Equipment Appraisal Blog | Understanding Machinery Appraisals

Machinery & Equipment appraisals generally require an itemized asset listing to be presented to the valuation professional so they can understand the history and detail behind the assets and estimate the scope of work and associated time and costs involved to complete the project.

Businesses that own a significant amount of tangible property, but have not updated their internal records in a long time, may decide they don’t have the resources available to undertake the time-consuming task of compiling all this data. The sensible alternative may be to have the appraiser visit your facility and work with you and your team to effectively and efficiently accomplish the task.

Even cases where your machinery listing is current but not well detailed may bring about the need to have an on-site visual inspection completed to ensure an accurate and thorough result. Desktop valuations, where you provide all the information to the appraiser, work when there is enough data to comfortably understand the descriptive detail provided in an easy-to-read file format. Ideally, appraisers like to see the year (or effective age) of the equipment, as well as the make, model, VIN/serial number, and any additional options or specifications that might apply. Photographs will also need to be reviewed to reasonably estimate the condition of the machinery. Follow-up interviews with the appraiser may be required to confirm the details being reviewed.

If you choose to have the appraiser complete the field work and gather all this themselves, it can save you hours, if not days, and will provide a more personalized perspective for both parties to understand all the facets of the valuation effort, as well as the underlying transaction it will be supporting.

The cost variance between an on-site appraisal and a desktop can be significant, depending on where your business is located, the number and type of assets being appraised, and the overall logistics involved with the scope of work. Look to engage an experienced, accredited appraiser, who can facilitate the process with you, and can effectively work with your team to accomplish the task.

The benefis will far outweigh the cost, from both a short and long-term perspective, as you will be able to better accomplish the immediate tasks at hand, and have an updated, detailed, and accurate equipment listing going forward which you can use to maintain your records in the future.

Equipment leasing has been around for decades however many business owners still do not fully understand the pros and cons of these types of transactions. With many industries growing aggressively since coming out of COVID shutdowns and slowdowns, equipment leasing is a popular way to reduce excess working capital needed to acquire these assets.

So, what else should you be aware of before you sign a new lease agreement? Here are a few thoughts to consider:

I read an article from a major business publication posted earlier this year that claimed a company owns the equipment after the lease expires. This statement is very misleading and essentially untrue on many levels.

First, it depends on the type of lease you enter into. Most lease agreements include a purchase option of some type which must be exercised by the business in order to gain title or ownership. Certain lease contracts have a nominal purchase option, (as low as $1) at expiration however, these have to be treated as loans on your company’s books since there is a requirement that purchase options fairly represent the future value of the equipment to gain the off-balance sheet accounting benefits you would prefer to have.

More typically, purchase options are stated as a fixed percentage of the original purchase price, commonly in the 10-20% range, depending on the lease term, or based on the fair market value of the assets. If the options are not exercised at lease expiration in a timely fashion, the owner (Lessor) can compel you to return the equipment or continue to lease it for an extended period.

Make sure you carefully read the purchase option language before signing and determine if it makes sense based on your present and future plans. Track the lease internally and consider what you need to exercise at least 6 months in advance of expiration. Notify the Lessor as required to keep the original terms in place. It is easy to fall into a situation where you forget to respond as time goes by, and are put in a low-leverage situation with limited, undesirable options left.

An equipment lease is a great way to keep assets off your balance sheet as well as the associated debt which can make your company look highly leveraged. Instead, your business can treat the lease payments as an annual expense that can be written off. Depending on the type of lease you enter into, your accounting factors may vary, so ensure you consult with your tax accountant before finalizing lease terms.