How Teamshares evaluates a business before the LOI: what we ask for (and don’t) and why

Three principles that guide what we ask for

We source 15,000+ acquisition opportunities each year. We don’t evaluate all of those in depth, but we’ve seen a lot of businesses for sale. 

With every business we’re interested in acquiring, we use three key principles to guide our process:

1. We’re one of many buyers, so we protect the owner and advisor’s time 

Every question we ask costs both of them time, and time is a finite resource. Owners are still running their businesses day to day, and most of the owners we work with aren’t sitting on a finance team that can turn around bespoke reports on request. Advisors are juggling a dozen potential buyers and requests. 

Both are busy, and we’d rather respect their time and save our asks for the things that actually move the opportunity forward. We don’t burden the individuals involved unnecessarily.

Once an LOI is signed and both sides are committed, there’s plenty of time to ask additional questions and dive deeper where needed.

2. We calibrate to how sophisticated the business’s own reporting already is

We’ve looked at businesses across nearly every industry and every level of financial maturity,  from paper-based books and a single annual close, to fully staffed accounting functions with clean monthly financials. 

Asking a business with basic reporting or paper books to produce private equity-grade documentation isn’t diligence. It’s unnecessary friction, and often the information genuinely doesn’t exist yet in a form anyone could easily hand over. 

Since we’ve seen pretty much everything, our tolerance for these situations is higher than most buyers. We’ve solved for all kinds of unusual situations before. The businesses we buy don’t get less attractive to us because their books are simple. We just ask questions sized to match what’s actually there.

3. We ask what’s needed to validate the story we’re hearing, not to re-litigate it

Financials are only useful to us to the extent we trust they reflect what’s really happening in the business. 

So we test the numbers against the story: 

• Does this revenue trend make sense for the industry?
• Does the explanation for a swing in EBITDA actually hold up against the line items? 
• Do we understand how the business makes money well enough that the qualitative story and the quantitative results line up? 
• Can the team keep the business running without the owner? And can what the owner personally does be handed off to someone else? 

When things don’t line up or make sense, that’s when we ask more questions. We’re not suspicious by default, but a big mismatch between the quantitative financials and the qualitative stories and anecdotes we’re hearing can change our level of confidence. That usually gets reflected in the price we’re willing to pay.

The more complicated the business — more SKUs, more locations, more moving parts in how revenue and margin are generated — the more this last principle drives additional questions. A single-location restaurant rarely needs this kind of scrutiny. A distribution business with tens of thousands of SKUs and layered supplier and customer contracts usually does.

The things we always need to properly evaluate a business

Even with this intentional approach, there’s a core set of things we need to understand about every business we evaluate. These aren’t nice-to-haves. They relate directly to the two questions we started with: will this change whether we pursue the deal, and will it change the price we’re willing to pay.

1. How the business makes money, and how resilient it is to a transition 

Before anything else, we need to understand the actual mechanics of the business: what it sells, who it sells to, and why customers keep paying for it. From there, we’re gauging its resilience: if the ownership and operating team changed hands tomorrow, would the business keep performing at its current financial profile, or would something break? 

A business that’s more resilient is worth more to us than one that’s only working because of how things happen to be run today.

2. Owner and family involvement, and what it takes to transition them out 

Owner-operated businesses almost always have some set of responsibilities that live in the owner’s head, or that get done by a family member in a way that’s never been formalized. We need to know what those responsibilities actually are, who’s doing them today, and how hard it will be to hand them off to someone else after closing. 

An owner who mostly signs checks and provides direction means a very different transition than one who’s still responsible for driving new business, pricing jobs, and managing key suppliers. 

3. A clear-eyed view of the existing team

We want to understand who’s doing what across the organization, not just on paper but in practice. This is related to the above, because it helps us spot where the real gaps will be once the owner steps back. A strong team that’s been carrying most of the business is a good sign. A thin team that’s been leaning heavily on the owner isn’t always a dealbreaker, but it’s something we need to plan for as we think about how we’d structure an LOI.

4. Customer concentration 

We look closely at how revenue is spread across the customer base. Customer concentration shows up in two ways that matter to us: it can mean less pricing power if a handful of customers have real leverage over the relationship, and it can mean outsized exposure if any one of them decided to walk. 

We’re not looking for a perfectly diversified book. Plenty of great businesses have a few large, long-standing relationships. We want to understand what’s driving that concentration and how sticky those relationships actually are.

5. Risks inherent to the industry

Every industry carries its own set of structural risks, whether that’s tariff exposure, licensing and expertise requirements, regulatory shifts, or something else specific to how that business competes. Since we’re mostly industry-agnostic, we see businesses from across the whole spectrum.

We want to know what those risks are for this business’s industry specifically, and how the business has weathered them historically, so we’re pricing the deal in a way that makes sense. 

Two ways this plays out in practice

These principles and questions have helped us build a system that enables us to efficiently evaluate whether a business is a good fit for our model. Here are two opposite examples showing what they look like in the real world:

A tone change after an owner meeting

One of the earliest companies we evaluated in the $3–5M EBITDA range is a great example. Ahead of signing an LOI, our team met the ownership and management group in person.

That meeting changed the tenor of the conversation for both sides: we met the people who would actually be running the business after close, got comfortable with the team, and the conversation shifted from “can we justify this price with the numbers” to “how do we make the numbers work to get this done.” 

Here’s the key takeaway: we didn’t actually get a bunch of new data points or financial insights in that meeting. It was the human element that had the big impact: hearing how the management team talked about the business— and seeing no gaps between that and what we’d already reviewed — that drove up our enthusiasm. 

It’s not an exaggeration to say that kind of confidence and enthusiasm directly impacts how we price an opportunity.

An unexplained disconnect leads to a pass

When things go wrong, it’s often due to a mismatch between the story and the numbers. 

Earlier this year, we passed on a distribution business with a strong brand, solid financials, and a genuinely knowledgeable owner who could speak fluently to costs, pricing, and operations. 

But when we compared those answers against gross margin and line-item detail, the two didn’t reconcile. And the business wasn’t able to produce the underlying support (like audit or inspection records) to close the gap. 

To be clear, that kind of disconnect is different from a business simply being unsophisticated. When we see a disconnect, it’s a reason to ask more questions. If those questions can’t be answered or if the answers don’t make sense, then it’s a potential reason to walk.

We’re very comfortable with risk that comes from a business being small, informal, or imperfectly documented. We’ve bought 90+ small and medium-sized businesses since 2019, and none of them were perfect. But we’re far less comfortable when risk comes from a story that doesn’t hold up under its own numbers.

Why this should matter to the advisor sitting across from us

Over the years, we’ve gotten pushback both ways: some advisors think we ask too much, others think we move too fast to have really done our homework. Both reactions usually come down to the same underlying question: is our process actually calibrated to this business, or are we running a generic playbook?

A few things worth knowing if you’re weighing whether to bring us a listing:

• We’re diligent about respecting your time and moving things forward toward a decision to pursue an acquisition, a firmer price, or both. We’re not collecting information for its own sake, and we actively try to keep our own internal stakeholders (closings, finance, transitions) from tacking on requests that don’t meet that bar.
• We’re quick in valuation, but that isn’t the same as being careless. We move fast because we’ve already done the work to identify what we need to evaluate an opportunity.
• We size our requests to the business, not to a template. A business that’s never had more than an annual close from a bookkeeper isn’t going to get a data room style request list from us. It’s not a fit, and overwhelming a seller (or their advisor) won’t help move the process forward.