Equipment Appraisal Blog | Understanding Machinery Appraisals

How can a bank appraisal help you get more out of your equipment?

Posted by Equipment Appraisal Services on Mon, Feb 26, 2018 @ 09:56 AM

When your business has a significant investment in your equipment assets, knowing the value of those assets and having the ability to leverage that capital can make all the difference when you're trying to grow your company. Though you could simply take an equipment dealer's word on that value, a bank appraisal can provide you with an accurate value that takes a wide range of factors into account. Here's a quick overview of how this type of equipment appraisal helps you leverage your company's machinery assets for better growth.

How can a bank appraisal help you get more out of your equipment?

If you're considering growing or making changes to your business, it's pretty common to pursue bank financing to make those changes. However, with the increased rules and regulations that were put into place following the 2008 recession for business loans, many financial institutions are requiring additional assurance that you have the ability to pay back a loan. One of the areas where this can impact your company's assets is through an appraisal of your company's machinery. How does this type of appraisal work and what other benefits can you reap from the process?

A financial appraisal takes a solid look at your company's assets and their value in the free market. A certified equipment appraiser spends their days reviewing equipment values. This gives them a very specialized skill set and an advanced knowledge of machinery that can be leveraged for your company's growth.

To start, the equipment appraiser will look at the equipment's condition. Because they have extensive experience working with a wide range of equipment, they know what to look for in terms of wear and tear, potential abuse issues and overall value on the open market. This also makes them very good at noticing potential issues with your equipment that may have otherwise been missed. By catching these issues early, you can make repairs or additional maintenance before small, easy problems become big, expensive ones.

Another area where you can see strong benefits for your company is by knowing the right value for your equipment. Most companies use tax-agency-based depreciation tables to determine what equipment is actually worth. However, that doesn't mean that the value from those tables is correct. Almost every company has a piece or two of ancient equipment that is still providing exceptional service long after it was declared worthless by the depreciation tables, whether it's an aging table saw or an old truck that keeps on rolling. At the same time, many companies have purchased equipment that has failed prematurely, either through abuse or excessive use, or through poor engineering and design. These same depreciation tables show that equipment as having value long after it has become virtually worthless.

Knowing what your equipment is worth through a solid bank appraisal allows you to leverage that equipment to grow your company into a promising new future. But don't trust just anyone who knows a little about equipment values to give you an accurate value. Certified equipment appraisers use tested methodologies that hold up well in virtually all circles, whether financial, legal, insurance or tax concerns are under scrutiny. Make sure you work with a certified appraiser to ensure the money you spend on an appraisal provides you with the most accurate results available.

Tags: Equipment Appraisal, bank appraisal

How equipment appraisal helps you deal with economic obsolescence

Posted by Equipment Appraisal Services on Tue, Feb 13, 2018 @ 10:10 AM

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When equipment you've invested in has become obsolete, it can wreak havoc on your business' accounting, especially when it has not yet been fully depreciated. How do you deal with economic obsolescence in your company? Here's a quick look at what it is and how to best deal with it when it happens in your business.

How equipment appraisal helps you deal with economic obsolescence

I remember the first time I ran into a case of economic obsolescence in a piece of business equipment. Back in 1992, my parents invested in a 286 computer for their business, to run accounting and correspondence. Several years later, I found them a newer computer for the business, so the older desktop came home. Following a number of creative hacks to try to keep the system running for nearly 18 years, my mother finally asked, "That old computer probably isn't good for much more than a boat anchor anymore, is it?" The rejoicing at that point, albeit quietly in my head, was epic.

When equipment is no longer able to be updated to remain useful, it's said to have become obsolete. Economic obsolescence is the point at which it costs more to try to maintain older equipment than to replace it. Unfortunately, this can cause some serious problems with your company's books, especially if the machinery is not yet fully depreciated.

One industry where this regularly happens is IT. Because of the rapid progression of computer technology, it can seem as though every week a faster processor, bigger hard drive or a larger memory stick is coming out. Software from three years ago is no longer being supported by the developer, making it impossible to take care of security issues. When these assets are not yet fully depreciated, they still show value on the books even though they have become completely unusable in daily operations. 

That doesn't mean you won't get any money for it in a sale, but it would require spending time, effort and money to find the right buyer. Some computer companies build their own testing labs by purchasing older systems that may be used by their clients, but these labs are not where the company makes money as much as where they provide customer support and service to ensure the product they're developing will work well on the client's system. Though it has some value for the company, it's not in the profit sector of the company, so is often disregarded in terms of value.

For this reason, an equipment appraisal can help fix this problem. Because a certified equipment appraiser should have experience in the industry in question, they typically have a good grasp of when a technology or piece of equipment is no longer able to remain competitive in the real world. They can help provide a value for the equipment that is realistic, and their appraisal is well documented.

When you have a situation of economic obsolescence in your company, one of the best options to record the loss of machinery value is through an equipment appraisal. When you work with a certified appraiser, they have a good grasp of your industry's rate of progress and understand when certain classes of machinery become obsolete. Because they use standardized methodologies, their appraisal report will stand up well to scrutiny from outside interests, whether it's the legal system, a tax agency, an insurance company or a financial institution.

Tags: economic obsolescence, appraisal depreciation

How does a machine appraiser determine remaining useful life?

Posted by Equipment Appraisal Services on Tue, Feb 06, 2018 @ 08:44 AM

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As a business, your investment in your equipment is a large part of your overall assets. Knowing how long that equipment will continue to operate is an important piece of information to help you plan your company's future expenditures. But the remaining useful life can be hard to determine. Fortunately, there's a way to get around the difficulty in determining this expected lifespan. Machine appraisers spend all day looking at and appraising equipment, so they not only have experience in how to calculate the estimated remaining lifespan but also know how to recognize signs that may extend or shorten machine lifespan. Here's a quick look at the overall process and what aspects may impact your equipment's estimated remaining life.

How does a machine appraiser determine remaining useful life?

Machines, like people, can age at different rates. Imagine a two-pack-a-day smoker with bad genetics who has done heavy construction and drinks a six pack every evening, before taking a ride down into some scary parts of town while never going to the doctor. If this individual made it past 50, it would be a miracle. The health guru with perfect genetics, a stress-free life and a love for fitness who regularly has health screenings may expect to live past the century mark at this point. Much like people who do or don't take care of themselves, machines can fail at different rates.

One area that can quickly impact machine lifespan is the environment in which it is used. Much like the smoker, a piece of equipment that is kept in a damp, dirty environment with extreme temperatures will tend to degrade much faster than one kept in a clean, dry environment with regulated temperatures. The bad genetics would represent the expected overall lifespan of a specific model of equipment, such as a model known for issues that will not last as long as similar models because of poor manufacturing, materials or mechanical problems. At the same time, the heavy construction background represents hard use of the machine. Equipment that has been used at the very top of its range of specifications, received hard use in a short period of time or otherwise abused will have a much shorter lifespan than may otherwise be expected.

When an equipment appraiser looks at a piece of machinery, there are a number of clues they can take into account. In addition to already knowing a rough range of estimated overall lifespan, the appraiser can look at the exterior for signs of abuse, including dents, bends or evidence of poorly-made repairs to determine any excessive use the equipment may have received. A look at internal components may reveal failing mechanisms that could cause a serious failure down the road. Checking out the environment may lead to details about whether a fresh coat of paint may stop corrosion or if the rust may cause a premature failure.

The process of estimating remaining useful life can be a daunting task, but with an equipment appraiser taking over the process, you'll quickly have the information you need for your business planning purposes. Be sure to check whether your equipment appraiser is certified, as the methodologies used by certified equipment appraisers have stood up to strong scrutiny in a wide range of situations. This means the remaining equipment lifespan they estimate for you is much more likely to be a good tool for your business planning needs.

Tags: equipment appraiser, remaining useful life