Craft Distillery Due Diligence Checklist for Buyers
By the time a buyer signs a letter of intent on a distillery, they have usually toured the still house, tasted the products and reviewed a summary of sales. Craft distillery due diligence is where those impressions are tested against records, permits, contracts, inventory counts and the physical facility. A careful review can reveal issues that affect price, deal structure or financing, and it helps the buyer’s lender understand what is being purchased.
This checklist is general information for buyers of existing, operating craft distilleries. It does not address starting a new distillery or financing equipment on its own. Requirements vary by state and locality, and buyers should rely on qualified attorneys, accountants, fire and building professionals and other advisors. Nothing here is legal, tax or regulatory advice.
Financial Records
- Several years of tax returns and financial statements that reconcile with each other
- Sales by channel, product, state and major account
- Tasting room and event sales reconciled to point-of-sale reports and bank deposits
- Inventory accounting methods and how costs are assigned to aging spirits, reviewed with an accountant
- A schedule of existing debt, leases and liens
Permits, Licenses and Compliance History
- Every federal, state and local permit and license held, and who holds it
- Required production, inventory and tax reports and records of filing
- Any notices, audits, violations or open compliance matters
- How permits will be obtained or amended for the buyer, discussed with qualified counsel
See our article on distillery permits and licenses.
Inventory
- Barrel records showing fill dates, spirit type, location and condition
- Finished goods, bottled stock and packaging materials
- Whether inventory is held in bond or tax has already been paid, reviewed with an accountant
- A physical count and sampling plan before closing
Our article on aging spirits inventory explains this review in more detail.
Product Origin and Supply
Identify which products are distilled on site and which rely on sourced spirits, and review any supply contracts for grain, sourced spirits, barrels and bottles. See our article on sourced spirits and supply contracts.
Distribution
Gather every distributor agreement, territory and amendment, along with sales by distributor. Have counsel review assignment and termination terms and applicable state law. Our article on distillery distributor agreements covers what to look for.
Still House, Facility and Codes
- Condition, age and maintenance records for stills, fermenters, boilers and bottling systems
- Which items are owned, leased or subject to liens
- Fire, building and safety inspection history and any open items, reviewed with qualified professionals
- Utilities, wastewater arrangements and any environmental questions
Our article on still and production condition explains this part of the review.
Real Estate and Lease
Review the deed or lease, remaining term, renewal options, assignment provisions and landlord consent requirements. Zoning and permitted uses for production, tasting and events should be confirmed with counsel.
Brand and People
- Trademark registrations, label approvals, recipes and process documentation
- Website, social media accounts and customer lists, and who controls them
- The head distiller’s role and intentions, staff roster and compensation
What Lenders Will Ask For
Lenders frequently request much of the same material, especially financial records, inventory support and the plan for permits. Our article on craft distillery loan requirements describes what they may review.
US Professional Funding helps buyers finance the acquisition of existing, operating craft distilleries. Learn more about our craft distillery acquisition financing.
