Minimum cash balance
LBOThe cash level a model holds the business at, below which the revolver is drawn rather than letting the balance fall further.
Also written: minimum cash, cash floor, operating cash cushion
No business runs at zero cash, so a model that lets the balance drift to nothing is describing something that does not exist. The minimum cash balance is the floor: the revolver draws when cash would fall below it and repays when there is surplus above it.
Two things set the level. The first is operational, being the cash the business genuinely needs in the bank to pay suppliers and wages through the month, which is larger for a business with lumpy receipts than for one collecting daily. The second is contractual, since leveraged credit agreements frequently require a minimum liquidity level or minimum undrawn revolver availability.
The assumption is not neutral to the answer. Set it too low and the model shows a company operating on nothing, which no lender would accept as a base case. Set it too high and cash accumulates on the balance sheet instead of repaying debt, which understates deleveraging and therefore understates the equity return in a buyout.
It is worth stating explicitly in any timed exercise, because it is one of the few assumptions that quietly changes the output while looking like housekeeping.
Worked example
A business generates 60 of cash before interest, holds a minimum cash balance of 10 and starts the year with 10 in the bank.
Interest of 7 leaves 53 of surplus above the floor, all of which sweeps the revolver. Raise the floor to 25 and only 38 sweeps, so the revolver closes 15 higher and carries that extra interest into every later year.