Equipment Appraisal Blog | Understanding Machinery Appraisals

Regardless of the industry you work in or the business you own, there will likely come a time when you need to obtain an updated equipment appraisal as you continue to transact in the marketplace. Whatever future plans you have for your business, it is very likely that an appraisal of your capital assets will be beneficial to the process, and possibly even a requirement.

Here a few of the most common reasons why an updated equipment appraisal will be a valuable resource for you:

Bank Financing & Leasing

The most common instance where an appraisal is beneficial and required by all the parties involved occurs when you look to raise capital to maintain and grow your business. The traditional process is working with banks, leasing companies, and similar financial institutions who will require a review of the company’s assets.

If your business requires machinery & equipment to effectively operate, as most manufacturers and service providers do, an updated appraisal will support the current value of your machinery as part of the loan approval process. These assets may end up being the primary collateral the finance company needs for you to successfully secure the loan you need.

Private Equity Investment

A secondary source your business may need to secure capital is in the form of private investment, in the form of equity, which will allow your business to expand its resources and promote growth.

These investors may want to acquire a stake in your business before laying out cash, which will need to be supported by a valuation of your company and the underlying capital assets. Machinery & equipment items generally support a long useful life which will translate to value retention over time and therefore, these assets will comprise a significant component to the overall business value.

Buying & Selling

If you’re considering buying or selling a business, or distinct machinery & equipment as part of a larger transaction, you will want to consider an appraisal to confirm your assumptions about the value of these assets. The time and tension involved in successfully negotiating a sale is significant enough to have a third-party experienced appraiser provide you with the assurance that your pricing strategies are supported and credible.

Tax, Accounting & Insurance Compliance

Tax, accounting and insurance requirements are numerous when it comes to maintaining compliance with all of these facets of your operation.

Tax assessments and regulations, accounting standards guidelines for capitalizing and depreciating your equipment, and adequate insurance coverage are just some of the boxes you need to check in these important areas. Routinely communicate with your accountants and agents to ensure you are up to date on these requirements and see if an equipment valuation might benefit the process, both long and short term.

In summary, your company’s revenue and income typically fluctuate over time depending on the markets and industries you operate in however, the value of your machinery & equipment will likely remain steady through these periods. Understanding the current value of your machinery & equipment by hiring an accredited, experienced appraiser will benefit your business across multiple fronts and provide you with peace of mind as you go forward into the future.

When you are looking to find an equipment appraiser who can provide a high-quality level of service, how do you know who to select? These types of valuation firms provide tangible personal property and machinery & equipment appraisal services to businesses and individuals across a broad range of markets and industries. The best of these are experienced, reliable, and communicative, while able to support their methodologies and conclusions should the need arise in any business transaction or dispute.

Here's a look at how equipment appraisal firms operate and what is required to be considered a reliable and credible business:

How Equipment Appraisal Firms Operate

Though many companies and individuals purport to be qualified equipment appraisers, only those that have gone through the proper training and education while developing a high level of experience over time can properly call themselves one. Commonly called M&E (machinery and equipment) appraisers, these companies should be able to accurately value virtually any tangible piece of property that would not be considered real estate (land and buildings).

High-quality M&E appraisers have a strong understanding of the variety of situations where appraisal services are required, including litigation, finance and leasing, tax appeals, risk management, insurance, buy/sell, merger & acquisition (M&A), accounting, donations, and any other situation. When that understanding is combined with their accredited expertise you have found a firm well worth your consideration.

Independence and Lack of Bias

Why is hiring an M&E appraisal firm a better choice than engaging a company that performs appraisals as part of a dealership, auction company, or similar business where sales is also a component of the operation?

One of the biggest factors to take into consideration is complete independence of anything else that may be going on in the overall business transaction for which the appraisal is needed. An independent machinery & equipment valuation firm should perform appraisal work and nothing more. If the company you hire is also involved in buying and selling equipment or investing in businesses that do so, they will potentially have a secondary agenda that would create some bias and lack of independence in estimating value.

Proper Education, Experience, and Accreditation

Highly qualified appraisers go through a rigorous process of education and testing while being required to have a minimum level of experience before they can be called an accredited M&E appraiser. This ensures they will use the appropriate methodologies and techniques when appraising your machinery & equipment. The most highly recognized organization that provides this level of training is the American Society of Appraisers (ASA). Other, more specialized groups also have educational and training requirements that can provide some of this experience, however, the ASA accreditation is the most highly sought-after title for any true appraiser.

Should the need arise where the appraisal report may be reviewed or entered into court in support of a business dispute, this accreditation will be an important qualification as well as the overall experience of the appraiser.

In summary, Equipment Appraisal Services hires only ASA accredited valuers as part of our organization. We look forward to speaking with you further when the need arises to have an independent tangible personal property or M&E appraisal completed for your business.