Equipment Appraisal Blog | Understanding Machinery Appraisals

Ask any business owner, and they'll tell you that running a business is hard work. When faced with serious financial problems, however, many companies have to make a choice between different types of bankruptcy to get out from underneath the financial burdens of a failing business. Whether the business owner chooses to reorganize under Chapter 11 to try to save the business and turn it around or to completely shut it down under Chapter 7, this type of legal action gives the owner some breathing space to deal with the financial issues while still ensuring that the creditors will also get their fair share of what's left. But what part does equipment appraisals play in the process? Let's find out:

Bankruptcy Alternatives

But before you hire a lawyer and start filling out paperwork, it's important that you consider all the alternatives you have to bankruptcy. One of the first steps to take is to develop a solid set of books for your business, because it will tell you whether or not you need to file bankruptcy or which type you should file. If your accounting has fallen behind because of the problems you've been facing, you'll need to catch it up to ensure you're looking at the right figures. But don't just trust what your tax return says - most tax documents will depreciate your equipment's value on a standardized schedule. A quality equipment appraisal will allow you to determine the exact amount your assets are worth. If they're worth more than you had thought, you may be able to get a line of credit or make some changes to keep your business afloat.

Chapter 11 - Reorganization

If you think that with a little breathing room, you could turn your business around, filing for Chapter 11 could be a good alternative to completely giving up the business. During this type of reorganization process, the business' assets are placed into an estate or trust created by the court, with the business owner having the use of them during the reorganization period. This type of legal set up allows business owners to continue using the equipment for production while still ensuring that the interests of any creditors is also protected by removing legal ownership from the hands of the owner. If you have equipment that is being threatened with repossession which you either have equity in or need to continue production, this action can protect your use of the equipment.

Chapter 7 - Discharge of Debts

If you feel, even after looking at the updated books and machine valuation, that the business is simply not salvageable, a Chapter 7 filing may be the route to take. In this type of action, the business actions are discontinued and a trustee is appointed to ensure the business' assets are liquidated in an orderly fashion to pay any creditors. An accurate machinery valuation helps estimate the value of the machinery assets of your company, helping the trustee determine how much each creditor will receive.

Dealing with bankruptcy is a difficult time for business owners, but it's one that can be made lighter by hiring the right equipment appraiser. If you're still looking for the right company to provide your bankruptcy machine appraisal, please contact us today. At Equipment Appraisal Services, our experienced, certified machinery appraisers are ready to help you document the value of your assets with quality work and a solid methodology.

When you buy a business, it's important to get a business valuation to know what you've purchased. One part of that is to help you develop an allocation of purchase price. But what exactly is a purchase price allocation and how does it affect your new business? Here are the basics of purchase price allocation and what it means for your company.

What is Allocation of Purchase Price?

When a business is purchased, the buyer typically pays a negotiated price that consists of both tangible and intangible assets. The intangible assets include things like goodwill, brand recognition, the current market in that sector and the projected future income of the business. Tangible assets are often considered easier to value, but in fact can have a wide range of values. Purchase price allocation involves assigning a certain amount of the business' sale price to the tangible assets. But why is this a common practice?

When a business is sold, new accounts are set up to cover the business loan and other liabilities, accounts receivable, accounts payable and assets. As the backbone of the business' capital, assets play a very important part in determining whether a business is solvent or operating in the red. Because machinery can be a large part of those assets, knowing what it's worth is vital to setting up the accounts properly, with each machine's valuation being recorded so that depreciation can be counted against the machinery as time passes under the new ownership. Even if a machine has been completely depreciated under the former owner, its value is part of what determines the final price of the business, so knowing the actual value of a machine that has been completely depreciated on a standardized depreciation table is vital to having an accurate picture of the transaction.

Because equipment acquisitions and replacement can have a major impact on your business' overhead and overall profitability, it's important to make sure the equipment value is properly calculated. If it's based on the former owner's completely depreciated value but is still used as a vital part of the daily operations at the business, there will be a lower level of assets in the business, making it hard to take advantage of possible business opportunities that come your way, because you may not be able to get enough credit with undervalued machinery. On the opposite side, if you overestimate your machinery's value, you could be overstating your company's assets and putting your business in a risky situation where you're making an investment that you may not have the assets and capital to cover it if it falls through.

One benefit of machine appraisal that is often left unconsidered is the estimated remaining usable life of a machine. When you're acquiring a new business, you don't necessarily know exactly how long a piece of machinery will last. When an equipment appraiser goes over a machine, he or she can estimate its remaining life so that you can depreciate it over the proper period of time and plan ahead for replacement machinery.

Now that you know the importance of allocation of purchase price in determining equipment values for your business, it's time to look at having a machinery valuation performed on your business' assets.

When you're busy running a business, it's easy to let equipment appraisals fall by the wayside. But there are times when it's really important to make sure you know exactly what your equipment is worth, and some of them may surprise you. Here are some of the most common reasons we see every day for machinery appraisals.

16 Reasons for Equipment Appraisals We See Every Day

1. Allocation of Purchase Price: When someone buys a business, they need to know how much of the purchase price went towards the equipment, so they can set up asset records, schedules for depreciation or other records needed.
2. Bankruptcy: Do you know what kind of valuation you need in a bankruptcy? There are many different valuations used depending on the circumstances and a good equipment appraiser will know which one to use.
3. Condemnation: When eminent domain is invoked for a property, fair market value must be established for any equipment that is on site. A qualified equipment appraiser will know what type of fair market value should be used in your particular circumstances.
4. Dissolution of Corporation: When business planning happens, it's easy to ignore what happens if the company is dissolved. An equipment valuation ensures the shareholders get a fair share of the business value.
5. Dissolution of Partnership: Whether it's retirement, redirecting or just calling it quits, the dissolution of a partnership can be difficult enough before arguing over who gets what.
6. Dissolution of Marriage: Divorce is almost always messy. Most of the time, it's easier to have a third party determine the value of a business so a fair and equitable price can be determined.
7. Getting Financing: When it comes to bank financing for the potential purchase of equipment, you need to prove what your business is worth to get a line of credit, and an equipment appraisal will go a long way towards putting that in place.
8. Insurance Purposes: When your business is paying for insurance, you want to make sure all your equipment is covered for its actual value. If it isn't, you may find yourself on the short end of the stick during an insurance loss.
9. Loss Settlement: Speaking of insurance, when you do have a loss, can you prove what your equipment was worth? Having documentation available to prove the equipment's value goes a long way in an insurance loss settlement.
10. Leasing Equipment: When you're leasing equipment there may be a clause that you can buy the equipment at the end.  You will often need to find its value at this point to make a smart decision.
11. Management Considerations: When should you sell that old equipment and upgrade your production? Is it worth repairing that machine again or is it time to chuck it? Knowing your machinery's value helps with important decisions.
12. Import and Export Documentation: How do you prove the value of that new machinery from mainland China? An equipment appraisal helps prove what your equipment is actually worth, especially when customs is suspicious of the label with the $5 value on it that your supplier so helpfully wrote down.
13. Taxation - Income Tax: What do you do when your machinery is used in a high-wear environment and the IRS depreciation tables provide too high a value? An appraisal gives you documentation of your equipment's actual value.
14. Taxation - Property Tax: Personal property taxes can be a pain, but a high assessment is a seriously unpleasant surprise. A certified machinery valuation helps you fight an inaccurate assessment.
15. Taxation - Estate and Gift Taxes: When you pass your business on to the next generation, have you accounted for gift or estate taxes? Documenting equipment value helps ensure your legacy won't go to Uncle Sam.
16. Charitable Contributions: When it's time to make donations, how do you document the value of the equipment you've donated? Documentation of donations is required by the IRS for tangible asset donations that exceed $5,000.

As mentioned previously, all these reasons are ones we see commonly in our business. Have you had the opportunity to have a machinery valuation performed by a qualified equipment appraiser?

Oops! When you've made a donation, are involved in litigation or have had an insurance loss, there's nothing quite as concerning as realizing that you needed to have equipment appraisals performed after the fact. How do you fix this problem? In this article, we'll discuss retrospective appraisals and how they can help you get the documentation you need to fix these troublesome problems. Here's how:

Documenting Donations

One of the most common areas where retrospective appraisals are used is in donations to non-profit or not-for-profit organizations that were not properly documented at the time. Especially when you're looking at taking a tax break for the donation, you need to have documentation to take the deduction. If the documentation was not prepared at the time of the donation by an equipment appraiser, it can be really difficult to otherwise prove the value of the equipment you donated. But at the end of your business year, your accountant informs you that they need you to provide supporting documentation for your donation. If you're stuck in this bind, you can still save the deduction by having a retrospective equipment valuation performed by a qualified machinery appraiser.

Proving Litigation

Another area where retrospective valuation can come into play is in litigation. One example of this is when going through a divorce where you need to buy out your spouse's interest in the business or prove that you're not hiding assets. Your spouse  may claim that you're undervaluing equipment that you've sold to keep things solvent while the transition is underway, because they want to get everything they can out of the buy out. A retrospective equipment valuation helps prove that your equipment was worth a particular amount prior to being sold, documenting that you were not hiding or undervaluing business assets.

Insurance Loss

When you've suffered a loss that sets your business back, it's upsetting when you realize you don't have documentation of your equipment values. Whether you're dealing with the fallout of a storm, a fire or a theft, documenting the value of your equipment is a vital part of the claim process. If you didn't have a machinery valuation performed ahead of time, you may be having a difficult time proving what the equipment was actually worth, especially when the equipment was customized or has unusual features that your insurance adjustor isn't familiar with. A retrospective machine appraisal helps prove the exact value of the machinery when the loss took place.

Tax Issues

What about when you're dealing with a tax agency? Equipment can lose value quickly at times, especially if it is in a struggling industry or when technology quickly changes. When a tax appraiser doesn't have a solid grip on the value of the machinery you own and just uses accounting depreciation, it's difficult to prove your side of the appeal without documentation. A retrospective valuation helps prove that the machinery was worth looking at market conditions, the condition of the equipment and similar elements that affect your machinery's final value.

If you find yourself needing to do the time warp to prove equipment values, a retrospective equipment appraisal can help document past value. At Equipment Appraisal Services, our job is helping you document equipment values, even after the fact. Please contact us today for help with your retrospective machine appraisal.

When you think of machinery appraisals, you probably imagine a qualified equipment appraiser coming out to your facility, examining your equipment in person, and delivering a machinery valuation based on the in-person visit. You know that online machinery valuations are an option, but can't help worrying whether they are a good substitute for the in-person visit when accurate equipment values are needed. We at Equipment Appraisal Services offer online appraisals along with in-person appraisals. We have put together our thoughts on online appraisals to inform you what to expect when getting equipment appraised online and help you make the right decision for your needs. 

What to Expect With an Online Appraisal 

The online appraisal process is similar to the in-person appraisal process. In a typical online equipment appraisal, the appraiser will ask for the make, model, and serial number of the equipment. Since the appraisal cannot examine the equipment in person, he or she will request pictures or video that show the equipment's condition in detail. This is something many equipment appraisers do in person anyway, since they finish the appraisal offsite. The client will provide some additional information regarding condition, repairs, or rebuilds.  Mileage and hours will also be requested.

You may be expected to provide the appraiser with maintenance reports, service logs, upgrades, or any other written material you have that would help the appraiser determine the appropriate equipment values, just as you would in an onsite equipment appraisal. The appraiser will tell you what paperwork they need to see in advance of the appraisal, so you can gather and send all the relevant documentation. 

The appraiser will then review the information that you provided and perform their own research to determine machinery value. Finally, the appraiser will write up a report (which notes the appraisal was performed as a desktop appraisal) that sets out all findings. 

Knowing what happens during an online appraisal can set your mind at ease if there are no local machinery appraisal experts near you. It can also help you make the right choice for your appraisal needs. When you need an appraisal done quickly, an online machinery valuation firm may be your best bet if local appraisers are unable to fit you in.

Ultimately, both in-person and online equipment appraisals can work well. The key here is selecting an appraisal specialist who is properly qualified and will deliver an appraisal report that is consistent with the Uniform Standards of Professional Appraisal Practice (USPAP). If the report you receive is not USPAP compliant, it will not hold up in court or under IRS scrutiny. 

We at Equipment Appraisal Services perform desktop appraisals of equipment and machinery als well as on-site appraisals. Each of our appraisals is prepared by a qualified machine appraiser, then assembled and reviewed by one of our accredited appraisers in Machinery & Technical Specialties. All of our online appraisals are USPAP compliant and therefore guaranteed to hold up to IRS, legal, or financial review. 

Whether you decide to hire an in-person appraiser or an online equipment valuation firm, the appraiser should be able to discuss the valuation process with you beforehand. He or she should answer any questions you have, and set your expectations for the time frame, process, and appraisal report. 

We would be happy to discuss your online equipment appraisal needs, and give you a quote for the appraisal, in a phone call. To learn more, call us at (888) 343-9335.