Proof of cash

Definition

A diligence test that ties reported revenue to money in the bank.

Why It Matters

It catches the two things a tax return cannot show: revenue booked that nobody ever paid, and cash taken out before it reached the statements. A quality of earnings engagement runs it as a matter of course, and it is the single procedure most worth paying for on a business whose books are kept on a cash basis by the owner's spouse. Do not confuse it with proof of funds, which is the opposite direction: that is what a broker asks YOU for before showing a listing.

In numbers: A seller reporting $2.4M of revenue whose deposits total $2.1M over the same twelve months has a $300k question to answer before any multiple is applied.