Module IV· Sources & UsesIntermediate
Question
Which sanity checks do you run on the Sources & Uses table before showing it to the senior?
Answer
Mechanics
Five standard checks before every senior review:
- Balance check: Total Sources = Total Uses to the cent. A difference means a sign error or a missing cell.
- Leverage check: Senior Debt / EBITDA and Total Debt / EBITDA within the market range (4–5.5x senior, 5.5–6.5x total).
- Equity-share check: Sponsor Equity / Total Uses between 30 and 50%.
- Cash-availability check: cash on the target balance sheet minus trapped cash minus operating cash need. Estimate conservatively.
- Fee check: transaction + financing fees together 4–6% of the equity purchase price.
Deep diveShow more details
Typical error sources these checks catch
- Forgetting to refinance existing debt: change-of-control clause not checked
- Trapped cash assumed 100% available (cash in a foreign subsidiary that can't be repatriated without withholding-tax friction)
- Financing fees set at only 1% (typically 2.5–3% of debt volume)
- Equity share below 25%: the bank indication is missing or too aggressive
- Senior leverage above 5.5x in a cyclical sector: covenant stress built in
Pitch tip
In a senior review, mention the sanity checks proactively ("Total Sources equals Total Uses, leverage is 5.2x at the top of the range but financeable, fees at 4.8% within the bracket") — this signals ownership rather than 'here's the table, please check it'.