A QoE can't save you from a deal you should never have pursued. It's built to verify a business, not to tell you whether the seller is someone worth verifying in the first place. That second question gets answered earlier, in the weeks before an LOI, and it's usually answered for free.
Most buyers don't listen for it. They treat the pre-LOI stage as a formality on the way to real diligence, when it's actually the cheapest read they'll ever get on whether a deal is worth the money that comes next.
Before an LOI, a seller should reasonably provide annual income statements broken out by year, a high-level view of customer concentration, and support for any significant addbacks. Balance sheets and monthly financials are fair to ask for, though they sometimes wait until after the LOI. Customer names, payroll detail, and bank statements typically come later. Knowing which is which keeps your expectations calibrated and your credibility intact.
Before you hire anyone, you want reasonable confidence that the seller is transparent, organized, and able to support the story the CIM is telling. That doesn't require a data room. It requires asking for the right things, and understanding what's fair to expect before an LOI exists.
What is a CIM actually telling you?
A CIM is a marketing document, prepared by the seller or their broker to present the business in its best light. That's not a criticism. It's the job the document is built to do, and a buyer who expects a neutral accounting will be disappointed every time.
So a three-year average instead of individual years, a customer count rounded up, an addback described in the most generous terms available ... none of that is dishonest on its face. It's the business putting its best foot forward, which is exactly what you'd expect.
The work of the pre-LOI stage is to test how much of the CIM's presentation holds when you ask to see behind it. What the seller shows you next, and how willingly, is the part the CIM can't tell you.
Why won't a seller share everything before an LOI?
Start with what isn't reasonable, because buyers who get this wrong lose credibility fast.
If you're expecting every customer contract, payroll record, bank statement, and tax return before you've signed anything, you'll be disappointed, and the seller is right to make you wait. Their caution is rational. They don't know yet whether you're a real buyer or a competitor in disguise. Employees may not know the business is on the market. Customer relationships need protecting. A broker running the process has no interest in opening a full data room for every party who signs an NDA.
That's the process working as intended. The pre-LOI stage isn't there to prove every number beyond doubt. It's there to give a qualified buyer enough to decide whether the opportunity is worth pursuing.
What can you reasonably expect before an LOI?
Every transaction differs, but an experienced buyer can usually expect some version of the following.
Annual income statements, by year. At a minimum, historical income statements broken out year by year. If the CIM presents only a three-year average or a blended figure, asking for the individual years isn't aggressive. It's basic underwriting, because trend is often the most important thing the numbers can tell you. A business whose EBITDA has declined steadily for three years is a different business from one that produced the same average while holding steady. The average hides that. The individual years reveal it.
Balance sheets. A P&L shows you how profitable the business appears. A balance sheet shows you how it actually operates. Receivable quality, inventory growth, how aggressively payables are managed, what debt sits underneath the earnings, none of that lives on the income statement. Some sellers share balance sheets pre-LOI, some hold them until you've signed. Asking is reasonable either way.
Monthly financials, when they exist. Not every small business prepares them. Many do. When they're available, they help you read seasonality and see whether recent months are running ahead of or behind prior years. This is a fair ask, though it's another one that sometimes waits until after the LOI.
High-level customer concentration. You don't necessarily need names this early. You do need to understand concentration. One customer at 35% of revenue is material. A top ten that accounts for 80% is material. Both affect valuation and financing, and both are things you want to know before you price the deal.
Support for significant addbacks. No one expects documentation for every small expense. Six-figure adjustments are fair game. Say a seller adds back $180,000 in "consulting fees" as a one-time item. Ask what the consulting actually was. If it turns out to be a fractional CFO the business will still need next year, that isn't an addback, it's a recurring cost in disguise. A well-prepared seller can explain why each major adjustment belongs and how it was calculated. That doesn't replace a QoE. It tells you whether the adjustments look thoughtful or opportunistic.
What information comes after the LOI?
Some information is reasonably held until a buyer has shown real intent. That typically includes customer names and complete contract files, employee rosters and compensation, detailed payroll, vendor agreements, bank statements, general ledger detail, tax return workpapers, and full data room access.
That's a fair progression, not a stonewall. A seller isn't obligated to lay the whole business bare before both parties have invested something in the transaction. A buyer who insists otherwise is usually telling the seller they don't understand how deals work.
How should you read a seller's response?
Here's where the pre-LOI stage earns its keep. The documents tell you one thing. The way a seller responds to a reasonable request often tells you more.
Say you've asked for annual income statements. The answer can take a few forms.
"Absolutely, we'll send them tomorrow." Ideal. It doesn't guarantee clean books, but it tells you the seller is organized and cooperative.
"We have them, the controller is just out until next week." Reasonable. Note whether the follow-through matches the promise.
"We don't usually release those until after an LOI." Not automatically a red flag. Ask why. Some brokers run a conservative process, and if the reason holds up and the seller stays engaged, the deal can still be worth chasing.
And then there's the version I watched end a deal recently. A buyer I worked with asked a seller for exactly this, the individual years sitting behind a CIM that had blended everything into a single three-year average. Not tax returns, not bank statements, just the annual P&Ls. The answer came back as one word. No reason, no "after the LOI," no willingness to talk it through. He walked, and he was right to. When a seller won't produce basic annual figures before an LOI, the issue usually isn't confidentiality. It's whether they're willing to stand behind the story they're selling. You don't have to know what the numbers would show to act on a seller who won't let you see them.
None of this proves anything on its own. A clean response doesn't guarantee clean books, and a slow one doesn't guarantee a problem. These are signals, not verdicts. Paying attention to them is how you decide where to spend on certainty and where to hold off.
How does a good broker handle pre-LOI requests?
Experienced brokers know what sophisticated buyers will ask, and the good ones don't wait to be asked. They prepare addback schedules, summarize customer concentration, organize the statements, and flag unusual items before the first question lands. That preparation is good for everyone. Buyers gain confidence, deals move faster, and fewer transactions collapse because a basic question sat unanswered.
When you see that kind of organization across the table, treat it as a signal in its own right. It usually means the seller has prepared thoughtfully for the process.
The goal isn't to extract free diligence
A caveat here, because this cuts both ways.
The pre-LOI stage isn't about squeezing every possible document out of a seller before you commit to anything. It's about reducing avoidable risk. A buyer who asks a handful of thoughtful questions before signing can save tens of thousands of dollars by walking away from deals that were never going to be worth it. A seller who answers those questions clearly builds credibility that carries straight into formal diligence. Both sides come out ahead when the early conversation is honest.
Demanding a full data room before an offer doesn't make you a careful buyer. It makes you a difficult one. The skill is in asking for the right things, not the most things.
Pre-LOI vs. post-LOI: What to expect when
| Reasonable to expect pre-LOI | Reasonable to ask, may wait for LOI | Typically post-LOI |
|---|---|---|
| Annual income statements, by year | Balance sheets | Customer names and full contracts |
| High-level customer concentration | Monthly financials | Employee rosters and compensation |
| Support for major (six-figure) addbacks | Revenue by product or segment | Payroll and vendor detail |
| Business description and reason for sale | Preliminary working capital detail | Bank statements, GL detail, tax workpapers |
| Full data room access |
Treat it as a guide, not a rulebook. Its job is to keep your expectations calibrated, so that when a seller falls genuinely short of the norm, you recognize it for what it is instead of mistaking ordinary caution for a problem.
The bottom line
A signed LOI shouldn't be the start of learning about the business. It should be the start of verifying what you already know.
A Quality of Earnings report is built to verify a business. The pre-LOI stage is built to decide whether that verification is worth paying for. They're two different jobs, and the buyers who keep them straight stop spending real money on deals that were never going to close.
Frequently asked questions
What financials should a seller provide before an LOI?
At a minimum, annual income statements broken out year by year, rather than a blended three-year average. A high-level view of customer concentration and support for any six-figure addbacks are also reasonable. Balance sheets and monthly financials are fair to request, though some sellers hold them until after the LOI.
Is it reasonable to ask for financials before signing an LOI?
Yes. Asking for year-by-year income statements, concentration detail, and addback support before an LOI is basic underwriting, not an aggressive request. What isn't reasonable is demanding full contracts, payroll records, and bank statements before you've signaled real intent.
What does it mean if a seller refuses to share annual financials before an LOI?
A flat refusal, with no explanation and no alternative, is the response that deserves the most scrutiny. The issue usually isn't confidentiality, since there is little a competitor could do with a three-year P&L. It's whether the seller is willing to stand behind the numbers they're asking a buyer to believe.
What information does a seller share after the LOI?
Customer names and full contracts, employee rosters and compensation, detailed payroll, vendor agreements, bank statements, general ledger detail, tax workpapers, and full data room access typically come after an LOI. Reserving these until a buyer has shown real intent is a normal progression, not a red flag.
Do you need a QoE before signing an LOI?
No. A Quality of Earnings report is buy-side diligence that usually follows the LOI. The pre-LOI stage is about deciding whether a deal is worth that spend in the first place, by reading what the seller provides and how readily they provide it.
At QoEPro, we perform buy-side Quality of Earnings reviews for independent sponsors, search fund entrepreneurs, private equity firms, and acquisition entrepreneurs. Our job isn't only to verify the numbers. It's to help buyers understand whether the business they're acquiring performs the way it's been presented. View report options →