As an owner selling a business, you might want to consider the benefits of receiving an equipment appraisal prior to selling. A certified machinery and equipment appraisal will become a “selling tool” when working with potential buyer prospects. Like a business valuation, it will show that you are prepared to sell your business and have taken the proper steps to assist in the process.
There are several uses for an equipment appraisal during a business sale and acquisition. First, the appraisal of the machinery could be used to help justify the asking price of the business. Second, if a buyer is looking to get a business acquisition loan from the bank, the lender will want an appraisal of the machines for collateral purposes. In addition, once a price is negotiated between a buyer and a seller, part of the negotiation is the allocation of purchase price. Since the purchase price normally consists of the buyer acquiring the tangible (furniture, fixtures, and equipment) and intangible (goodwill) of the company, both the buyer and seller will have to report the same allocations when they submit their tax documents to the IRS. A forth benefit of an equipment appraisal is that the buyer will then be able to use the details to set up their asset list and depreciation schedule. Though a machine might have a book value of zero dollars on the selling company’s balance sheet since it has been written off one hundred percent, the buyer of the company will be able to depreciate the asset all over again starting with its current fair market value. The appraisal provides documentation on what new value should be placed on each piece of equipment.
Not all equipment appraisals are the same. You want to make sure that you receive a certified machinery and equipment appraisal that is USPAP (Uniform Standards of Professional Appraisal Practice) compliant. All three methods of valuation will be considered and proper research and analysis will be completed to arrive at values. Proper documentation to support the equipment value is necessary if you would ever be audited by the IRS.
Written by: Kipp A. Krukowski, MBA, ASA, CBI and Owner of Equipment Appraisal Services (www.EquipmentAppraisal.com)