Equipment Appraisal Blog | Understanding Machinery Appraisals

When it has been determined by you and your equipment appraiser that a personal site visit will be part of the overall valuation effort, there will be a few things to plan for ahead of time as well as during the inspection to ensure an efficient and effective process. Here are the two most critical items to prepare before the appraiser arrives.

Preliminary Asset Records

For an appraiser to quote a valuation project, they will require an understanding of the asset content of your business. If there are only a handful of assets involved, creating an updated detailed listing of the equipment is feasible. If, however, a complete facility appraisal is in order, involving dozens of items, this option will be very time-consuming.

The most common source of documentation immediately available to you will likely come from your accounting department in the form of a capitalized asset depreciation record. This is a good place to start, however, many companies don’t detail all their equipment on this listing and tend to abbreviate descriptions. The three most important components the listing provides to the appraiser is the asset type, year acquired, and acquisition cost. Once on-site the appraiser can work with you during the inspection to fill in the remaining details and add unlisted equipment as necessary.

Scheduling the Site Visit Inspections

Depending on the reason the appraisal is needed, and the type of equipment being valued, the coordination of the inspection process can be a bit tricky.

If the company is being sold or acquired, employees may not be aware of the situation and may become concerned over why an appraiser is spending the day walking around the facility and taking a lot of photographs. There are a couple of options to consider in an effort to alleviate these concerns. The first is to provide an explanation to your employees that supports the reason an appraiser is on site. The most common ones I see used by business owners are that their insurance company or financial institution they utilize requires this as part of a general compliance audit.

The second option is to complete the inspections after hours or on a weekend when the facility is closed. This option also works well when transportation equipment is involved, such as delivery trucks and trailers. These assets are usually on the road during normal hours and will be stored on-site at night and on the weekends, creating a convenient time to complete the work in a timely fashion.

In summary, ensure you engage with an accredited, experienced appraiser, who is familiar with the steps involved and can assist and suggest the best way to move forward seamlessly. A seasoned machinery & equipment appraiser has been through this process many times and will become an asset to you and your business as you work through the sensitivities involved with an on-site appraisal.

Image source: Compactor. (2023, April 10). In Wikipedia. https://en.wikipedia.org/wiki/Compactor

Whether you own a company or are invested in the business as a principal, financial institution, or related third party, there may come a time when you need to liquidate some or all of the assets associated with the operation. Liquidation is a somewhat more ominous word for resale, typically where there is an urgency to sell the assets or that those individuals involved are not in the business of selling equipment.

As an appraiser, we are asked about this issue quite often, regarding the best approach and realistically what to expect when entering these unfamiliar waters. No single answer covers every situation, however, there are guidelines that can assist the reseller/liquidator who lacks any prior experience in this area.

If your business is reducing operations, or shutting down altogether, and the company owns considerable equipment and personal property, it is important to plan for a liquidation far in advance, where personnel remains available to aid in maintaining the condition of the equipment and can assist in showing the machinery to purchasers.

This will provide opportunities to arrange for the sale of your assets ahead of the actual closure, and allow buyers to preview them while still in operation. In an ideal world, you could effectively sell the assets as part of an ongoing business enterprise, however, if the company can’t sustain profitability, a more realistic scenario would be to locate competitors and other end users who will pay fair market value, based on the machinery remaining in good operable condition until sold.

If neither of these options is feasible, then a comprehensive liquidation effort should take place to realize an orderly (private sale) or forced (auction) liquidation value in a timely fashion.

Communication and timeliness are crucial in a liquidation effort, as the longer it takes to formulate a game plan and ultimately sell the assets, the less value will be realized. If equipment has been neglected for months and begins to fall into poor condition, buyers will no longer be comfortable offering a fair price. It is critical that the assets continue to be maintained, even after they cease operating. Hiring a mechanic to start and run the equipment on a weekly or bi-monthly basis is important to maintaining the condition.

Hiring a private reseller or an auction company who can coordinate the sale of the assets is a good option to complete the liquidation. An experienced third party will oversee the resale effort, while managing the logistics of the sale, including the security of the location, completing minor repairs, and creating a marketing campaign. This will increase the odds of a successful disposition where you pay a commission based on the sale price.

Regardless of the scenario you face, it is important to plan ahead and spend the time and resources needed to maintain the condition of the equipment, leading to a successful outcome in an otherwise difficult situation.

We have all seen or heard about the recent economic trends which have led to significant reductions to interest rates across broad spectrums of the consumer and business markets. The thought has likely crossed your mind to take advantage of these low rates when considering new equipment and personal property investments.

What about the existing capitalized assets you have owned for a few years and continue to work every day for your business? It might be time to look at refinancing options and take advantage of these low-interest rates before the markets start turning in the opposite direction.

Refinancing has several advantages to business owners who have considerable amounts of owned machinery & equipment. The two most significant are (a) the potential to lower your monthly debt payments where you have existing higher rate loans, and (b) the ability to access working capital based on the equity in your assets.

It is important to review your current debt structure and determine if existing loans can be restructured without a significant pre-payment penalty. Working with your present financial institutions should be a primary choice as they can often pre-approve your credit-based upon past transactions, and waive any penalties, provided you keep your business with them. Typically, pre-payment penalties expire after a couple of years, however, so be sure to read your loan contracts to better understand the terms and conditions.

The equity in your machinery &apm; equipment can be tapped if you have no or low debt obligations, and the cash can be used to inject working capital into your business, which then can be used for any number of new projects or growth plans. These assets have been capitalized and depreciated significantly on your books, however, their actual market value will likely be much higher.

To take advantage of this equity and support your assets’ current value, you should consider engaging an accredited, experienced machinery & equipment appraiser, who will complete a desktop or on-site valuation of your company’s tangible property. The appraiser will facilitate the process for you and suggest certain options that make the most sense in the context of your particular business and overall goals.

If you believe now is finally the time to start taking advantage of these favorable market conditions and low-interest rates, start taking these steps to make your financing plans a reality.

By now, most people are aware of the supply chain crisis and its impact on many parts of our lives, both personal and business. Facing some of the worst of these issues are international importers and exporters who are experiencing unprecedented increases in product costs associated with purchasing, shipping, handling, and significant delivery delays.

From an appraiser's perspective, questions have arisen regarding the impact of this global problem when it comes to valuing the equipment, personal property, and inventory of the assets for these businesses.

Historically, appraisers have largely been engaged to assist in the customs process, which requires an appraisal on property being shipped overseas. While valuation companies are still involved in this area, the overall marketplace and the effects on both new and used machinery & equipment, as well as how long this crisis might persist, is the more prevalent topic today.

Supply chain issues are affecting other businesses on varying levels as well. A good example is the automotive industry. The new vehicle shortage they are experiencing has led to a sharp increase in prices for both new and used cars and trucks. Delivery delays are also causing significant price increases at grocery stores, furniture retailers, building construction firms, manufacturing companies, and others.

When valuing machinery & equipment in these markets and industries, an appraiser will research and analyze each situation, and determine a reasonable approach to measuring this impact, especially if they believe these supply chain issues are going to continue well into the coming year. Given the uniqueness of this situation, this will likely involve a subjective opinion from the appraiser based on the information uncovered, the level of change from more normal conditions, and the short or long-term effects this will have on the market and the assets involved.

When the need for an appraisal occurs in your import or export business, ensure that you engage with an accredited or certified valuation expert with the experience required to deliver reasonable and supportable opinions.

It may be an anomaly brought about, in part, by the pandemic, or it might just be a coincidence. The fact is that we are seeing a lot more divorce cases happening in 2021 than in previous years. As a result, requests for valuation services in this arena have been on the rise.

Equipment and business appraisers have been busy working with divorce attorneys and their clients, as the age-old dispute between separated spouses revolves around a fair separation of assets. When both parties are co-owners in a business, there is going to be a need for an independent appraisal from an experienced valuation firm, which can look to assist in facilitating a settlement. If the shared business includes significant tangible assets, such as construction and manufacturing machinery, trucks and trailers, or any type of personal property, the need for an accredited machinery and equipment appraisal will be important. A certified business appraiser will then consider these tangible values in their overall analysis.

Appraisers act as unbiased neutral parties, providing a fair market value for your equipment and associated business. The intention is to put to rest the concerns either party may have in regard to prior assumptions or discussions on their company’s worth.

In certain cases, both sides in the divorce will engage their own appraisers with the potential for arbitration or litigation to determine the most credible report or allow consideration to both valuations if they are not too far apart. Regardless of the circumstances, it is important to engage with an accredited or certified appraiser with the experience and credentials to effectively assist in the process.

If the business is still operating and in decent financial shape, the Fair Market Value of the assets would be the appropriate measurement level. If the company has been recently idle, or there are plans to close up shop in the very near future, a liquidation premise may need consideration. Ideally, both parties are on the same page with the overall process, however, if this is not the case, the party who engaged the experienced appraiser should have an advantage in the ongoing proceedings.

Understanding all that is involved during a divorce, including the need for an accredited or certified equipment appraisal can ensure you are receiving the best settlement possible.