data.day
financial-integrity / reconciliation / diligence-killers / accounting

My Rant: If Your Numbers Don’t Tie Out, I Stop Listening to Your Story

A narrative is only as strong as the math behind it. If your Pitch Deck says $5M and your Tax Return says $4M, you don't have a rounding error; you have a credibility crisis.

Elena Dossier Elena Dossier

Inconsistency is the Mother of Rejection

You believe that the “vision” is what sells the company. You think the investors are buying the future.

They are buying the future, but they are auditing the past. And if the past is blurry, they will not trust your vision of the future.

The most common deal-killer I encounter is the Tie-Out Failure. This occurs when the same metric appears in three different documents with three different values.

  • The Deck: “EBITDA: $2.5M”
  • The Management Accounts: “EBITDA: $2.2M”
  • The Tax Returns: “Net Income: $1.0M”

To you, these are just different accounting treatments. To me, they are evidence that you do not know how much money you actually make.

The Red Flag: The Floating Variable

When I see these discrepancies, I stop listening to your story about “market dominance.” I am now stuck in a loop of forensic arithmetic. I am trying to figure out which version of the truth is real.

If I find one number that is inflated, I assume all numbers are inflated.

  • I assume your churn is higher than you say.
  • I assume your CAC is understated.
  • I assume your pipeline is soft.

You have lost the benefit of the doubt.

The Protocol: The Tie-Out Pack

Before we open the Data Room, we perform a Reconciliation Audit. We build the “Tie-Out Pack.”

Step 1: The Triangle Test Take your three sources of truth:

  1. Bank Statements (Cash)
  2. Tax Returns (Compliance)
  3. Management P&L (Performance)

Do they align? If not, why?

Step 2: The Bridge Document You must create a document that bridges the gap.

  • File: 03_Financials / 03.99_Reconciliation_Bridge.pdf
  • Content: “The difference between Management EBITDA ($2.2M) and Tax Income ($1.0M) is due to: R&D capitalization ($500k), Depreciation ($400k), and disallowed entertainment expenses ($300k).”

Step 3: The Deck Scrub Go back to your Pitch Deck. Does the revenue on Slide 4 match the P&L in the Data Room to the penny? If the Deck says “$10M” and the P&L says “$9,985,420”, change the Deck. Precision breeds trust. Rounding breeds suspicion.

[TO EDITOR: Guidance for illustration. A diagram of a bridge. One side: ‘GAAP Revenue’. Other side: ‘Cash Collections’. The bridge planks are labeled ‘Accounts Receivable’, ‘Deferred Revenue’.]

Reality Check

Investors do not expect perfection. They expect explanation. They can handle a lower EBITDA. They cannot handle a mysterious EBITDA.

If you cannot explain the difference between your bank account and your spreadsheet, you are not a CEO; you are a gambler.

FAQs

But tax accounting is different from GAAP. Won't they differ?

Yes. But you must provide the 'Bridge' that explains exactly why. You cannot just leave them different and hope the auditor figures it out.

What is an acceptable variance?

Zero. Or, a specific, explained variance. 'Close enough' is not an accounting term.

Should we change the Pitch Deck to match the lower number?

Always. It is better to be accurate and smaller than inflated and exposed.