What to do when Balance Sheet does not balance?

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 (51)

Apr 15, 2014 - 6:14pm

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 - 7:34pm

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.

I'm talking about liquid. Rich enough to have your own jet. Rich enough not to waste time. Fifty, a hundred million dollars, buddy. A player. Or nothing.

See my Blog & AMA

  • 6
Apr 15, 2014 - 9:20am

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.

Jan 12, 2018 - 3:13pm

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.

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Jun 10, 2018 - 10:27am

Urgent Help Valuation - Can't get Pro forma balance sheet to balance (Originally Posted: 05/23/2016)

HI everyone,

I can't get my to balance, any help would be GREATLY appreciated!

Please find model attached. It might be a small problem i'm missing, but i can't seem to figure it out, in this instance.

Many many thanks if someone can help.

Jun 10, 2018 - 10:30am

Balance sheet imbalance impossible to solve (Originally Posted: 10/03/2016)

Hello,
Could somebody help me to balance financial statement please ? I am completely lost. Especially about what to put in cash and equivalent.

Best regards,
mio

Jun 10, 2018 - 10:40am

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 - 10:42am

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 - 10:45am

Quick Balance Sheet Unbalanced Favor (Originally Posted: 12/29/2014)

Hey guys,

Long time lurker here. Anyone around to take a look at my model for a case study interview? I can't figure out why my model can't balance :( TIA!

Jul 10, 2018 - 8:11am

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 - 10:08am

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 - 10:09am

Intern problems - balancing the balance sheet (Originally Posted: 04/05/2014)

I've been trying to balance this balance sheet for a DCF I'd like to build for IBM, but have been running into some problems. Was wondering if I could get some help from anyone.

Here are some of the questions I have:

  • I've projected out "short-term financing receivables" and "long-term financing receivables" on the balance sheet and then made the corresponding calculation in the cash flow statement under "receivables". Is this method okay?

    -For PP&E on the balance sheet and accumulated depreciation, how do you go about calculating these? I've calculated the PP&E net amount by using the previous year and then subtracting any depreciation and "payments for PP&E" on the cash flow statement. I'm assuming this is the reason my balance sheet isn't balancing.

-And why are the intangible assets going negative in the future years? Am I doing the formula wrong?

Any help would be really appreciated. It's a really simple model. Still learning the process.

Jul 10, 2018 - 10:16am

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 - 10:18am

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