Due diligence on a farm equipment dealership

Due diligence on a farm equipment dealership under LOI means verifying three things that decide whether the deal can actually close — the manufacturer’s willingness to approve the buyer as new dealer principal, the floor-plan lender’s willingness to extend financing, and the real, counted condition of the parts inventory. Financial-statement review still matters, but on a dealership these three items most often decide the outcome, and none of them can be verified from the seller’s summary alone.

Confirming the dealer agreement is actually assignable

Read the dealer agreement itself, not a summary of it — the term remaining, the renewal conditions, the territory definition, and exactly what triggers a right of termination on the manufacturer’s side. Then get the manufacturer’s approval process for a new principal in writing rather than relying on an informal assurance from the seller or even from the regional representative, since the person giving that assurance is not always the one with authority to approve the transfer.

The floor-plan financing transition

Confirm the exact payoff amount owed under the current floor-plan facility, whether the existing lender is willing to work with the buyer during a transition period or whether the buyer must have an entirely separate facility approved before closing, and how the new-equipment inventory will be counted and valued at the transition date. A buyer who has not had this conversation directly with the floor-plan lender by the time conditions are due to be waived is carrying a real, unresolved risk into closing.

Auditing the parts inventory

An independent physical count of the parts inventory, broken out by age and by whether each item is actually saleable, is worth commissioning rather than accepting the seller’s book value. Obsolete or slow-moving stock carried at full value is one of the most common sources of a last-minute price dispute in this sector, and a buyer with an independent count in hand negotiates from documented fact rather than the seller’s assertion.

Warranty-reimbursement and parts-supply obligations

Where provincial dealer-protection legislation applies, it typically governs how the manufacturer reimburses the dealer for warranty work performed on the customer’s behalf, and how consistently the manufacturer supplies parts. A buyer should ask for the dealership’s recent warranty-claim history directly — not just the total dollar figure, but whether claims have been reimbursed on the manufacturer’s normal schedule or whether a backlog of disputed or slow-paid claims exists. An unresolved warranty-reimbursement shortfall functions as an unrecorded receivable the seller is effectively asking the buyer to absorb, and it is worth confirming in writing rather than accepting a summary figure.

Checking for open consumer complaints and compliance issues

Because a dealership sells and services equipment directly to retail customers, it is worth checking for any open consumer complaint, ombudsman inquiry, or business-practices investigation under the province’s general consumer-protection legislation, separate from anything tied to the manufacturer relationship. This is a routine check, not typically a major finding, but an undisclosed pattern of unresolved customer complaints can point to a broader service or sales-practice problem worth understanding before closing rather than after.

Confirming what does and doesn’t transfer with the seller

Not everything valuable at this dealership is captured in the dealer agreement or the balance sheet. The seller’s own personal standing and rapport with the manufacturer’s regional representative — built over years, and often smoothing over minor issues before they became real ones — does not transfer to a buyer, no matter how the purchase agreement is worded. A buyer should ask directly, early in diligence, how the manufacturer’s representative views the buyer independently of the seller, and should not assume that goodwill the seller has built with the manufacturer over years carries forward automatically. Meeting the representative directly, before closing, is worth doing even when it is not formally required.

Registry and lien searches

A personal property registry search — the PPSA registry in most provinces, or the equivalent movable-property register in Quebec — will show whether the floor-plan lender or another creditor has a registered security interest against the inventory, equipment or receivables, and confirms what needs to be discharged or assumed at closing. A corporate status search and a search for outstanding CRA debts round out the registry work a buyer should complete before waiving conditions.

Technician team verification

Because service revenue depends directly on having enough certified technicians on staff, a buyer should confirm technician contracts and certification records directly rather than taking a staffing list at face value, and, where practical, speak with key technicians before closing about their intentions. A technician team that plans to leave at the sale changes the value of the business the buyer is actually acquiring, and it is far better to know that before closing than after.

Findings that actually kill this deal

A small number of specific findings routinely end an otherwise agreed farm-equipment-dealership deal: the manufacturer declining to approve the buyer as new dealer principal; the floor-plan lender declining to extend financing to the buyer; an unresolved dispute over parts-inventory valuation that neither side will move on; and a technician team that gives notice once the sale becomes known. Each is worth surfacing and resolving early, rather than discovering it in the final weeks of a closing timeline.