Proof of cash: checking that a seller's revenue really reached the bank
Short answer
A proof of cash reconciles the money that actually moved through a business's bank accounts with the revenue and expenses in its income statement and tax return, period by period. For a buyer, the core of it is simple: total the deposits each month, take out anything that isn't sales, and compare what's left with reported revenue.
Since October 1, 2026, SBA rules require a cash proof inside the Quality of Earnings report for acquisitions of $3 million or more. On smaller deals nobody requires it, which is exactly why buyers should do it themselves.
Add-backs get all the attention, but revenue is where the biggest problems hide. A P&L is a document the seller typed. A bank statement is a document the bank produced. A proof of cash puts them side by side and asks whether they tell the same story.
What the SBA now requires
SOP 50 10 8.1, effective October 1, 2026, requires a Quality of Earnings report on SBA 7(a) initial acquisitions and business expansions with a purchase price of $3 million or more, and it requires that report to include a Cash Proof. The SOP defines it as an analysis that reconstructs cash receipts and disbursements by reconciling bank statement data to the income statement and tax return for each period, done for the trailing 12 months and the last two fiscal years. The point, in the SOP's words, is to identify discrepancies in income and undisclosed expenses.
Below $3 million there's no such requirement. The lender will still check tax returns against IRS transcripts, but nobody is obliged to match the bank to the books. That's the gap a buyer should fill.
How to do a simple proof of cash
- Collect every bank account. Ask the seller to list all business accounts and confirm in writing that the list is complete. Include merchant processor statements and any payment apps.
- Total deposits by month for each account.
- Remove non-revenue deposits: transfers between the business's own accounts, loan proceeds, owner contributions, refunds from suppliers, insurance payouts, tax refunds.
- Adjust for timing and netting: card sales deposited a day or two later, processors that deposit net of fees, sales tax collected inside deposits.
- Compare with reported revenue for the same month, then sum to annual and compare with the tax return.
- List every unexplained difference and ask the seller about each one in writing.
A worked example
Illustrative example, not a real business
A seller's P&L shows $1,240,000 of revenue for the year. Deposits across two accounts total $1,410,000.
| Item | Amount | Support |
|---|---|---|
| Total deposits, both accounts | $1,410,000 | Bank statements |
| Less transfers from savings to operating | −$95,000 | Matching withdrawals in the savings account |
| Less equipment loan proceeds | −$40,000 | Loan agreement |
| Less sales tax collected | −$62,000 | Sales tax returns |
| Plus processor fees netted from card deposits | +$31,000 | Processor monthly statements |
| Revenue supported by deposits | $1,244,000 | |
| Revenue on P&L | $1,240,000 | |
| Difference | $4,000 | Timing at year-end; small enough to accept |
Now imagine the deposits had come to $1,120,000 after the same adjustments. That's $120,000 of reported revenue with no cash behind it. At three times earnings, if that revenue dropped straight to profit, it would represent $360,000 of price. That's the conversation you want to have before the LOI, not after.
Reconciling items you'll see
- Transfers between accounts. Match each one to the withdrawal in the other account. Unmatched "transfers" are not transfers.
- Owner deposits. An owner topping up the account in a slow month looks like revenue if you don't trace it.
- Loans and lines of credit. Draws on a credit line arrive as deposits.
- Processor netting. Card processors often deposit sales minus fees, so deposits understate gross sales. Use the processor's monthly statement, and compare its totals with the 1099-K the processor sends.
- Sales tax. Collected from customers, deposited with sales, owed to the state. Revenue on the P&L should exclude it.
- Cash used before deposit. If the owner pays staff or suppliers in cash from the till, revenue never hits the bank and those costs may never hit the books. Both halves are a problem.
- Third-party platform payouts (delivery apps, marketplaces, booking platforms) arrive net of commissions and refunds. Use the platform's own reports.
The disbursement side
A full proof of cash also reconciles money going out with expenses in the books. That's how you find costs that were paid but never recorded (which flatter profit) and personal spending booked as business expense. At minimum, scan withdrawals for large or regular payments that don't match a vendor on the P&L, and for cash withdrawals that might be paying people off the books.
Red flags
- The seller won't provide statements for every account, or the account list keeps changing.
- Bank statements arrive as spreadsheets or edited PDFs instead of downloads from the bank. Ask to watch the seller download them, or get them directly with permission.
- Round-number deposits at month-end, especially in the months before listing.
- Revenue rising while deposits stay flat.
- Large cash deposits that don't follow the business's normal weekly pattern.
How to verify the revenue of a business for sale
Verify revenue by matching independent sources against what the seller reports: bank deposits for every account (proof of cash), card processor statements and 1099-K forms, filed tax returns confirmed with IRS transcripts, POS or invoicing system reports, and customer invoices or contracts for the largest accounts. No single source is enough; revenue is verified when several sources agree and the differences are explained, such as transfers, loans or timing.
Revenue is the number every other number depends on. If it's overstated, so are the margins, the earnings, and what you'd be asked to pay.
Sources and what each proves
| Source | Proves | Watch for |
|---|---|---|
| Bank statements, all accounts | Cash actually arrived | Transfers, loans, owner deposits |
| Card processor statements, 1099-K | Card sales volume | Gross vs net of fees and refunds |
| Tax returns + IRS transcripts | What was reported | Accrual vs cash timing |
| POS / invoicing reports | Sales detail by day, product, customer | Voids, edits, test entries |
| Customer invoices, contracts | Large accounts are real | Related parties |
| Sales tax returns | Taxable sales reported | Exempt sales |
Step by step
- Get a list of every bank account and processor the business uses.
- Total deposits by month; remove transfers between accounts, loans and owner contributions.
- Compare with reported monthly revenue; explain each gap.
- Compare annual totals with filed returns. See returns vs P&L.
- Sample sales system detail and the largest customer invoices.
- Document what's verified and what isn't.
Bank deposits don't match revenue: how to explain the gap
Bank deposits rarely equal reported revenue exactly. Deposits can be higher because of transfers between accounts, loans, owner contributions, refunds or sales tax collected. They can be lower because card processors deposit net of fees, third-party platforms pay out net of commissions, or cash was spent before it reached the bank. Each reconciling item should be traceable to a document.
What's left after that is the real gap. A small timing difference is normal; a persistent shortfall or surplus needs a credible, documented answer.
The first time buyers compare a seller's deposits with the P&L, the numbers almost never match, and it's tempting to either panic or give up. Neither is necessary. Most differences have ordinary explanations you can document. The point is to find the ones that don't.
Reconciling items, both directions
| Makes deposits higher than revenue | Makes deposits lower than revenue |
|---|---|
| Transfers in from the business's other accounts | Card processor fees netted from deposits |
| Loan proceeds, credit line draws, merchant cash advances | Platform commissions and refunds netted (marketplaces, delivery apps) |
| Owner contributions | Revenue recorded but not yet collected (receivables) |
| Sales tax collected (owed to the state) | Cash spent before deposit |
| Insurance, tax refunds, supplier refunds | Customer deposits recorded as revenue before cash arrives |
| Collections of prior-year receivables | Chargebacks |
Which gaps are red flags
- Reported revenue consistently above supported deposits, with no receivables build-up to explain it. Revenue may be overstated.
- "Transfers" with no matching withdrawal in another business account. They may be outside money disguised as sales.
- Round deposits near month-end in the months before the sale.
- Deposits well above revenue with no loans or transfers to explain them. Income may be under-reported, which is the seller's tax problem and a credibility problem for every other number.
- A seller who won't provide statements for every account.
Using processor and platform records
For card-heavy businesses, the processor's monthly statements show gross sales, fees and refunds, which bridge the gap between gross revenue and net deposits. Processors also report gross payments on Form 1099-K. For businesses selling through marketplaces or delivery apps, use the platform's payout reports.how to verify revenue.
Frequently asked questions
What is a proof of cash in due diligence?
It's a reconciliation of cash receipts and disbursements in the bank statements to the revenue and expenses in the financial statements and tax returns. It catches revenue that was recorded but never collected, and costs paid that never appear in the books.
How many months of bank statements do I need?
At least 12 months, and ideally 24 to 36 so you can compare with full tax years. The SBA's QoE cash proof covers the trailing 12 months and the last two fiscal years.
What if deposits are higher than reported revenue?
Often it's loans, owner contributions, transfers between accounts or sales tax collected. If none of those explain it, the seller may be under-reporting income, which is a tax problem for the seller and a credibility problem for every number in the deal.
What if deposits are lower than reported revenue?
Then some reported revenue never reached the bank. There may be an innocent reason, like cash used to pay expenses or a processor that nets fees, but each explanation needs evidence. Unexplained shortfalls are one of the most serious red flags in a small business sale.
Does OKtoBuy do a proof of cash?
The readout compares monthly bank deposits with reported revenue and flags the months that don't match, with links to the statement pages. It's a buyer's check, not the formal cash proof in a lender's QoE.
Are bank statements enough to verify revenue?
They're the core evidence, but deposits include transfers, loans and refunds, so you need to separate those out. Combine with tax returns and sales records.
Sources
- SBA SOP 50 10 8.1, Appendix 15: Quality of Earnings and Cash Proof requirement
- IRS: About Form 1099-K (payment card and third-party network transactions)
Related guides
General information, not legal, tax, financial or investment advice. Rules and lender practices change; check the linked sources and talk to your attorney, CPA and lender about your deal. Examples with named numbers are illustrations, not real businesses. OKtoBuy does not value businesses or give price opinions.