A Guarantee is a firm commitment or undertaking on behalf of third parties which imposes potential financial liabilities on the guaranteeing entity. A guarantee falls under the broad group of liabilities referred to as off-balance sheet liability. An off-balance sheet liability refers to an obligation with financial consequences whereby existing accounting practices do not require the company to report in its financial statements. Because of the probability of the liabilities associated with a guarantee materialising, business valuation analysts typically deduct the full amount of the liabilities associated with a guarantee from the benefit stream being relied on in order to derive the fair market value even though such liabilities may not materialise. The existence of off-balance sheet liabilities for a business being valued can be detected through an effective due diligence which is an important step in the business valuation process. In the absence of an effective due diligence, off-balance sheet liabilities may be overlooked resulting in an over estimation of the fair market value.