Equipment Appraisal Blog | Understanding Machinery Appraisals

When you're considering filing bankruptcy for your business, of whatever type you select, you have a lot of decisions to make and a lot of information to sort through to make the best choices for your business' potential continuation. But what happens when your business goes bankrupt? What can you expect to happen with your business assets? Will the equipment you need be sold? During the process, an equipment appraiser is typically used to perform a machinery valuation on your business' equipment and will be required to follow strict guidelines and methodologies to ensure the that the process is equitable for all the creditors and the business itself if it is decided to remain in operation. Here are some details to help you along the way.

Filing for bankruptcy: What role will equipment values play?

When it comes to dealing with a bankrupt business, there are a number of different concepts and values that are commonly used in the process when it comes to asset and equipment valuation. Because a bankruptcy requires a court of law, there can be very specific requirements that must be met during the equipment appraisal process to ensure that the process is fair to all involved and the report accurate. There are many different situations where valuation will come into play during a bankruptcy:

• Liquidation is one of the most common types of valuation used in bankruptcy situations, because your creditors will almost always want to be paid in cash rather than in your equipment. Getting a liquidation value appraisal helps the court determine the net recovery that can come from the sale of your business assets.
• Bankruptcy code does allow for other types of valuation, however. Value in use, value in exchange, liquidation value, net realizable value or other standardized methodology may be used if directed by the bankruptcy court. These values can differ based on a wide range of other factors, so it's important to use a certified equipment appraiser with experience in bankruptcies to make sure the advisors in the process provide the right value context.
• Because a court is involved, the machinery appraiser may be required to review prior court cases to determine what the proper type of valuation should be to generate the final report. In particularly complex cases, the guidance of legal counsel may be required to determine which valuation methodology should be used in each unique situation.
• The judge may also have a say in the type of valuation being used in a business bankruptcy case. It's not unheard of for a bankruptcy court judge to require a specific type of valuation if the situation calls for it. This will limit the type of valuation that can be used in that instance.

Facing bankruptcy is a difficult task, but knowing what limitations may be involved in your case or the type of valuation to expect can make the process easier to anticipate. Knowing what to expect as the process goes forward makes it easier to deal with situations as they arise. If you're considering going through a business bankruptcy, you'll want to work with an equipment appraiser who can give you details on what's what with your company.

Imagine your business is deeply in debt. You can no longer afford to keep your doors open. You have existing inventory and assets, and you know that by selling these, you can repay some of your creditors. Yet the more pressure you have to sell your assets, the less you can command for them. To understand your options, it's essential you have an understanding of forced liquidation value. 

What is Forced Liquidation Value? 

Forced liquidation value provides a snapshot of your business in a state of crisis. An appraiser assumes you need to sell as fast as possible, which usually means at auction. Both the rush factor and the auction generally mean that you'll wind up accepting less for the piece of machinery (for example, an air compressor) than you would if you were in no rush to sell. 

By understanding forced liquidation value, you can understand where you stand, even when things are going poorly. The data that you receive from an appraiser can then help you decide your next steps. 

When performing a company valuation for assets, an appraiser will estimate that your items will sell at auction within a short time frame - say, 90 days or less. They will then add up the perceived value of all items sold via auction to arrive at the business's forced liquidation value. The forced liquidation value gives a minimum worth for the business, assuming the company can sell all assets at auction. 

To come up with an equipment valuation, the equipment appraiser must also make a series of assumptions about the auction process.  As a result of this series of assumptions, the estimated value is often a big difference from orderly liquidation value and even bigger difference from the fair market value where there is much more time to sell the equipment. 

When is Forced Liquidation Value a Good Idea? 

Machinery valuation via forced liquidation value usually works to a business's advantage when the company is in trouble and actually needs to get rid of machinery (like the air compressor) quickly. 

There is no reason for a healthy business to use forced liquidation value for equipment values, even if the company plans to sell an air compressor at an equipment auction. A healthy business could service or repair equipment before selling it at auction, whereas a company facing liquidation must sell the equipment in an as-is state. For the same air compressor, a company willing to service the equipment or wait for the right time to sell could command a significantly higher price than the company that needs to sell as-is equipment immediately. An exception may be the need to clear out the equipment so that a new line can be installed in the facility.

If you need equipment appraisals for any reason, it's important to find an appraiser who understands your industry and can accurately value your equipment. "Time to sell" is an important concept that needs to be understood and helps explain why an asset may sell for different values.

We've all either had it happen or heard horror stories from friends or business acquaintances. They receive their property tax assessment and nearly have a heart attack over the high figure listed. How on earth would the tax assessor come up with a number that is so obviously incorrect? Though almost any tax agency includes a process for property tax appeals, the process can seem fairly complex. Fortunately, getting a machinery valuation for the equipment in question can help clear up any difficulties.

How Equipment Appraisals Help With Property Tax Appeals

How does an equipment appraisal help when you've had an inaccurate property tax assessment? Let's start by looking at how an inaccurate assessment is created. Typically, when a tax assessment is created, it's by a central office with one or several assessors, depending on the amount of property that is assessed every tax period. These assessors are fairly good at determining value, but the  more common a piece of equipment is, the easier it is to assess. For example, it's much easier to determine the value of a late model Toyota Camry than a relatively rare piece of specialty equipment.

To keep operations rolling, the assessor will try to determine the equipment's value, but it's relatively easy to mistake one piece of equipment for another. Is your equipment a 12 or 24 horsepower model? Does it have particular features? Were some of the features original or added after the fact? What kind of conditions was the equipment kept in? Is it being used gently or excessively? All these aspects factor in to the final value, but it's difficult for an assessor, who specializes in general asset values, to determine the exact value.

When a mistake happens in an assessment, it's a good idea to have an experienced certified equipment appraisal specialist create a valuation report. This process will take a good look at exactly what the equipment's value should be based on research and analysis. It will take into consideration not only the machine's age and features, but also its condition, the location it's been stored in, how well it's been maintained, any abuse that has happened over the years and the estimated remaining usable life span the machine is expected to have. All these different aspects can change the final appraised value of the equipment, as can current market value or the impact that industry conditions can have on resale value.

But why do you need to work with a certified appraiser? Though you could ask a local dealership to provide you with a general price, it isn't necessarily an accurate one to your situation. Did you need to have extensive work performed to install or remove the equipment? That needs to be taken into account. A dealership is interested in selling you new equipment, not providing accurate values of the equipment you already own.

When you have to deal with a tax agency about an inaccurate property tax assessment, a quality equipment appraisal provides excellent documentation for property tax appeals. Equipment values determined by a certified equipment appraiser are concluded using standardized methodologies that have been designed to hold up to scrutiny in legal, financial and insurance circles. This means the equipment valuation you've had done provides documentation all the way up the appeal process.

With the inauguration of President Trump, we can expect to see changes in how business is done in our country. One area that may be impacted is appraisals for SBA loan purposes. Will you need to have equipment values to get a loan? Will having a machinery valuation from a certified equipment appraiser improve your chances of being approved? Let's take a look at some signs of what may lie ahead in Trump's administration.

What Trump's Policies Mean for Appraisals for SBA Loan Purposes

As a businessman, President Trump has regularly mentioned his plan to grow the economy and American way of life through the promotion and growth of domestic businesses of all sizes. Many people are hoping that this will translate into policy changes that benefit small business owners and entrepreneurs, especially with positive changes in the Small Business Administration. Unlike several of his more controversial appointments, the President's appointment of Linda McMahon to head the organization was approved by an overwhelming majority of 18-1 by the Senate Small Business and Entrepreneurship Committee.

But what does this mean? It could suggest that neither side finds any problem with McMahon, which could be good or bad. She could promote strong changes in the SBA, or she could simply keep it business as usual, making her a non-threat to the establishment in Congress. That being said, she has shown the ability to grow a small regional business into a multi-national corporation, so she may be able to shake out some of the existing bureaucracy in favor of effective updates to the administration.

If the changes favor more available SBA-backed loans, businesses that would otherwise not be approved may find themselves able to apply for these loans, though the conservative backing that brought President Trump into office may not approve of risky investments that bring back memories of the sub-prime mortgage market. If the approach remains the same, with a business-as-usual approach, borderline businesses may need additional documentation of asset worth to qualify for loans.

Beyond any potential changes the new administration may bring, having an equipment appraisal performed on your equipment provides a number of other benefits. It helps provide documentation of equipment values for insurance, financial, legal and tax agency circles, when performed by a certified equipment appraiser. Because the certification process teaches the proper methodologies to use in particular situations, which have been tested over time, the appraisal reports produced by such an appraiser stand up to strong scrutiny. This report could serve as documentation of value to help secure an SBA loan by proving the assets you can already bring to bear for your company. It also helps you back up insurance claims, fight bad property tax assessments or prove asset value from a charitable donation.

Regardless of what changes may be coming to the Small Business Administration with the new administration, equipment appraisals for SBA loan purposes are always a good idea. An equipment appraisal report gives you concrete proof of value for your machinery that will stand up in legal, insurance, tax and financial circles.