Equipment Appraisal Blog | Understanding Machinery Appraisals

Thinking of Selling a Company? Consider a Machinery Valuation

Posted by Equipment Appraisal Services on Tue, Jan 31, 2017 @ 11:18 AM

selling a business machinery valuation.jpg

If you're preparing to sell a company, odds are you have a lot on your plate. It may seem tempting to streamline the process and skip steps to get the business sold. One step not to skip is a business appraisal that includes equipment values for key business assets. Learn how an appraisal protects you and the business you've worked so hard to build, while ensuring a smooth sales process. 

Why Get a Machinery Valuation Before Selling a Company

A prospective buyer of your business wants to make sure they are getting a good deal. They want to know the business has a convenient location, efficient processes, skilled employees, a loyal customer base, and (last but not least) the right tools for the job. With a business appraisal demonstrating the values of equipment and machinery, you can position the company for a quick sale at a fair price. This often means getting a machinery and equipment appraisal in addition to a business valuation.

In a machinery valuation, an equipment appraiser reviews the business assets. The appraiser researches the value of machinery based on age, condition, "useful life" and other factors. 

The information presented in an appraisal may spell the difference between selling your business quickly and struggling to command offers for your company. Rather than avoid getting an equipment appraisal because you don't want to waste time, consider getting the appraisal to save time and effort. If you have to wade through lowball offers because you didn't properly prepare your business to sell, you'll come to regret it. 

If you get an appraisal when the sale is far off, you can make informed decisions based on their equipment value. For example, you can go ahead with routine maintenance for your tractor or invest in new wheels if these repairs are likely to keep the equipment at a high value. If your tractor is only worth $2,000, and you know you'll be selling the business soon anyway, you can instead use the money you would have spent on maintenance for something that will add more value to your company. 

What to Expect in a Machinery Valuation

When you schedule an appraisal, an appraiser will visit your factory or plant and inventory all equipment. The appraiser will then examine all assets, take photographs, and gather data. They might ask to see service records, which indicate how well the machinery was cared for. For example, an appraiser might review a business vehicle service log or photograph the dented frame of a forklift. The appraiser will then review their findings and compare the age and condition of your equipment with comparable pieces in use elsewhere. Taking all the data into account, the appraiser will then issue a machinery valuation for your business equipment. 

The valuation gives you a starting point when selling the business and helps potential buyers understand the true value of your company. By providing third-party proof of value, an appraisal can make the sales process easier on your end. Potential buyers who do not understand the true value of your business will leave, while those who are serious about investing in your business can make a deal.

Equipment appraisers who are familiar the industry you work in are the best choice to conduct the machine appraisal, since they understand the equipment, processes, and tools. Find equipment appraisers with relevant industry experience and schedule an appraisal ahead of time, so you will not be rushed. This way, you can make decisions without feeling pressured. 

Tags: allocation of assets, selling a company, machine valuation

It's worth what? understanding fair market value

Posted by Equipment Appraisal Services on Tue, Jan 24, 2017 @ 08:44 AM

fair market value appraisal.jpg

We've all had it happen. Sitting abandoned in a random corner of your facility was a piece of equipment that was worth some serious money, but you didn't realize its value at the time. Alternately, you held on to equipment on the incorrect assumption that it was worth a lot, just to find out that because it was taking up vital production floor space, it's actually been costing you money to keep it. How do you figure out which equipment you should keep and which you should get rid of? It's all part of why understanding fair market value of your equipment is so important. Here are some basics to get you started.

It's worth what? Why understanding fair market value is vital to your company's bottom line

What effect does fair market value have on your business? Why is it important to get an equipment appraisal to know exactly what your equipment is worth? There are a number of reasons for having an equipment valuation specialist perform an appraisal to determine your equipment values. You could be considering selling or donating equipment and need to know what it is worth for a tax deduction. Maybe you've had a fire or disaster at your business that has destroyed some equipment and you need to make an insurance claim. A tax assessor could have made an appraisal that you're not sure is accurate and may cost you more in property taxes than the equipment is actually worth. How do you determine the fair market value of your equipment to ensure you have an accurate picture of what your machinery is worth? 

But why can't you just use your tax documents for these purposes? The value of your machinery in your tax documents is often very inaccurate. A standard depreciation table takes your original machinery cost and removes value over a set period of time. If your equipment happens to fall within that particular time period and becomes unusable or without value at the end of that depreciation period, a standard depreciation table works.

However, when your machinery is used hard and fails before the end of the depreciation period, it will show value that is in excess of what your equipment is actually worth. And almost every business has ancient machinery that still provides reliable service, even though it has been fully depreciated for years, providing value that may not appear on your tax documents.

You could also get an informal equipment appraisals from an equipment dealer, but you need to keep in mind the viewpoint of the dealer. They're there to make money selling equipment, not performing appraisals. They may undervalue your machinery to try to convince you that it doesn't have much value or they may overvalue it to encourage you to use it as a trade in on new machinery. Neither of these situations will provide you with an accurate machine value.

By keeping track of your business' assets and understanding fair market value and its impact on your business, you can ensure that you're holding onto only the equipment that boosts your company's bottom line instead of causing problems down the road. But how do you determine the fair market value of your equipment and track it as situations change? A qualified equipment appraiser can go a lot way to helping you through the process.

Tags: fair market value, understanding fair market value

How an Equipment Appraisal Can Help with Allocation of Assets

Posted by Equipment Appraisal Services on Tue, Jan 17, 2017 @ 02:07 PM

allocation of assets appraisal.jpg

When a business is sold, the price you negotiate is based on a wide range of factors, including real estate, anticipated income, goodwill and assets. But how do you determine the equipment values of what you're selling or purchasing? The best method is by allocation of assets, which puts a price tag on everything that is changing ownership, allowing you to document the data and for each items to be depreciated and accounted for it in the business' records. But how is the total price determined and allocated across the business? This is where asset allocation using equipment appraisals can help.

How an Equipment Appraisal Can Help with Allocation of Assets

Whether you're determining the value of your assets or need to break down the price you're paying for a business across its assets, an equipment appraisal can make all the difference. It will look at each individual piece of equipment or groups and document the equipment value for a wide range of purposes. Beyond allocating for tax purposes here are a few additional thoughts:

  • Purchase of a business: When you need to set up accounting for a business you've purchased, knowing which portion of the purchase price went into equipment helps you determine the initial values and makes it easier for you to depreciate the value of each piece of equipment based on its expected useful life span.
  • Donations to charitable organizations: If you didn't initially set up separate equipment values when you purchased equipment, you may not know what it's worth if you donate it to a charity. Without the needed documentation, it can be difficult to prove value to a tax agency for the price paid versus the value when donated.
  • Insurance claims: When you have a loss due to fire, theft, vandalism or other disaster, you need to quickly settle your insurance claim so that you can get back to business as quickly as possible. Unfortunately, without proof of the machinery's value that will stand up to scrutiny, this process can be much longer and more drawn out. Having a valuation report from a certified appraiser makes the process go much more quickly.
  • Loan collateral: Whether you're expanding or upgrading your business, or are simply using machinery as collateral for a particular project, being able to document what that collateral is worth makes the process go more smoothly and makes it more likely that you'll be approved for financing.

By getting a quality machinery valuation performed by a certified equipment appraiser, you can document the allocation of assets across a business, ensuring assets can be properly tracked. But don't just go to a local dealership and hope they give you the right numbers, because that can prevent you from fully realizing what your equipment is worth. They may be providing biased numbers to get a trade-in.  A certified equipment appraiser has gone through training in the appropriate methodologies to provide you with an equipment appraisal that will hold up to scrutiny.

Tags: allocation of assets, allocation of purchase price, certified appraisal

Protect Your Investment with a CNC Machine Appraisal

Posted by Equipment Appraisal Services on Tue, Jan 10, 2017 @ 11:34 AM

cnc machine appraisal.jpg

When precision tooling and machining is vital to your business' success, getting a quality CNC machine appraisal helps best protect that significant investment in your business' equity. But these machines are interfaced with a wide range of other tools and operate in a number of different environments, making it very difficult to determine exactly what your equipment values should be. Here are some of the considerations to keep in mind when getting your CNC equipment appraisals performed.

Protect Your Investment with a CNC Machine Appraisal

A Computer Numerical Control or CNC machine provides exact precision control of a wide range of machinery. It can operate mills, lathes, plasma cutters, wire erosion, water jet cutters, drills, routers, grinders and many other pieces of machinery to meet the exacting specifications of a wide range of projects. They can range in price from a few thousand dollars to well over $100,000 a piece, depending on the level of precision required and the size and specifications of the tools to be used. A certified appraiser should have experience in CNC machines due to their complex nature.

With this type of cost, it's easy to sink a significant amount of capital into these machines. When you have a certified equipment appraiser provide you with documentation of the equipment values, you can make better decisions about your investment. An appraisal might tell if your machinery is beginning to wear due to high hours. It might also tell whether the machinery has been well or poorly maintained, helping decide which used machinery to purchase for your business. If the market has been shifting, it may be able to tell whether you should invest in additional equipment or sell off excess CNC machines to ride out the storm of an industry downturn. 

If your business suffers a loss due to theft, vandalism or a disaster, having an appraisal on your machinery helps you get what your business needs from a reluctant insurance company. It helps you prove value if you're using your CNC machine as collateral for a financial institution if you're expanding your business or taking advantage of a new opportunity. A certified equipment appraiser can even provide a value for your CNC machinery after it's been damaged in a fire or donated to a charitable organization. But without having a proper machinery valuation in place, you may find that you're losing out on your business finances.

By getting a quality CNC machine appraisal, you can ensure that your business' investment is protected, whether you have an insurance loss while dealing with a difficult adjustor, need to document value when selling a business or the information you need to determine when it's time to replace aging machinery. But you need to make sure you're working with a certified equipment appraiser who has experience researching CNC machinery. A certified appraiser has the training and experience to prepare machinery valuation reports that are based on standardized methodologies and for that reason, will stand up to scrutiny in legal, financial and insurance circles.

Tags: woodworking equipment appraisal, metalworking equipment appraisal, cnc machine appraisal

How does Bank Financing Collateral Really Work?

Posted by Equipment Appraisal Services on Tue, Jan 03, 2017 @ 03:02 PM

bank financing collateral appraisal.jpg

When you're expanding or improving your business, it's important to understand the terms of your financing agreement. With changes in the banking industry since the 2008 recession and bailouts, many businesses are looking at bank financing collateral as a possible option to consider. But how does it really work and will it cause problems down the road for your company? In this post, we'll take a solid look at how equipment appraisals should be a part of your toolkit when approaching bank financing involving collateral.

How does Bank Financing Collateral Really Work?

Banks require collateral as an insurance policy, so that they can regain any losses from a loan default by selling the collateral to make up the balance due. Though immovable assets are typically thought of as assets such as real estate, large equipment that is difficult to remove may also be considered this type of asset. Smaller pieces of equipment or equipment that is more easily moved is considered a movable asset. The bank may require that you provide a high amount or all of these assets as collateral to secure a loan. But at the same time, you don't want to risk any more of your equipment, often the very source of your income, than is absolutely necessary. What can you do to both protect your interests in your business while providing the bank with the financing it needs? One possibility is through an equipment appraisal.

Equipment appraisals are reports prepared that calculate the value of a piece or a lot of machinery. If they're prepared by a certified equipment appraiser, the report will stand up to much higher levels of scrutiny than a report or general quote developed by a dealership or other party. Why? Because a certified appraiser is taught specific, standardized methodologies to calculate the machine's value, a report prepared by them is considered more accurate and reliable than other methods of determining equipment value. These methodologies have been scrutinized in legal proceedings, financial circles, insurance claims and tax agencies and have evolved into a nationally-recognized set of standards - the Uniform Standards of Professional Appraisal Practice (USPAP). 

When you have an accurate valuation performed, you have a solid figure you can take to the bank when negotiating the terms of your financing. Because the report has been provided by a certified appraiser, the bank officers know that it's an accurate representation of your equipment's worth. That means that you can choose which piece of equipment you're willing to put into the agreement as collateral and which ones to protect from risk.  An accredited appraiser through organizations like the American Society of Appraisers (ASA) with the Machinery & Technical Specialties (MTS) designation must provide unbiased appraisal reports that all parties can rely on.

As you can see, using machinery valuation as part of your process for agreeing to bank financing collateral requirements can help ensure that you're only putting as much of your business assets as are necessary. Using a certified equipment appraiser helps ensure that not only are you getting accurate equipment values, but that the valuation report with stand up to strict scrutiny by your financial institution.


Tags: bank financing collateral, bank loan, used equipment, sba loan