What to do when Balance Sheet does not balance?

hswc's picture
Rank: Senior Monkey | banana points 98

After 3 hours of anxiety, cursing (under the breath) and a pair of strained eyes, I have finally managed to balance my balance sheet.

Background: I am required to do a valuation model for a single business segment based on a fully consolidated model - so I did the usual extraction, reference etc. Also required to conduct some analysis hence the full model of statements etc.

Following my sweet success, I would like to share my personal steps to folks new to full modelling who have a hard time balancing B/S:

1) Find the net difference of Net Assets and Equity.
2) Eyeball the figure with every line item to see if they are exact match (most encounter would be the lack of cumulative effect in the b/s)
3) If exact match found, you should pat yourself at the back and go rectify the mistake.
4) If Step 2 is unsuccessful, start simplifying your model in steps - take out complex assumptions, eliminate different tax/debt structure, and observe how the net difference changes.
5) Once net difference is eliminated when an item/assumption is removed - Voila! You hit the jackpot and you can go home on time (hopefully).

As said, I find these steps useful for amateurs. If you have a better methodology of balancing the B/S in general, do share!

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Comments (44)

Best Response
Apr 15, 2014

hardcode "TRUE" at the bottom always works

    • 11
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Apr 15, 2014
LDNBNKR:

hardcode "TRUE" at the bottom always works

E=A-L. Works every time.

In all seriousness, if my BS doesn't balance it is usually due to me stupidly forgetting to capture some amort of intangibles or financing fees at some point (deduction before pretax income, addback to CFS, decreases the BS account). So I always check those first.

Apr 15, 2014

in an internal model i onced received from a very large utility player in Germany, the balance sheet also did not balance, and who ever did that just created a line item called "magic balancing number" to make it work.

    • 2
Apr 15, 2014

If the difference doubles each year, its usually a flipped sign. Thats my first check.

You can also start deleting all lines (through all statements) relating to the same account to see if that makes it balance.

    • 1
Jan 12, 2018

Unfortunately, there are a million things that could have gone wrong. Adding a few things as I referenced this post within the last day or two. Here are a few checks that helped me:

  1. Check the Deferred tax liability / Intangible Assets / PP&E and other formulas that depend on the previous year. I have definitely made the mistake of linking to the change on the cash flow statement without adding that number to the previous year (referencing deferred tax liability specifically here). You probably already know these (PP&E = Beginning PP&E + Capex - Depreciation) and (Intangible assets = Beginning IA - Amortization of IA)
  2. Another solid check is making sure you hit Ctrl+R on all of your formulas. I've gone back to change a formula in the initial projection year and forgot to drag it over to later years. You can eyeball for figures that don't necessarily make sense or have a logical trend. If you find any, you can use Ctrl+` to show the formulas and make sure they are correct
  3. Don't waste too much time on checking growth, etc. assumptions as those wouldn't impact whether the balance sheet balanced. Typically, there is either a formula error in the balance sheet itself or on the cash flow statement

I hope this helps someone out. A few of the other comments defintely helped me. Happy balancing.

Jan 12, 2018

Plug the difference into Goodwill

    • 1
Jan 12, 2018

Hey AlrightAndre, sorry about the delay, but are any of these useful:

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  • Expertise needed: FSM Won't Balance The model is incomplete but I believe my projected B/S should balance where it is right now.I have ... help balance sheet Advice ...
  • Valuation Model Balance Sheet Won't Balance. I have uploaded my model. Just need to know what I am doing wrong. Any comment would be helpful. Thanks. ...
  • Help with a merger model.. Balance sheet won't balance acquirer and target balance sheets are balancing, but the pro forma balance sheet doesn't in three of ... the last years. Time period is 2017 to 2023 (2021, 22, 23 is out of balance). I wiped out debt ...
  • Please help- Balance sheet won't balance be greatly appreciated. Please note columns N and P have been split out to see every balance sheet ... balance is jumping by about 5k a year, i have split it out into full change in difference and half change ...
  • More suggestions...

Or maybe the following pros can chime in... @Solstice3 @wallstreetfool @DaAnswer

Fingers crossed that one of those helps you.

Jun 10, 2018

Works!

Jun 10, 2018

s are small enough that it could be just rounding error. Didn't take a deep dive though.

Jun 10, 2018

Thanks for looking, actually the numbers start by small outs but it ends up being quite a big. Cheers.

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Jun 10, 2018

Timing looks perfect for $WLKR $AKDS $XGTI

Jun 10, 2018

what about using cash as a plug to balance the model?

Jun 10, 2018

Would be happy to help, but I think most people are going to pass on this because asking you what SCF takes too much work.

Jun 10, 2018

Care to post the Statement of Cash Flows?

Also, see this site.
You're essentially starting with Net Income then showing changes in cash changes in Operating, Investing, and Financing activities.

Jun 10, 2018

I'm curious. Post cash flow statement.

Jun 10, 2018

*doesn't

Jun 10, 2018

Heya, send it up, I'll try to help

Jun 10, 2018

Shoot em over and ill check why the balance sheet ain't balancing.

How is my grammar? Drop me a note with any errors you see!

Jun 10, 2018

Hi, thanks all for replying...very sorry for being late in replying back...its over... got it settled already....thanks all anyways

Jun 10, 2018

New question. Anyone can help me please. Sorry for being a noob.

Is it possible that even if the links between balance sheet and cash flow statement are done properly but from cash flow statement, the ending cash flow (after adding to beginning cash flow), which will flow back to balance sheet is still negative?

Can this be resulted from assumptions (drivers)? After I increase values for drivers, no more negative cash.

Big thanks to whoever help.

Jun 10, 2018
Nobodythere:

New question. Anyone can help me please. Sorry for being a noob.

Is it possible that even if the links between balance sheet and cash flow statement are done properly but from cash flow statement, the ending cash flow (after adding to beginning cash flow), which will flow back to balance sheet is still negative?

Can this be resulted from assumptions (drivers)? After I increase values for drivers, no more negative cash.

Big thanks to whoever help.

Does the ending cash balance on the SCF tie to whats on the balance sheet?

Jun 10, 2018

hi there thanks for replying
From balance sheet (Using total liabilities+equity-noncurrent asset-rest of current asset =cash). yes it ties to scf's

Jun 10, 2018

PM me

Jun 10, 2018

can't PM yet...not enough bananas. can you PM me and ill reply?

Jun 10, 2018

got it. thanks guys for all the help!

Jul 10, 2018

Hello buddies,
I got this financial model problem, it's a 3 year forecast. the first year balances perfectly but the remaining two years wont. Shows a constant balance when I change Liabilities or Capital but the balance increases when I input a figure in the assets. What could be wrong?

Jul 10, 2018

If it is a small error - less than 0.02 - I consider it a rounding error and either ignore or add a couple cents to the other side to make it balance. After that I divide the error by 9. If the result is a whole number it is likely a transposition error. From there it is just a line-by-line check to see what digits were switched.

Jul 10, 2018

bump*

Jul 10, 2018

Estimates shouldn't matter as long as: Assets=Liab+SE

Jul 10, 2018

Also, you need to close out your NI and Divs to RE

Jul 10, 2018

NI and RE done (no DIVS). I can force my estimates to balance it but it feels wrong as that removes consistency.

Jul 10, 2018

If you attach the spreadsheet, maybe we would be better positioned to try and help you find the pain point.

Jul 10, 2018

Reconcile the differences in your balance sheet periods with the corresponding year in the CFS. That usually identifies the errors / weeds out any potential linking errors you may have made

Jul 10, 2018