The Sources & Uses Table Explained: How an LBO Is Actually Funded — Where the Purchase Price, the Fees and the Debt Come From, and Why the Sponsor's Equity Cheque Is the Plug, Not a Choice

Every LBO Starts With One Table, and It Is a Balance, Not a Calculation

Before a debt schedule delevers anything and before a returns bridge is drawn, an LBO has to be funded — the money to buy the business has to come from somewhere, and every pound of it has to be accounted for. That accounting is the Sources & Uses table, and it is the first thing built in any LBO model because nothing downstream can run until the deal is paid for.

The reason it is worth understanding properly, rather than as a table you fill in, is that it is a funding identity: total sources must equal total uses, always, to the pound. That constraint is the whole point. It means one line on the table is never assumed but always derived — the sponsor's equity contribution — and understanding which line is the plug is the difference between a candidate who has built an LBO and one who has watched a tutorial.

The Uses Side: Everything the Money Has to Buy

Start with uses, because it is the side that defines the size of the problem. Uses lists every payment the transaction requires at close. The largest is the purchase of the business itself. On the standard cash-free, debt-free basis a buyer pays enterprise value for the operating company — the seller keeps surplus cash and repays existing borrowings out of the proceeds — so the headline use is simply the EV agreed.

But the purchase price is not the only cost of getting a deal done. Three further lines sit beneath it, and candidates who forget them build a table that balances to the wrong number:

Add those together and you have the total the deal must fund — a number meaningfully above the sticker price. That total, not the EV, is what the sources side has to match, which is where the capital structure comes in.

The Sources Side: Every Pool of Capital, Ranked by Who Gets Paid First

Sources lists the capital raised to meet the uses, and it is assembled from the top of the debt stack down. The senior term loan is sized first, off a leverage multiple. Below it may sit senior notes or a second lien, then mezzanine or PIK, then any seller note or rollover, and finally — last, and residual — the sponsor's equity. The revolver almost always appears at £0 drawn: it is committed liquidity for the years ahead, not funding for the day of close.

The ordering is not cosmetic. It mirrors the repayment waterfall and, more importantly, it reflects the sequence in which the structure is actually built: you raise as much cheap capital as the market allows, then work down the stack to progressively more expensive money, and the sponsor's equity fills whatever gap remains at the bottom. That is why equity is written last on the table — because it is decided last in reality.

The Equity Cheque Is the Plug — This Is the Point of the Table

Here is the single insight the Sources & Uses table exists to teach. Total uses is fixed by the deal and its costs. The debt is fixed by what lenders will lend. Everything else — rollover, seller notes, cash — is either agreed or known. So the sponsor's equity contribution is not an input the model chooses; it is the balancing figure that forces sources to equal uses. Equity = total uses − total debt − all other sources. It is a subtraction, not a decision.

This is why an interviewer who asks "how much equity does the sponsor put in?" is testing whether you understand the table as an identity. The answer is never a round number pulled from the air — it is whatever is left. Get that framing right and the rest of the LBO follows, because that equity number is the denominator of the entire return: the value-creation bridge measures how the sponsor turns that plugged cheque into a multiple of itself.

Fees and OID: The 3–5% the Sponsor Pays Just to Transact

The fee lines look like housekeeping and are anything but. Advisory fees, legal, due diligence, arrangement fees and original issue discount — the discount at which loans are issued below par, so a term loan priced at 99.5 raises 99.5p of cash for every pound of face — together add several percent to the cost of the deal. On a £1,000m enterprise value with £500m of debt, fees of 2% of EV and 3% of debt come to £35m, every pound of which is funded by the sponsor's equity because the debt is already sized to its limit.

The point worth carrying is that fees are a friction the equity absorbs in full. Two otherwise identical deals, one with a cleanly negotiated fee load and one bloated by a competitive process and a large financing package, produce different equity cheques and therefore different returns on the same business. The uses side is where a chunk of the return quietly leaks before the business has traded for a single day — which makes the sources a sponsor can find without a lender all the more valuable.

Rollover, Seller Notes and Cash: Sources That Shrink the Cheque

Not every source is a loan or a fresh equity cheque. Three lines reduce the sponsor's contribution without adding a rung to the debt stack, and a sponsor reaches for them precisely because they protect the return:

These are the first levers a sponsor pulls when a deal is tight: not more senior debt, which the market has capped, but rollover and structure that shrink the residual. They also change the negotiation — a seller note or a rollover asks the vendor to keep skin in the game, which only a confident seller accepts. With the sources and uses both understood, the table can be assembled.

A Worked Table, £1,000m Enterprise Value

Take the business from the rest of this series: bought for 10x £100m of EBITDA, a £1,000m enterprise value, financed with 5.0x of term debt. Build both sides and let equity plug the gap. The figures are illustrative benchmarks, not a specific deal:

Read the table the way an investor does. Total uses is £1,045m — £45m above the sticker price, all of it fees and cash. Debt is fixed at £500m by the 5.0x the market allowed. Rollover brings £30m. So the sponsor's equity is not a choice but a subtraction: 1,045 − 500 − 0 − 30 = £515m. That £515m is roughly 49% of the total capitalisation — and it is the denominator every return metric in the model will divide by.

The Four Mistakes That Break the Table Under Exam Conditions

A Sources & Uses looks trivial and is quietly easy to get wrong. Four errors recur in modelling tests and paper LBOs:

Each of these is a funding line that either goes missing or lands on the wrong side, and each throws the equity cheque — and therefore the return — off by a real margin. The table is unforgiving precisely because it is an identity: an error does not warn you, it just balances to the wrong answer.

The Verdict: The Table Tells You Who Really Controls the Deal

Sources & Uses is taught as bookkeeping and read, by anyone who has sat on the other side, as a map of control. The sponsor sets out to buy a business at a price, and then discovers how much of that price it actually has to fund itself: the lenders decide the debt, the process decides the fees, the seller decides whether to roll or defer, and the sponsor's cheque absorbs the residual of all of it. The one line the sponsor most wants to control — how little equity it writes — is the one line it controls least directly.

That is the frame worth taking into an interview. When leverage is cheap and abundant the equity cheque shrinks and returns on equity flatter the sponsor; when the credit market tightens, the same business at the same price demands more equity and the return falls — without a single operational thing changing. The Sources & Uses table is where the financing market's mood is priced into the deal before the business has been run for a day. It is not the boring table. It is the table that decides how hard the rest of the model has to work.

Careers: The First Tab You Will Be Asked to Build

On the desk, Sources & Uses is usually the analyst's first live contribution to a model, because it is self-contained and its logic is unforgiving in a way that teaches quickly. A junior who can build it cleanly — fees on the right side, revolver at zero, equity plugged — and then explain why the equity cheque moved when the leverage assumption changed is demonstrating the exact instinct that senior people are checking for: that the return is a consequence of the structure, not an input to it.

The skill that compounds is reading the table backwards. Given a target equity return, work out the maximum price the sponsor can pay; given a leverage cap, work out the equity required; given a fee load, work out the drag. An associate who can say "at 5.0x the cheque is £515m, but if the market only funds 4.5x we are writing another £50m and the return drops two points" is using the table the way it is meant to be used — as the lever that connects the financing market to the price, and the price to the return.

Take Your Preparation Further

Sources & Uses feeds everything that follows in the LBO, so read it alongside the pieces on either side of it. Build the intuition first with the paper LBO and the beginner's LBO model guide; understand the sources side properly through the LBO debt stack and management and sweet equity; and see the price the uses side pays through the enterprise value to equity value bridge. Then follow the equity cheque forward into the debt schedule that delevers it and the value-creation bridge that measures the return on it, and rehearse the whole thing under time pressure with how to prepare for an LBO modelling test.

For a ready-built model with the Sources & Uses already wired to the returns, download the LBO Model Template, and for the valuation methods that set the entry multiple on the uses side, the free Valuation Methods Cheat Sheet.

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