Equipment Appraisal Blog | Understanding Machinery Appraisals

Over the past few years, the economy has been up, down and all over the place. If you've been able to keep your business in operation, it was probably due to some insights you gained while watching other businesses deal with the consequences of the recession and recovery. But what about your business? Do you know what your machinery is worth or if you can use it to leverage new growth for your company? One of the best ways to determine this is through a woodworking equipment appraisal. Here's how it helps:

Talk Shop: How a Woodworking Equipment Appraisal Helps You Get Ahead

As our economy continues climbing up out of the recession, we're seeing strong growth. People are investing in real estate again, and with that comes wood products to build those homes and the furnishings needed to make them unique. Many woodworking companies have begun to see an upswing in their sales once again and are starting to consider growing their businesses to meet that increased demand.

But at the same time, even as consumers are increasing their purchases, many businesses are being more cautious of growing too quickly. After the housing bubble crashed, many of them saw a strong downturn in sales as foreclosure rates began to climb. A large number of companies found they could no longer keep their doors open in these conditions and closed down, often liquidating their stock and machinery.

The remaining businesses are, understandably, a bit hesitant to embrace this new growth. These businesses want to take precautions rather than jump into new opportunities. The new restrictions on business loans that have come into effect during the recession make it more difficult to gain the financing needed to expand operations regardless. They're worried that if they begin to expand, equipment could fail or another calamity could cause them to lose what they've held so tightly to the past few years. What is the average woodworking shop owner expected to do to move a business forward in this business climate?

One option to consider is a woodworking equipment valuation. This process involves having a certified equipment appraiser take a good, hard look at your equipment, and then prepare a report to estimate the equipment's value. But more than the value is the information you gain. You'll receive an estimate of the expected useful lifespan of your machinery, allowing you to better prepare for potential replacements or repairs down the road. You'll know exactly what your equipment is worth, giving you solid numbers to take to the bank to secure financing to expand your business. You'll discover whether your equipment is in demand or whether there's still an excess on the market that you could take advantage of to expand your operation. With these details, you'll know exactly what you have, what it's worth and what you can do with it.

By taking the time to get a woodworking equipment appraisal performed on your machinery, you can gain some great insights into not only your equipment's value, but also its general condition and expected lifespan. This, in turn, can help you plan your expenses over the next few years, allowing you to then invest in other areas of your company when it's appropriate or purchase replacement machinery when it's needed. Make sure you work with a certified equipment appraiser who has experience in the woodworking industry to ensure the most accurate valuation possible.

When you're trying to secure a business loan, many financial institutions require bank financing collateral. One option you have available to secure the financing you need is by offering your equipment as collateral. However, how do you document the value of your equipment? The best way is through an equipment appraisal. Here are some details about how it works.

How an Equipment Appraisal Helps You Document Bank Financing Collateral

When you're using your equipment as collateral in a bank loan, it's important that both you and the bank agree on how much it's worth. If the bank undervalues your equipment, it may tie up more equipment than is fair in your loan. If you default on that loan, you may lose more machinery that would be reasonably required to cover the loan. If you overvalue your equipment, you may feel that the bank is taking advantage of the situation when they're being reasonable about the situation.

But how do you and the financing company reach an agreement on how much the equipment is worth? Do you use average resale values in the area? What if the industry in your region is depressed, causing equipment values to be driven down? Do you settle for low equipment values when you've maintained your equipment in excellent condition over the years? Do you hope the bank doesn't notice the poor condition of that one or two pieces of equipment or that they never need to call in the loan and realize the problem? An equipment appraisal helps you avoid this issue by preparing a solid report on the calculated value.

But when you have an appraisal report prepared by a certified equipment appraiser, you get much more than a report that satisfies everyone in regards to your equipment values. Is this round of financing just the first step in a larger expansion? What if your equipment fails before you get to that point? When should you replace the equipment as part of the entire process? An appraisal report will look at the condition of the equipment. Because an equipment appraiser spends significant time studying equipment on a regular basis, they have a good feel for how long the equipment is expected to last, providing you with an estimate of the estimated useful lifespan. This allows you to plan for equipment replacement as part of your larger expansion or upgrades.

What if you have a fire, vandalism or theft of your equipment? If the amount of collateral and the insurance settlement don't match up, you may find yourself having problems down the road. When you use a certified equipment appraiser, the report they provide is developed using standardized appraisal methodologies. These calculations have been tested in court, by insurance companies, by tax agencies and in financial circles, so they stand up well to heavy scrutiny. This means they'll work well for both securing the financing you need as well as providing reliable documentation of your equipment's value for other purposes.

When you get an equipment appraisal to document your bank financing collateral values, you can prove what your machinery is actually worth. However, to ensure that your appraisal is accepted at face value, you'll want to be sure that you use a certified equipment appraiser. Why? The process of becoming certified ensures that the appraiser is using standardized methodologies that will stand up well to scrutiny in legal, financial and insurance circles.

Maybe you've been avoiding opening that envelope or are still in denial about how much you seem to owe.

When it comes to property taxes, getting a bad appraisal can mean a lot of extra time spent dealing

with government bureaucracy. But what if you could get a tool that would provide positive proof of your equipment values and help ensure you come out on the right side of your property tax appeals? An equipment appraisal can provide you with the documentation you need to make it happen.

Why equipment appraisals are helpful when going through property tax appeals

When you get a bad property tax assessment, it can be very frustrating. Many people choose not to fight a bad assessment because they think the tax assessor knows more about their equipment values than they do. However, let's take a quick look at the tax assessor's job:

• As with virtually all government agencies, the tax assessor's office is under pressure to raise values. Why? Raising property value increases the funds available for the government budget, including the tax assessor's staff, salary, benefits and office needs.
• The assessor is required to assess a wide range of property, including homes, raw land, farms, manufactured homes, vehicles, boats, RVs, rental properties, business properties, tools, industrial equipment - you name it, a tax assessor has probably tried to value it at some point or another.
• Because of this broad approach to property values, it can be very easy for the assessor to make a mistake. Maybe they looked up the wrong trim level on your construction truck, found the wrong model number for your metal shop tools or thought that the injection equipment you own is five years old instead of fifteen. 

So how do you fight a bad tax appraisal? By providing proof of how much the equipment is actually worth. But before you head out to your local dealership, you'll want to bear in mind that they may also have a specific interest in estimating your equipment in one direction or another. If they want to sell you new machinery, they may tell you your existing machinery is worthless or drive up the value if they're trying to sell you a new model and want to make your trade look good.

The best option to look at when you're trying to prove your equipment values is by hiring an independent certified equipment appraiser. When you go this route, you can rest assured that the appraiser works with equipment like yours on a regular basis. They've been trained to use methodologies that hold up well to scrutiny in legal, financial, insurance and tax agency circles. The report they develop can stand up in an appeal, allowing you to pay a fair property tax on your equipment rather than an incorrect figure determined by your local tax assessment agency.

By including an equipment valuation as part of your property tax appeals process, you can ensure that you're providing solid documentation of what your machinery is actually worth rather than the tax assessor's opinion on the matter. If you do decide to use an equipment appraisal as part of your property tax appeal toolkit, remember to use a certified equipment appraiser to ensure your appraisal report will stand up to strong scrutiny in the process.

When you're trying to develop a solid asset risk management approach for your company, it can seem as though you're facing more numbers and possibilities than ever. But have you considered incorporating your equipment appraisals into your process? Machinery valuation provides you with a range of information on your assets to help you decide how to best protect them. Here's how:

How to Incorporate Equipment Appraisal in Asset Risk Management

Risk management, by definition, is restricting the amount of risk you're subjecting yourself to, either personally or professionally. Asset risk management is an extension of that. Though it's a somewhat involved process, it helps mitigate risk to your business' assets, including your equipment. 

To determine how much money you're risking with specific operations, it's important to start by knowing how much your equipment is worth. Another area of knowledge you should keep in mind is the equipment's expected useful remaining lifespan. As an example, let's look at the value of a few different machines:

• A new bulldozer that is financed and is costing the company a significant portion of their monthly income.
• An older extruding machine that has been fully depreciated, but is expected to continue working for many more years to come.
• An old metal lathe that still has some value but is nearing the end of its life cycle.

In these examples, you'd want to take very few risks with the bulldozer and moderate risks with the other two. Why would you worry about risks to a fully depreciated or worn out machine? Because the value they may still possess. It's much easier to guess at the value of the bulldozer, but the extruding machine may have value in its production role. The metal lathe may still have value if it's sold to pay off part of a piece of replacement machinery.

But with the two older machines, how do you determine value? This is one of the areas where equipment appraisal can be an extremely valuable tool to determining the equipment's exposure to risk and your overall asset portfolio. We've all seen equipment that has been fully depreciated using a standardized tax table, but continues to contribute to your business' profitability, whether it's an older spray foam truck, ancient table saw that just keeps going or an aging computer system that runs your ready mix plant.

When an equipment appraisal is performed by a certified appraiser, they use a range of methodologies that have been proven in legal, insurance, tax and financial industries. Because they deal with equipment on a daily basis, they're able to look at exactly what the equipment is, how widely it's used in other industries, the expected usable life span remaining and market conditions to calculate the exact equipment value. Though it may be more or less than what you see machinery sell for, the appraisal numbers will hold up because of the standardized calculations used by professional appraisers.

When you take the time to incorporate your equipment appraisal report into your asset risk management process, you'll quickly see results that help improve your company's overhead and profitability. Make sure the equipment appraiser you're working with is certified, to ensure you're getting a quality report that gives you a fair value for your assets, then use that information to build a better approach to risk management in your company.