An adjusted EBITDA figure is only as good as the ledger it came from. Most buyers learn that the expensive way. The figure looks right, the multiple looks right, and then a reviewer asks why the deposits in the bank do not add up to the revenue on the P&L.
That question is what a proof of cash answers, and it now has a formal place in SBA deals.
What SOP 50 10 8.1 requires
SOP 50 10 8.1 applies to any SBA loan issued a loan number on or after 1 October 2026. For a business acquisition with a purchase price of $3 million or more, the lender must order a quality of earnings report, and the report must include a cash proof.
The words that matter are "lender-ordered". A report the seller commissioned for the sale process can still help. It does not replace the one the lender needs.
What a proof of cash is
A proof of cash, sometimes called a four-column proof, reconciles cash activity in the books to cash activity in the bank for every month in the review period.
| Column | Books | Bank |
|---|---|---|
| Opening balance | Cash per the general ledger | Balance per the statement |
| Receipts | Cash receipts recorded | Deposits on the statement |
| Payments | Cash payments recorded | Withdrawals on the statement |
| Closing balance | Cash per the general ledger | Balance per the statement |
The reviewer then works the differences. Timing items, such as a deposit in transit at month end, should reverse in the next month. Differences that do not reverse need an explanation.
A month-end bank reconciliation does part of this already. The proof goes further because it tests the total flow through the month, not only the closing balance. A balance can reconcile while a month's receipts are wrong in both directions.
What it usually finds
Revenue that never reached the bank. Cash collected and not deposited, or deposited into an account the business does not report. The P&L shows revenue the lender cannot see.
Deposits that are not revenue. Owner loans, transfers between the owner's entities, refunds and insurance proceeds booked as sales. These inflate earnings.
Personal spending through the business. Some of it is a legitimate add-back. All of it needs to be identified, because unexplained payments make a reviewer question the add-backs you can support.
Cut-off problems. Invoices dated in one period and paid in another. The proof shows the gap, and the reviewer will ask which month the revenue belongs to.
Accounts no one mentioned. A second bank account, a payment processor balance or a merchant account that the books do not cover. The proof only works if every account is in it, so this is where unreported accounts come to light.
How to prepare the books before the reviewer arrives
If you are selling, start this well before the reviewer asks. If you are buying, ask for it in the first diligence request.
Gather every statement for every account. Operating accounts, savings, payment processors, merchant accounts and any account the owner uses for the business. Get every month of the review period the reviewer sets, with no gaps.
Reconcile every month first. A proof of cash on unreconciled books is mostly noise. If the books have not been reconciled, that is the first job.
Separate the owner's money. Identify owner contributions, loans and draws as what they are. Book them as equity or debt, not as revenue or expenses.
List the add-backs with evidence. Each add-back should tie to a payment you can show on a statement, with a reason it will not recur.
Fix cut-off. Make sure revenue and expenses sit in the period they belong to. On a cash-basis file this usually means converting to accrual for the review period.
What a proof of cash will not tell you
It will not tell you whether the earnings will continue. A business can pass a proof of cash cleanly and still depend on one customer, one employee or one contract. Quality of earnings covers sustainability. The proof only covers whether the history is real.
It will not fix a weak file in the time before closing either. If the books need cleaning up, the work takes weeks, and it is better done before the letter of intent than during diligence.
Frequently asked questions
What is a proof of cash?
A proof of cash reconciles cash receipts and payments recorded in the accounting system to deposits and withdrawals on the bank statements, month by month, for the whole review period. It shows whether the books describe money that actually moved through the bank.
When does an SBA loan require a quality of earnings with a cash proof?
Under SOP 50 10 8.1, for loans issued an SBA loan number on or after 1 October 2026, a business acquisition with a purchase price of $3 million or more requires a lender-ordered quality of earnings report that includes a cash proof.
Is a proof of cash the same as a bank reconciliation?
No. A bank reconciliation agrees the closing balance at month end. A proof of cash also agrees the total receipts and payments for the month, so it catches errors that offset each other and leave the closing balance looking correct.
How many months does a proof of cash cover?
It covers the same period as the quality of earnings review, which the reviewer sets, with every month in it reconciled.
Can a seller prepare for a proof of cash in advance?
Yes. Reconcile every account monthly, separate owner transactions from business ones, convert the review period to accrual if the books are kept on cash, and document every add-back against a bank payment.
Where CFOLogic fits
We do the preparation work before a reviewer arrives. That covers monthly reconciliations across every account, the owner-transaction cleanup and the cash-to-accrual conversion that a proof of cash depends on. For buyers, we build the proof of cash as part of buy-side diligence and keep the books in shape for the lender's reporting after close.
The lender-ordered quality of earnings itself is commissioned by the lender. Our work is making sure it has clean books to review.