How to Sell a Livestock and Ranching Operation

Land and operation are priced separately

The land is usually the larger part of the value, and it is often valued by an appraiser who knows the county. The operation is valued on what it earns. Sometimes the same buyer wants both. Sometimes a neighbor wants the land and a younger operator wants the herd and the leases. Some deals are structured so the owner sells the operation and leases the land back for a few years, or the other way around.

Think through which of those you want before you speak to anyone. It affects how the books are prepared, who the buyers are, and what a lender will finance. Our post on selling a business with real estate attached explains the options in general terms.

What a buyer is paying for in the operation

A buyer looks at what the ranch produces and what it costs to produce it. For a cow and calf operation that means the number of breeding females, calving rates, weaning weights, and the pounds sold per acre. For a feeder or stocker operation it means purchase weights, gains, death loss and feed costs. For sheep, goats or horses, there are matching numbers. Ask your records. Many ranchers carry this in their heads, in a notebook, or in a herd management program, and a buyer will want it in writing.

Genetics are part of the price. A herd bred over many years for temperament, fertility and carcass quality carries value beyond market price for the animals, and buyers who know the trade will pay for it when it is documented. Registration papers, breeding records, health records and any program participation, such as grass-fed or natural beef, belong in the folder.

Carrying capacity is the other core question. How many animals can the land feed in a normal year, and what happens in a dry one? Buyers ask for stocking history, hay put up, and how the ranch handled the last drought. A ranch that has managed grass well and has records to show it is worth more than one that looks fine only because of this year's rain.

Grazing leases, permits and water

Many ranches run part of their herd on leased ground, whether from a neighbor, a state agency or a federal one. These leases and grazing permits matter a great deal and often do not pass to a new owner automatically. Some are tied to the base property. Some need agency approval. Some end on a date set long before the sale. Rules vary by state and your attorney confirms what applies to your ranch.

Water is similar. A buyer will ask where the water comes from, who has a right to it, how it moves across the property, and what the ranch owns outright. Wells, ponds, ditches, pipelines and stock tanks need to be listed, with their condition. In dry country, water rights can be the largest line in the price. Hire an attorney who works on water for your area, and do it before you list, because buyers and lenders will want the same paperwork.

Mineral rights, easements and access also need to be sorted out. Who owns what is under the ground, who can cross the property, and what the deed says should be clear before anyone makes an offer.

Equipment, fencing and improvements

Tractors, balers, feeders, trailers, a squeeze chute, corrals, scales, loading ramps, barns and shops make up a long list, and each has an age and an hours figure. Buyers walk the property and look at the condition of fences and gates, because fencing costs more than people expect. List the equipment you are selling with the operation and the equipment you plan to keep. Check for liens on every piece.

Brand registrations and animal identification belong in the file too. Whether a brand transfers, and how, depends on where you operate, and your attorney confirms what applies.

The records a buyer will ask for

Ranch finances look different from most businesses. Income arrives in lumps when the calves are sold, expenses follow the seasons, and many ranchers use cash basis accounting with heavy depreciation, which can make a profitable year look like a loss and a poor year look like a gain. Buyers and lenders usually ask for several years of tax returns and then average them. Our post on add-backs explains how adjustments are made.

Expect requests for sale tickets from the livestock market or buyers, feed and hay invoices, veterinary bills, lease and permit agreements, loan statements with an agricultural lender, insurance policies, payroll for any hired hands, and a count of the animals by class. Reconcile the herd count against the tax return. Buyers who find a gap will wonder what else is off.

People, history and the owner

On many ranches the owner knows every pasture, every gate that sticks, every neighbor and every buyer at the sale barn. That knowledge has value and cannot be handed over in a weekend. Buyers ask whether a foreman or a hired hand can show them the country, and how long the owner will stay after closing. See our post on how long you stay after selling for what that usually looks like.

Family often shows up in a ranch sale. Heirs may have claims or opinions, and partners on the deed may disagree. Settle that early, because a buyer's lender will want clear title and a single voice speaking for the seller.

What tends to sink a sale

Ranch deals most often stall on the permits and water, on a lender who is not familiar with agricultural financing, and on disputes over what the herd is worth on the day of closing. Drought, market swings and disease can also move the price in the middle of negotiations. Neighbors can object to a new use. A sale built on handshakes and unwritten arrangements about grazing, hay or water access tends to become a problem the day a buyer's attorney asks for it in writing.

How to get ready

Start a year or two ahead. Put herd records, breeding records and health records in order. Collect leases, permits and water documents and have an attorney read them. Walk the fences and fix what a buyer would notice. Pay down any open disputes with neighbors. Decide whether land and operation go together or apart.

At Business Advisors of America we help ranch owners set a price from their own numbers, prepare the package a buyer and lender will ask for, and screen buyers before anyone sees the property. If you are thinking about selling a livestock or ranching operation, a short call with us is a good first step.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.