LBO Model Help
I’m running into a balance sheet issue where everything ties except for a consistent difference that matches the change in NWC in my closing balance sheet year. The discrepancy carries through every forecast year. I built a proper NWC schedule and the numbers flow, but I can’t get the balance sheet to balance because of this gap. I’ve seen some suggestions online about plugging cash, but that doesn’t feel right. For context, the model gives two years of historical I/S and B/S data (no CFS) and a forward-looking budget I/S for the close year. How should I be handling this to get the balance sheet to tie?
Definitely don't plug cash (that just hides the issue).
Are you starting your balance sheet, specifically for NWC items, at $0 or at the starting/ending balance that feeds your change in NWC math? It should be the latter.
Are you incorporating change in NWC in your cash bridge / how you arrive at your cash balance? Perhaps you forgot that row?
I built a working capital schedule for the 2021B projections and flowed those values into my 2021B balance sheet, which is being treated as the closing balance sheet at the time of the transaction
I set a minimum cash balance for the deal, which I pulled into my pro forma balance sheet at close. My S&U is balanced based on that min cash level, and I have a standard cash sweep in place for post-close debt paydown
There is a change in NWC between 2020A and 2021B ( NWC decreases, so it’s a source of cash) but I never adjusted the cash line to reflect that. I left 2021B cash equal to my fixed minimum (from the S&U), and now my balance sheet is off by exactly the NWC delta (and stays off by that amount in every forecast year).
Since the transaction closes at 12/31/2021 and we’re effectively “buying the business as-is,” should I:
Or should that NWC-generated cash be treated as going to the seller and added as a true-up line item in Uses section in S&U?
You’re really close. Flow the change in NWC into your cash balance (and anything else that would affect budgeted cash at that point). Then when you do your PF adjustments for closing balance sheet, you wipe all the cash and insert the min cash.
Practically, I think you’re describing it right in that the benefit of that NWC decrease goes to the seller when you do all the steps. But don’t do a true up in the S&U. Handle it like you normally would for a closing B/S.
I think the reason why you’re off is that your goodwill is too high, but that’s just a guess.
Looks like that solved it!
I added the NWC cash inflow to the pre‑transaction cash balance, and the balance sheet now ties across the forecast. Does that sound right to you?
I’m not gonna audit your fucking excel my man. But conceptually yes that should be it.
feel free to dm me your B/S if you want i can take a look
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