations for even the most complex Level 3 instruments (private equity, debt instruments, hybrid instruments, complex derivatives, CVAs/DVAs). Risk advisory: We partner with you to build robust internal controls for monitoring market, credit, and business model triggers so nothing slips through the cracks. Financial reporting & audit support: We ensure all revaluations are accurately disclosed, providing you with a smooth, reliable close and a clean audit opinion.From Reactive Reporting to Confident Decision-Making Financial instrument revaluation is a continuous process driven by classification, calendar dates, market volatility, credit risk, and internal strategy. Staying ahead of revaluation triggers is challenging and requires specialized expertise. Overlooking them can create significant reporting risk. Are you confident in your process? Contact Scrubbed today for an expert consultation on your technical accounting and valuation needs.
Navigating Business Combinations (M&A): Identifying the Accounting Acquirer and Understanding Contingent Consideration
Mergers and acquisitions (M&A), collectively known as business combinations, are fundamental strategies for companies to grow and expand their market reach. However, while these transactions offer strategic benefits, they also involve accounting procedures that can be time-consuming and vulnerable to mistakes. To guide companies with the complexity, Accounting Standards Codification (ASC) 805 – Business Combinations requires companies to use the acquisition method to evaluate the financial impact of a business combination. Two of the crucial steps often overlooked in the acquisition method are: Identifying the acquirer Determining the consideration transferred Who Is In Charge during M&A? – Identifying the Accounting Acquirer One of the combining companies in any business combination must be designated the “accounting acquirer” based on ASC 810 ─ Consolidation guidelines. The accounting acquirer is the party with control and is usually the legal acquirer, the party named as the buyer in a contract. To establish which party has control, companies must look first at the party with the largest share of voting power in the combined entity. This process includes examining the existing and potential voting rights in acquired shares, such as options, warrants, and convertible instruments. In some business combinations, particularly those involving share exchange, voting rights alone might not provide a definitive picture. Here, companies must consider other relevant details and circumstances: When Accounting and Legal Acquirers are Different While it’s less common, there are cases when the legal acquirer differs from the accounting acquirer, where we must consider different factors. Examples include: Reverse Acquisitions: Here, the entity issuing securities becomes the accounting acquiree, while the entity whose ownership stake is acquired becomes the accounting acquirer. This often happens when a larger operating entity is acquired by a smaller legal entity, which then issues shares to the original owners. In such cases, the economic substance takes precedence over the legal form. Acquisitions by Non-Substantive NewCos: A newly formed company (NewCo) may act as a conduit for another entity for legal or tax purposes. Key factors to understand its role include survival post-acquisition, type of consideration (cash or shares), ownership stake, and pre-combination financing activities. Indicators that an entity is a non-substantive NewCo are its sole acquisition purpose, lack of independent operations, and lack of debt financing. In these cases, the entity that formed the NewCo, not the NewCo itself, is likely the accounting acquirer. Here, the focus is on the economic substance of the transaction and identifying the true controlling entity. Variable Interest Entities (VIEs): Regardless of the agreement’s structure, the accounting acquirer is always the primary beneficiary of a VIE. This is because the primary beneficiary bears the economic risks and rewards associated with the VIE. Consequences of Misidentification Incorrectly identifying the accounting acquirer can have long-term severe financial repercussions for companies, including: Misstated Financial Statements: Consolidated financial statements for both acquirer and acquiree could be inaccurate, misleading investors, creditors, and other stakeholders about the combined entity’s financial health. Integration Challenges: Difficulties may arise when integrating the reporting systems of the involved entities. Regulatory Penalties: Misidentification may lead to fines or penalties from regulatory bodies. Determining the Consideration Transferred and Understanding Contingent Consideration The consideration transferred in a business combination is typically measured at fair market value. When the payment method is clear-cut, accounting for this transaction is simple. However, many deals involve uncertainties, which are then addressed through contingent consideration. Contingent consideration is essentially a payment or additional stock the acquirer gives to the acquiree if certain future events happen or specific conditions are met. This approach offers flexibility in deal structuring as both parties can agree on terms even if the deal’s final value is still unknown. Contingent consideration is classified in three ways: Asset: If the acquirer has the right to get some of the initial payment back. Liability: If the acquirer is obligated to pay more in cash. Equity: If the acquirer is obligated to pay more in stock. The fair value of asset and liability contingent considerations is determined both initially and at subsequent reporting dates. Contingent consideration, classified as equity, is only valued initially and is not re-measured later. While contingent consideration can help at the deal structuring stage, it can also introduce accounting challenges further down the line: It’s essential to address the transfer of any consideration carefully. Lack of transparency around valuations, inaccurate classifications of contingent considerations, or poorly documented fair value estimates can raise concerns about a company’s ability to operate. It can also indicate poor management judgment and even create opportunities for manipulating earnings. These issues can make it difficult for investors, creditors, and other stakeholders to trust the financial statements and make informed decisions. Ensuring Accurate Determination As we’ve seen, identifying the accounting acquirer and properly handling the consideration in a business combination can be challenging, especially in complex transactions or those with hidden influences. To mitigate these risks, we recommend implementing robust fair value methodologies, clearly communicating the valuation processes, and adhering to strict accounting standards. Maintaining strong risk and SOX compliance frameworks throughout the process also helps ensure accuracy, transparency, and accountability.