Equipment Appraisal Blog | Understanding Machinery Appraisals

When we've been discussing equipment appraisals in the past, we've discussed a number of ways in which machinery may be appraised. But one type of appraisal we haven't gone into depth with is replacement cost new. Because it's only used in certain circumstances, it's a type of appraisal that many people are still unaware of. Here's a quick rundown of how it's different and a situation where it's commonly used.

How is replacement cost new different than other appraisals?

When you purchase insurance on your machinery, it's important to know what type of insurance you have in place. Replacement cost is a commonly used variety, but will only cover the replacement of the machinery with similar machinery. This can backfire for many equipment owners, especially when the equipment has been customized to their operation, such as an extruder that has been customized to their exact needs. An insurance adjustor may not understand the find differences between the types of equipment, dragging your claim out.

For that reason, many people will insure their equipment for replacement cost new. When a technical company in North Carolina had an office flood, they lost a significant portion of the equipment in their computer lab. The insurance company didn't understand that the equipment had been bought over time from a number of sources to ensure the company could work with the wide range of systems their clients were using. Because they had replacement cost insurance, they had to fight with the insurance company for many months to reach a settlement, as the insurance company didn't understand the current value of those machines to the business.

In another example, a company had a break in where several key pieces of equipment were stolen. Because they had replacement cost new coverage on the equipment, they were able to get compensation that allowed them to replace the stolen machinery with equivalent new machinery. This made it much easier for the shop to get back into working condition without too much lost production. Some of the machinery was much older, so finding the same equipment used would have been very difficult and very time consuming for the business. Because of the coverage they had on the equipment, they could find machinery that met a minimum set of specifications and be reimbursed for the purchase of that machinery by the insurance company. For example, an old bandsaw used in the shop provided resawing capability at 3 HP could have been replaced with a new resawing 3 HP bandsaw.

The difference between these two businesses is fairly clear. Both lost older machinery that was difficult to replace. However, one spent months trying to prove the value of the machinery in their business while the other merely had to shop for new equipment that met the same needs in the business. This had a huge impact on the productivity of the business and the amount of time the company's owners had to spend on growing the business versus chasing the insurance adjuster's latest numbers.

When you need to make an insurance claim or otherwise need to know the replacement cost new of your equipment, it's important to work with a certified machine appraiser who has experience in your industry. Why? It's important that they know why particular features and capabilities are vital to keeping your operation moving. They also have the knowledge of how to calculate this machine value accurately, which is important to your claim or need when you've had an equipment loss.

Let's face it - nobody gets excited about a dissolution. Whether it's your business, a partnership or a marriage, breaking up something that's worked well in the past can be a difficult and trying process. But instead of simply getting it over with, you may want to consider how to protect your interests before you lose out. Here's how to use an equipment appraisal to help document your assets in a way that will hold up well during negotiations and in legal circles.

What do you need to know to protect your interests in a dissolution?

We've all heard horror stories about how a dissolution can come out badly. Whether it's the businessman who lost the company Jaguar and computer lab while taking care of the employees or the divorced individual whose ex sold off all the equipment at a pittance, it's important to know what to do in these situations. Doing nothing will often leave you with nothing.

But what if you're not sure how much your assets are worth? As an example, an insulator in northern Minnesota was a handy sort. When he started his business, he had purchased a box van and installed a blower system for cellulose insulation. Because he had a keen eye for mechanical maintenance, the system was in excellent condition when, after many years in business and no takers to buy the company, he dissolved the business. The system had been fully depreciated many years before, yet it still retained excellent value because of the care it had received over the years.

On the books, the equipment had no value. In real life, it was worth quite a bit, especially when an enterprising sort from a few hundred miles away contacted him as the equipment sat in his empty warehouse. Years after the equipment had been purchased, the retired insulator ran into the young man who had purchased the machinery. "You know, I would have paid three times what you were asking for that equipment," the young man admitted.

This type of story is classic to any type of dissolution, but when two partners, either in business or marriage, dissolve a business, things can get ugly. If a divorce had been involved in the above case, the spouse could have come back and claimed the husband had intentionally gotten rid of the asset at a low price to avoid paying a fair share for the equipment during the dissolution.

When you have an equipment appraisal performed, you're able to provide documented evidence for the machinery's value. One party in the dissolution may claim equipment has a much higher or lower value to cause problems or get more out of the situation. The best way to resolve the issue is by having an independent third party determine the fair market value of the assets involved. This ensures that both parties get a fair shake out of the deal.

Dissolution is never fun, but it can be less painful if you take the time to protect your interests during the process. But don't expect your local equipment sales rep to provide you with a solid appraisal that will hold up in court! When you work with a certified equipment appraiser, you'll get a fair report of your equipment values that meets or exceeds legal requirements that won't be thrown out if things get ugly.

Anyone who is facing bankruptcy knows how agonizing the process is. You lose all control over your assets, being allowed to only retain a small portion of what you originally owned. You're asked to provide documentation of the value of material possessions, just to find that the documentation provided often doesn't meet the needs of the court system or the financial companies involved. Fortunately, there is one way you can document values to protect your interest in your assets - equipment valuation.

Facing Bankruptcy: How Equipment Appraisals Help Verify Asset Value

But why would an equipment appraisal hold up better than documentation from a common book of value, such as a Kelley Blue Book? General value guides will provide you with the information needed to value an asset in general terms, not specific ones. If you've taken exceptional care of your machinery, you don't want it lumped in with the same value provided to poorly kept equipment. You want it to be valued fairly, which is how equipment is valued during an appraisal. Another reason why certified equipment appraisal reports hold up better in court is the neutrality of the appraiser. Because the appraiser is a neutral third party, they're not going to gain anything by creating a false value. This, in turn, gives stronger credence to your report's validity.

Furthermore, when you work with a certified equipment appraiser, you gain the benefit of their knowledge. When an appraiser goes through the certification process, he or she has the opportunity to learn what methods are acceptable in which situations. The methodology used in valuing equipment for salvage or when waiting for the perfect buyer can vary greatly, and that's taken into account when the appraiser learns their trade during the certification process. For that reason, they already know what the proper valuation method is for the situation and can apply it properly in their valuation process.

Though liquidation value is the most commonly used approach to equipment valuation, it's not the only one that is allowed by the bankruptcy code. Other methodologies that are commonly applied include value in use, net realizable value, value in trade or any number of additional valuation methodologies may also be used, depending on your situation. Because a certified machinery appraiser is aware of the nuances of different appraisal approaches, they're in the best position to provide you with good advice as to the right methodology for your situation.

Once they've finished valuing your equipment, appraisers will document the method they used and any aspects of the machinery that impacted that value. This can include kits or expansions you added after the fact that still meet the manufacturer's specifications, the exceptional condition of your very well well maintained machinery or the high or low demand for your machinery in the industry or market as a whole. Because they've documented the entire process and have used proven methodologies in their calculations, their appraisal report will stand up well in court, with financial circles or any other organization involved in the process.

When you're facing a bankruptcy and want to ensure you're getting a fair shake on your equipment values, an equipment appraisal can go a long way towards securing your interests during the process. By taking the time to have an equipment valuation performed now, you can better protect yourself from being taken advantage of during this difficult time.

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.