Due Diligence Tool
A business can show strong EBITDA and still be haemorrhaging cash. This tool builds the bridge from reported EBITDA through working capital movements, tax, interest, capex, and owner drawings to calculated closing cash — then compares it to the actual bank balance. If they don't reconcile, it raises a simple question: where did the money go?
Opening position
From the balance sheet at start of period
P&L cash flows
As stated in the seller's financials
Actual cash interest — from bank statements
From BAS or ATO running balance — not P&L tax expense
Working capital — opening & closing balances
Enter balance sheet values at the start and end of the period. The delta column shows the cash impact automatically.
Capital expenditure & owner distributions
Cash spent on equipment, vehicles, fit-outs
Cash extracted beyond the salary already in EBITDA
Actual result (from bank statements)
From bank statements — not the balance sheet. Enter to reveal the variance.
A cash flow bridge (also called an EBITDA-to-cash reconciliation or cash waterfall) traces every dollar from reported operating profit to actual closing cash. It forces every adjustment — working capital changes, tax payments, capex, owner distributions — to be explicit and accountable. Unlike a P&L, you can't fabricate a bank balance.
Common causes of a negative variance (less cash than expected): debtors growing faster than revenue (cash trapped in unpaid invoices), undisclosed creditor payments, aggressive EBITDA add-backs that don't reflect real cash generation, or owner cash extractions not captured in the financials. A positive variance is less common but can indicate asset sales or loans drawn that aren't in the P&L.
Below 5% of EBITDA is generally explainable by timing differences and rounding. Between 5–15% warrants a question but may have a legitimate explanation (e.g. a supplier was paid late in the prior year). Above 15% is a significant red flag — at a 3× EBITDA purchase multiple, a 15% variance represents nearly half a year's earnings in unaccounted cash.
Opening and closing cash comes from the balance sheet. EBITDA from the P&L. Interest paid and tax paid from bank statements or the ATO running balance account (not from the P&L — accrual tax expense ≠ cash tax paid). Working capital balances from opening and closing balance sheets. CapEx from bank statements or fixed asset schedules. Drawings from director loan account movements or dividend statements.
Ask the seller to produce a formal cash flow statement (Statement of Cash Flows) prepared by their accountant. This should reconcile exactly. If they can't produce one, ask them to walk through the gap item by item. Resistance or vague answers at this stage is one of the strongest signals in due diligence. See our full due diligence checklist →