A cash proof (also called a proof of cash) reconciles a company's reported revenue and expenses to the cash that actually moved through its bank accounts over a period, usually the trailing twelve months and the two prior fiscal years. A bank reconciliation only proves that the cash balance in the books matches the bank statement on one date. A bank reconciliation can be perfect while the income statement is wrong; a cash proof tests the income statement itself. That is why lenders and buyers use a cash proof in due diligence, and why SBA SOP 50 10 8.1 requires one inside every lender engaged quality of earnings report on acquisitions of $3 million or more.
A bank reconciliation is a bookkeeping control. On a given date, the bookkeeper takes the bank statement balance, adds deposits in transit, subtracts outstanding checks, and shows that the result equals the cash balance in the general ledger. It answers one question: is the cash balance right today?
It does not answer whether the deposits during the year were revenue, whether the disbursements were business expenses, or whether the revenue and expense totals on the income statement are complete. A business can reconcile its bank account every month and still report revenue that never arrived, omit deposits that went to another account, or run the owner's personal spending through cost of goods sold.
A cash proof is a diligence procedure. It works on the flow of cash over a period, not the balance on a date:
The output is a schedule for each period showing reported revenue, cash receipts, and the reconciling items between them, the same for expenses, and a list of exceptions with dollar amounts. Every number in the schedule traces to a bank transaction.
An audit opines on financial statements at a year end and is rarely available for a business under $10 million in revenue. A tax return is prepared to minimize tax, not to show a buyer what the business earns. A broker's adjusted EBITDA starts from the seller's numbers and adds to them. The cash proof is the only procedure that starts from an independent source, the bank, and works back to the income statement. That is why the SBA made it a required component of the quality of earnings report under SOP 50 10 8.1, and why buyers on deals too small for a full QoE will often order a standalone cash proof.
Done by hand, a three year cash proof on a business with several accounts takes weeks, which is why many firms sample it or skip it on smaller deals. Credex Advisors performs the full procedure on the Credex diligence platform, which extracts, classifies, and matches the transactions, so a CPA spends their time on the exceptions rather than the keying. A standalone cash proof covering the trailing twelve months and up to three bank accounts is a fixed $4,000 and is delivered in five to seven business days from complete documents. Inside a quality of earnings report the cash proof covers three periods and is part of the fixed fee.
Bank and card statements for every account for the period, the general ledger detail and financial statements for the same period, and the filed tax returns for the fiscal years under review. If the business uses a merchant processor or an invoicing system, the export from that system helps tie receipts to customers.
No. A cash proof is one procedure inside a quality of earnings. A full QoE also normalizes earnings, tests add backs, analyzes customers and margins, and measures working capital.
For SBA 7(a) acquisitions of $3 million or more, no; the SOP requires a full QoE that includes a cash proof. For smaller deals and conventional loans, the lender sets its own standard, and many use a cash proof as the credit file support.
No. The bank reconciliation is a monthly control the business should keep doing. The cash proof is a one time diligence procedure performed by an independent firm.
That is itself a finding. A buyer or lender should not rely on financial statements that the seller will not allow to be tested against the bank.