Most people think they can spot a bad business deal just by looking at the numbers. Some of the biggest red flags don’t show up on the balance sheet, in plain sight.
Over the years, I’ve seen amateurs rush into deals without digging deeper. The result? They end up paying for debts and obligations they didn’t even know existed.
Here’s the truth: if you don’t know what to look for, these hidden liabilities can cost you big time.
What’s Often Missing from the Balance Sheet?
- Deferred revenue collections
Revenue that’s already been collected but not yet earned. If the new owner has to fulfill those obligations, it’s essentially money already spent. - Unpaid purchases
These are bills for goods or services already delivered but not yet paid for. You could be stuck paying for things that don’t benefit you. - Unaccrued liabilities
Think about taxes or other costs that haven’t been accounted for yet but are coming due. Surprise! - Unpaid employee vacations
Employees expect their earned time off, and guess who gets to pay for it if it wasn’t handled before the sale? - Future lease assignments
If the seller has signed a lease, the responsibility for those payments often lands on the buyer. Make sure you know the terms. - Supplier “floor inventory”
If suppliers have loaned inventory on consignment, the seller might owe them—so double-check what’s actually owned free and clear.
How to Protect Yourself
- Ask questions. Don’t assume the balance sheet tells the whole story. Dig deeper into contracts, agreements, and records.
- Get expert advice. A seasoned business broker or appraiser knows how to find hidden risks and help you avoid costly mistakes.
- Verify everything. Don’t rely on promises or assumptions. Confirm every number and every obligation.
Here’s my advice:
If you’re serious about buying a business, don’t just look at what’s on paper. Look beneath the surface. Hidden liabilities can turn a good deal into a disaster faster than you think. What you don’t know can be costly – we help eradicate uncertainty in business brokering. You are not alone.