Farm Business Acquisition Due Diligence Checklist
Buying an operating farm or agricultural business means taking over land, buildings, equipment, livestock or crops, contracts, workers and a production cycle already in motion. The purchase agreement and financing are built on what the seller says the operation produces and what the assets are worth. Farm acquisition due diligence is how a buyer confirms those claims before committing.
This checklist covers crop, livestock, specialty and agribusiness acquisitions. If you are buying a contract poultry farm, use our dedicated poultry farm due diligence checklist. For the broader buying process, see our guide to buying a farm.
1. Financial Records
- Tax returns and financial statements for several years, to see performance through good and bad seasons.
- Production records by enterprise, such as yields, herd performance or output.
- Sales records by customer or market.
- Major expense categories, including feed, fertilizer, fuel, labor, repairs and insurance.
- Owner compensation and family labor that may not appear as an expense.
- Debt schedule and any liens on assets.
- Government program payments, if any, and whether they will continue under new ownership.
Because farm income varies with weather and markets, look for trends and averages rather than relying on a single year.
2. Land and Real Estate
- Title search, legal descriptions and survey.
- Easements, rights-of-way and access.
- Soil quality, drainage and productivity.
- Water sources, rights and reliability, where applicable.
- Zoning and permitted agricultural uses.
- Environmental considerations, such as fuel storage, chemical handling and manure management, reviewed with qualified professionals.
- Rented land: lease terms, remaining term, renewal and whether leases transfer to you.
Rented land deserves special attention. An operation that depends on rented acres may lose part of its production base if landlords do not renew.
3. Buildings and Facilities
- Barns, shops, livestock facilities, grain storage, greenhouses and other structures.
- Structural condition, roofs and foundations.
- Mechanical, electrical, water and ventilation systems.
- Compliance of facilities with buyer or processor requirements.
- Deferred maintenance and near-term capital needs.
4. Equipment
- Complete list of equipment included, with condition and hours where relevant.
- Ownership, liens and any leases.
- Maintenance history on major items.
- Equipment that is essential versus surplus.
- Items the seller is keeping.
Equipment is usually financed as part of the overall acquisition, so its value and condition affect the financing plan.
5. Livestock, Crops and Inventory
- Livestock counts, health records and production records.
- Crops in storage and in the ground at closing.
- Feed, seed, fertilizer and supplies on hand.
- How these will be counted and valued at closing.
6. Contracts, Customers and Marketing
- Production contracts and whether they can be assigned to you.
- Marketing agreements and buyer relationships.
- Concentration: how much revenue depends on one buyer or contract.
- Pricing arrangements and how they have changed over time.
- Relationships that depend on the seller personally.
7. Labor and Management
- Workers, roles, pay and whether they will stay.
- Seasonal labor needs and how they are met.
- The seller’s own role and what training they will provide.
- Written procedures, records and systems.
8. Risk and Insurance
- Current insurance coverage and cost.
- Claims history.
- Exposure to weather, disease and market risk, and how the operation manages it.
- Insurance availability under your ownership.
9. Legal and Structure
- Whether you are buying assets or an entity.
- Pending disputes, claims or regulatory matters.
- Permits and licenses and whether they transfer.
- Any agreements among family members or co-owners that affect the sale.
10. Financing Diligence
Your lender will review:
- Appraisal of land and buildings.
- Historical cash flow and your projections.
- Your farming experience and management plan.
- Your equity, reserves and personal financial position.
- Working capital needed to reach the first harvest, sale or settlement.
- Terms of any seller financing.
Plan working capital carefully. A buyer who closes just before planting or a production cycle may face months of expenses before the first revenue. See farm seasonal cash flow planning.
Common Red Flags
- Income that cannot be reconciled to tax returns.
- Heavy reliance on rented land with short or informal leases.
- One buyer or contract providing most revenue without a written agreement.
- Deferred maintenance on critical buildings.
- Water supply or rights that are uncertain.
- Key relationships that belong to the seller rather than the business.
- No plan for working capital through the first production cycle.
Enterprise-Specific Checks
Different types of operations carry different risks. Add the checks that fit the business you are buying.
Crop operations:
- Yield and production history by field, not only farm-wide totals.
- Soil test records and fertility history.
- Drainage condition and any field-level problems.
- Irrigation systems, wells and water access, where applicable.
- Grain or crop storage capacity and condition.
- Which fields are owned and which are rented, since rented acres may not follow the sale.
Livestock operations:
- Herd or flock health records and veterinary history.
- Production and reproduction records.
- Condition of barns, pens, handling facilities and water systems.
- Manure storage and handling, and any required plans.
- Feed sources, storage and supply arrangements.
- Biosecurity practices.
Specialty crop and direct-market operations:
- Buyer agreements and how dependent sales are on the current owner’s relationships.
- Seasonal labor needs and how they have been met.
- Packing, cooling and storage facilities.
- Food safety practices required by buyers.
Agribusinesses:
- Receivable aging and customer credit practices.
- Inventory accuracy and any aging or obsolete stock.
- Supplier agreements and whether they transfer.
See agribusiness financing for more on those businesses.
Separate Land, Facilities and the Operating Business
Diligence works best when you evaluate three things separately:
- The land: what it is worth, what it produces and whether it would hold value even if the operation changed.
- The facilities: whether buildings and systems are in condition to support the operation, and what they will need soon.
- The operating business: whether the customers, contracts, people and practices that produce income will continue under your ownership.
A farm can have excellent land and a weak operation, or a strong operation on land it does not own. Understanding which is which tells you where the risk is and how lenders will view the purchase. See farm business valuation.
Questions to Ask the Seller
- Why are you selling, and why now?
- What were the best and worst years, and what caused them?
- Which customers, landlords or buyers depend on you personally?
- What repairs or improvements have you been putting off?
- What would you do differently if you were staying?
- How long will you help with the transition?
- Are there any disputes, claims or neighbor issues?
Documents Lenders May Request
- Signed purchase agreement and any seller financing terms.
- Seller’s tax returns and financial statements.
- Appraisals of land and buildings.
- Leases for rented land and any assignment consents.
- Contracts and buyer agreements.
- Lists of equipment, livestock and inventory included in the sale.
- Your personal financial statement and tax returns.
- Your business plan and cash flow projections. See preparing a farm business plan for lenders.
Common Diligence Mistakes
- Relying on the seller’s summary instead of reviewing source records.
- Assuming rented land and contracts will automatically continue.
- Skipping independent inspection of buildings and water systems.
- Not agreeing in writing how livestock, crops and inventory will be counted at closing.
- Underestimating the working capital needed before the first revenue arrives.
Frequently Asked Questions
How many years of records should I review?
Several years, so you can see how the operation performs across different seasons and markets.
Do rented acres transfer with a farm purchase?
Not automatically. Leases must be reviewed, and landlords may need to agree to continue renting to you.
Can working capital be included in acquisition financing?
Often, yes, as part of the overall acquisition plan. Discuss it with your lender early.
US Professional Funding helps buyers finance acquisitions of operating farms and agricultural businesses, including real estate, included equipment and working capital as part of the transaction. Learn more about our agriculture and poultry farm acquisition financing. See also our guide to farm business valuation.
