Equipment Appraisal Blog | Understanding Machinery Appraisals

Imagine your business is deeply in debt. You can no longer afford to keep your doors open. You have existing inventory and assets, and you know that by selling these, you can repay some of your creditors. Yet the more pressure you have to sell your assets, the less you can command for them. To understand your options, it's essential you have an understanding of forced liquidation value. 

What is Forced Liquidation Value? 

Forced liquidation value provides a snapshot of your business in a state of crisis. An appraiser assumes you need to sell as fast as possible, which usually means at auction. Both the rush factor and the auction generally mean that you'll wind up accepting less for the piece of machinery (for example, an air compressor) than you would if you were in no rush to sell. 

By understanding forced liquidation value, you can understand where you stand, even when things are going poorly. The data that you receive from an appraiser can then help you decide your next steps. 

When performing a company valuation for assets, an appraiser will estimate that your items will sell at auction within a short time frame - say, 90 days or less. They will then add up the perceived value of all items sold via auction to arrive at the business's forced liquidation value. The forced liquidation value gives a minimum worth for the business, assuming the company can sell all assets at auction. 

To come up with an equipment valuation, the equipment appraiser must also make a series of assumptions about the auction process.  As a result of this series of assumptions, the estimated value is often a big difference from orderly liquidation value and even bigger difference from the fair market value where there is much more time to sell the equipment. 

When is Forced Liquidation Value a Good Idea? 

Machinery valuation via forced liquidation value usually works to a business's advantage when the company is in trouble and actually needs to get rid of machinery (like the air compressor) quickly. 

There is no reason for a healthy business to use forced liquidation value for equipment values, even if the company plans to sell an air compressor at an equipment auction. A healthy business could service or repair equipment before selling it at auction, whereas a company facing liquidation must sell the equipment in an as-is state. For the same air compressor, a company willing to service the equipment or wait for the right time to sell could command a significantly higher price than the company that needs to sell as-is equipment immediately. An exception may be the need to clear out the equipment so that a new line can be installed in the facility.

If you need equipment appraisals for any reason, it's important to find an appraiser who understands your industry and can accurately value your equipment. "Time to sell" is an important concept that needs to be understood and helps explain why an asset may sell for different values.

We've all either had it happen or heard horror stories from friends or business acquaintances. They receive their property tax assessment and nearly have a heart attack over the high figure listed. How on earth would the tax assessor come up with a number that is so obviously incorrect? Though almost any tax agency includes a process for property tax appeals, the process can seem fairly complex. Fortunately, getting a machinery valuation for the equipment in question can help clear up any difficulties.

How Equipment Appraisals Help With Property Tax Appeals

How does an equipment appraisal help when you've had an inaccurate property tax assessment? Let's start by looking at how an inaccurate assessment is created. Typically, when a tax assessment is created, it's by a central office with one or several assessors, depending on the amount of property that is assessed every tax period. These assessors are fairly good at determining value, but the  more common a piece of equipment is, the easier it is to assess. For example, it's much easier to determine the value of a late model Toyota Camry than a relatively rare piece of specialty equipment.

To keep operations rolling, the assessor will try to determine the equipment's value, but it's relatively easy to mistake one piece of equipment for another. Is your equipment a 12 or 24 horsepower model? Does it have particular features? Were some of the features original or added after the fact? What kind of conditions was the equipment kept in? Is it being used gently or excessively? All these aspects factor in to the final value, but it's difficult for an assessor, who specializes in general asset values, to determine the exact value.

When a mistake happens in an assessment, it's a good idea to have an experienced certified equipment appraisal specialist create a valuation report. This process will take a good look at exactly what the equipment's value should be based on research and analysis. It will take into consideration not only the machine's age and features, but also its condition, the location it's been stored in, how well it's been maintained, any abuse that has happened over the years and the estimated remaining usable life span the machine is expected to have. All these different aspects can change the final appraised value of the equipment, as can current market value or the impact that industry conditions can have on resale value.

But why do you need to work with a certified appraiser? Though you could ask a local dealership to provide you with a general price, it isn't necessarily an accurate one to your situation. Did you need to have extensive work performed to install or remove the equipment? That needs to be taken into account. A dealership is interested in selling you new equipment, not providing accurate values of the equipment you already own.

When you have to deal with a tax agency about an inaccurate property tax assessment, a quality equipment appraisal provides excellent documentation for property tax appeals. Equipment values determined by a certified equipment appraiser are concluded using standardized methodologies that have been designed to hold up to scrutiny in legal, financial and insurance circles. This means the equipment valuation you've had done provides documentation all the way up the appeal process.

With the inauguration of President Trump, we can expect to see changes in how business is done in our country. One area that may be impacted is appraisals for SBA loan purposes. Will you need to have equipment values to get a loan? Will having a machinery valuation from a certified equipment appraiser improve your chances of being approved? Let's take a look at some signs of what may lie ahead in Trump's administration.

What Trump's Policies Mean for Appraisals for SBA Loan Purposes

As a businessman, President Trump has regularly mentioned his plan to grow the economy and American way of life through the promotion and growth of domestic businesses of all sizes. Many people are hoping that this will translate into policy changes that benefit small business owners and entrepreneurs, especially with positive changes in the Small Business Administration. Unlike several of his more controversial appointments, the President's appointment of Linda McMahon to head the organization was approved by an overwhelming majority of 18-1 by the Senate Small Business and Entrepreneurship Committee.

But what does this mean? It could suggest that neither side finds any problem with McMahon, which could be good or bad. She could promote strong changes in the SBA, or she could simply keep it business as usual, making her a non-threat to the establishment in Congress. That being said, she has shown the ability to grow a small regional business into a multi-national corporation, so she may be able to shake out some of the existing bureaucracy in favor of effective updates to the administration.

If the changes favor more available SBA-backed loans, businesses that would otherwise not be approved may find themselves able to apply for these loans, though the conservative backing that brought President Trump into office may not approve of risky investments that bring back memories of the sub-prime mortgage market. If the approach remains the same, with a business-as-usual approach, borderline businesses may need additional documentation of asset worth to qualify for loans.

Beyond any potential changes the new administration may bring, having an equipment appraisal performed on your equipment provides a number of other benefits. It helps provide documentation of equipment values for insurance, financial, legal and tax agency circles, when performed by a certified equipment appraiser. Because the certification process teaches the proper methodologies to use in particular situations, which have been tested over time, the appraisal reports produced by such an appraiser stand up to strong scrutiny. This report could serve as documentation of value to help secure an SBA loan by proving the assets you can already bring to bear for your company. It also helps you back up insurance claims, fight bad property tax assessments or prove asset value from a charitable donation.

Regardless of what changes may be coming to the Small Business Administration with the new administration, equipment appraisals for SBA loan purposes are always a good idea. An equipment appraisal report gives you concrete proof of value for your machinery that will stand up in legal, insurance, tax and financial circles.

If you're preparing to sell a company, odds are you have a lot on your plate. It may seem tempting to streamline the process and skip steps to get the business sold. One step not to skip is a business appraisal that includes equipment values for key business assets. Learn how an appraisal protects you and the business you've worked so hard to build, while ensuring a smooth sales process. 

Why Get a Machinery Valuation Before Selling a Company

A prospective buyer of your business wants to make sure they are getting a good deal. They want to know the business has a convenient location, efficient processes, skilled employees, a loyal customer base, and (last but not least) the right tools for the job. With a business appraisal demonstrating the values of equipment and machinery, you can position the company for a quick sale at a fair price. This often means getting a machinery and equipment appraisal in addition to a business valuation.

In a machinery valuation, an equipment appraiser reviews the business assets. The appraiser researches the value of machinery based on age, condition, "useful life" and other factors. 

The information presented in an appraisal may spell the difference between selling your business quickly and struggling to command offers for your company. Rather than avoid getting an equipment appraisal because you don't want to waste time, consider getting the appraisal to save time and effort. If you have to wade through lowball offers because you didn't properly prepare your business to sell, you'll come to regret it. 

If you get an appraisal when the sale is far off, you can make informed decisions based on their equipment value. For example, you can go ahead with routine maintenance for your tractor or invest in new wheels if these repairs are likely to keep the equipment at a high value. If your tractor is only worth $2,000, and you know you'll be selling the business soon anyway, you can instead use the money you would have spent on maintenance for something that will add more value to your company. 

What to Expect in a Machinery Valuation

When you schedule an appraisal, an appraiser will visit your factory or plant and inventory all equipment. The appraiser will then examine all assets, take photographs, and gather data. They might ask to see service records, which indicate how well the machinery was cared for. For example, an appraiser might review a business vehicle service log or photograph the dented frame of a forklift. The appraiser will then review their findings and compare the age and condition of your equipment with comparable pieces in use elsewhere. Taking all the data into account, the appraiser will then issue a machinery valuation for your business equipment. 

The valuation gives you a starting point when selling the business and helps potential buyers understand the true value of your company. By providing third-party proof of value, an appraisal can make the sales process easier on your end. Potential buyers who do not understand the true value of your business will leave, while those who are serious about investing in your business can make a deal.

Equipment appraisers who are familiar the industry you work in are the best choice to conduct the machine appraisal, since they understand the equipment, processes, and tools. Find equipment appraisers with relevant industry experience and schedule an appraisal ahead of time, so you will not be rushed. This way, you can make decisions without feeling pressured. 

We've all had it happen. Sitting abandoned in a random corner of your facility was a piece of equipment that was worth some serious money, but you didn't realize its value at the time. Alternately, you held on to equipment on the incorrect assumption that it was worth a lot, just to find out that because it was taking up vital production floor space, it's actually been costing you money to keep it. How do you figure out which equipment you should keep and which you should get rid of? It's all part of why understanding fair market value of your equipment is so important. Here are some basics to get you started.

It's worth what? Why understanding fair market value is vital to your company's bottom line

What effect does fair market value have on your business? Why is it important to get an equipment appraisal to know exactly what your equipment is worth? There are a number of reasons for having an equipment valuation specialist perform an appraisal to determine your equipment values. You could be considering selling or donating equipment and need to know what it is worth for a tax deduction. Maybe you've had a fire or disaster at your business that has destroyed some equipment and you need to make an insurance claim. A tax assessor could have made an appraisal that you're not sure is accurate and may cost you more in property taxes than the equipment is actually worth. How do you determine the fair market value of your equipment to ensure you have an accurate picture of what your machinery is worth? 

But why can't you just use your tax documents for these purposes? The value of your machinery in your tax documents is often very inaccurate. A standard depreciation table takes your original machinery cost and removes value over a set period of time. If your equipment happens to fall within that particular time period and becomes unusable or without value at the end of that depreciation period, a standard depreciation table works.

However, when your machinery is used hard and fails before the end of the depreciation period, it will show value that is in excess of what your equipment is actually worth. And almost every business has ancient machinery that still provides reliable service, even though it has been fully depreciated for years, providing value that may not appear on your tax documents.

You could also get an informal equipment appraisals from an equipment dealer, but you need to keep in mind the viewpoint of the dealer. They're there to make money selling equipment, not performing appraisals. They may undervalue your machinery to try to convince you that it doesn't have much value or they may overvalue it to encourage you to use it as a trade in on new machinery. Neither of these situations will provide you with an accurate machine value.

By keeping track of your business' assets and understanding fair market value and its impact on your business, you can ensure that you're holding onto only the equipment that boosts your company's bottom line instead of causing problems down the road. But how do you determine the fair market value of your equipment and track it as situations change? A qualified equipment appraiser can go a lot way to helping you through the process.