Off-balance-sheet obligations

Definition

Commitments a company owes that its balance sheet does not show.

Why It Matters

Small-company books are kept for the tax return rather than for a buyer, so the commitments that matter most often sit outside them: personal guarantees the owner signed, equipment on operating leases, a deferred-payment arrangement with a supplier, an earnout still owed on something the seller bought, an unfunded promise to a departing employee. Every one of them is a claim on the cash you are underwriting. Ask for the lease schedule, the loan agreements and every contract with a payment in it, then put those payments into the debt service you are modeling.

In numbers: Four operating leases at $1,900 a month add $91,200 of obligation over two years that never appears as debt anywhere on the balance sheet.