What is a funds flow in private equity?

A funds flow is the schedule of every payment made to complete a transaction: who pays whom, how much, in what order and into which account. It shows that the money coming in (sources) equals the money going out (uses).

What is the difference between a funds flow and sources and uses?

Sources and uses is the summary: where the money comes from and what it pays for, as two totals that must match. The funds flow is the detail underneath: each individual payment, step by step, between named parties.

Who prepares the funds flow?

Usually the buyer's deal team or its advisers build it, the lawyers draft the steps into the completion documents, and the banks and payment agents act on it. Everyone works from it, which is why copies of it multiply.

Why do funds flows go wrong?

Mostly because the funds flow lives in a spreadsheet copied between the fund, the lawyers and the bank. A late change lands in one copy and not another, figures are retyped, and with v40, v60 and v150 in circulation, decisions are taken on versions that have already changed.

What is a funds flow? Private equity funds flow explained

The short answer

When a private equity fund buys a company, money moves between many parties on the same day. The fund invests, co-investors invest, banks lend, the seller is paid, old debt is repaid, and advisers are paid their fees.

The funds flow (often a funds flow memorandum or funds flow statement) writes all of that down as ordered steps. Banks and payment agents act on it. The lawyers draft the completion documents from it. Everyone checks their own number against it.

Sources and uses: the check behind it

Sources are where the money comes from: equity from the fund and co-investors, shareholder loans, bank debt. Uses are what it pays for: the purchase price, refinanced debt, fees and costs. The two totals must be equal. If they are not, money is either missing or left over, and someone has to find out why before completion.

A worked example

An illustrative close: a fund and a co-investor fund a new holding company (TopCo), which funds the buying company (BidCo), which draws senior debt, pays the seller and settles fees. Figures in £ millions, run through Disota's engine.

Step	Payer	Recipient	£m
1.01 Fund subscribes for equity in TopCo	Fund	TopCo	150
1.02 Fund lends to TopCo (shareholder loan)	Fund	TopCo	60
1.03 Co-investor subscribes for equity in TopCo	Co-investor	TopCo	40
2.01 TopCo lends to BidCo (intercompany loan)	TopCo	BidCo	250
2.02 BidCo draws down senior debt	Lenders	BidCo	120
3.01 BidCo pays the purchase price to Seller	BidCo	Seller	360
3.02 BidCo settles fees and costs	BidCo	Advisers	10

Now the check. Money from outside the group comes in, and money leaves it:

Sources	£m	Uses	£m
Fund equity	150	Purchase price	360
Fund shareholder loan	60	Fees and costs	10
Co-investor equity	40
Senior debt	120
Total	370	Total	370

The £250m from TopCo to BidCo is a payment inside the group, so it sits in the funds flow but not in sources and uses. After the last step, TopCo and BidCo each hold nothing: every pound that arrived has gone out again. That is what tying out means.

Where funds flows go wrong

Conflicting copies. The workbook is emailed between the fund, the lawyers and the bank. A late change to the price lands in one copy and not another.
Retyped figures. The same payment is keyed into the funds flow, the completion documents and the cap table, and one of them differs.
Leaning on the builder. Everyone checks the numbers, but a check means working through someone else’s layout and formulas. Only the person who built the workbook can see all the way down, so every other check leans on them.
Decisions on stale versions. v40, v60, v150: with that many in circulation, a stakeholder can be advising on figures that have already changed, and nobody knows until they are told.
Evidence scattered. Board approvals, payment instructions and bank confirmations sit in email threads, apart from the step they relate to.
Rebuilt afterwards. After completion the next team has to work out what actually happened, from whichever copy survived.

How Disota handles it

Disota runs the funds flow as the deal completes, rather than in a spreadsheet beside it. An engine does the maths, sources and uses must tie out, every figure keeps who changed it and when, and every version sits in one place where every team works on the same record. Each document is attached to the step it evidences. After completion, the same record carries the cap table and securities through to exit.

Request an early look

Common questions

What is the difference between a funds flow and sources and uses?: Sources and uses is the summary: two totals that must match. The funds flow is the detail underneath, each payment step by step between named parties.
Who prepares the funds flow?: Usually the buyer's deal team or its advisers build it. The lawyers draft the steps into the completion documents, and the banks and payment agents act on it. Everyone works from it, which is why copies of it multiply.
Is a funds flow the same as a closing statement?: They overlap. A closing statement usually focuses on the price and its adjustments; the funds flow covers every payment needed to complete, including debt, fees and payments inside the group.
Why not just use Excel?: Excel is right for modelling the deal. Execution is different: real money moving in a fixed order, between parties who each hold their own copy. That needs one shared record, permissions and a check that cannot be skipped.