Equipment Appraisal Blog | Understanding Machinery Appraisals

When you're trying to develop a solid asset risk management approach for your company, it can seem as though you're facing more numbers and possibilities than ever. But have you considered incorporating your equipment appraisals into your process? Machinery valuation provides you with a range of information on your assets to help you decide how to best protect them. Here's how:

How to Incorporate Equipment Appraisal in Asset Risk Management

Risk management, by definition, is restricting the amount of risk you're subjecting yourself to, either personally or professionally. Asset risk management is an extension of that. Though it's a somewhat involved process, it helps mitigate risk to your business' assets, including your equipment. 

To determine how much money you're risking with specific operations, it's important to start by knowing how much your equipment is worth. Another area of knowledge you should keep in mind is the equipment's expected useful remaining lifespan. As an example, let's look at the value of a few different machines:

• A new bulldozer that is financed and is costing the company a significant portion of their monthly income.
• An older extruding machine that has been fully depreciated, but is expected to continue working for many more years to come.
• An old metal lathe that still has some value but is nearing the end of its life cycle.

In these examples, you'd want to take very few risks with the bulldozer and moderate risks with the other two. Why would you worry about risks to a fully depreciated or worn out machine? Because the value they may still possess. It's much easier to guess at the value of the bulldozer, but the extruding machine may have value in its production role. The metal lathe may still have value if it's sold to pay off part of a piece of replacement machinery.

But with the two older machines, how do you determine value? This is one of the areas where equipment appraisal can be an extremely valuable tool to determining the equipment's exposure to risk and your overall asset portfolio. We've all seen equipment that has been fully depreciated using a standardized tax table, but continues to contribute to your business' profitability, whether it's an older spray foam truck, ancient table saw that just keeps going or an aging computer system that runs your ready mix plant.

When an equipment appraisal is performed by a certified appraiser, they use a range of methodologies that have been proven in legal, insurance, tax and financial industries. Because they deal with equipment on a daily basis, they're able to look at exactly what the equipment is, how widely it's used in other industries, the expected usable life span remaining and market conditions to calculate the exact equipment value. Though it may be more or less than what you see machinery sell for, the appraisal numbers will hold up because of the standardized calculations used by professional appraisers.

When you take the time to incorporate your equipment appraisal report into your asset risk management process, you'll quickly see results that help improve your company's overhead and profitability. Make sure the equipment appraiser you're working with is certified, to ensure you're getting a quality report that gives you a fair value for your assets, then use that information to build a better approach to risk management in your company.

Your equipment is only as valuable as its appraised value, whether you're trying to sell a crane at auction, write off a business purchase on your taxes, or estimate the value of equipment damage. Learn 5 things to look for when selecting a crane appraisal firm or individual who can accurately value your crane. 

1.  ASA certification 

It's always important to make sure that any appraiser you select is certified by the American Society of Appraisers or ASA. The ASA offers a Machinery & Technical Specialties (MTS) designation, which denotes appraisers with particular knowledge of machinery and heavy equipment. When you're getting a crane appraised, look for an appraiser with this designation to enjoy full confidence you're getting an expert on cranes. Additionally, consider an appraiser who belongs to the Association of Machinery and Equipment Appraisers or a comparable organization. Membership in this organization suggests both firsthand knowledge of heavy equipment and professional expertise in its appraisal. 

2. Knowledge of heavy equipment

Appraisers specialize in different industries and items. You wouldn't approach a rare books appraiser and expect them to provide an accurate value for your construction crane or vice versa. Never compromise on this point: To obtain a useful value, whether you want to sell your crane or make an insurance claim for damage, you need an appraiser who understands the value of your equipment via firsthand knowledge of cranes like yours. If you hire a general appraiser, they may be able to run an internet search or check in a book to provide a rough estimate of value. However, they cannot accurately account for the value of specific attachments or assess the impact of damage on the crane's utility. 

3. Knowledge of the industry

In addition to hiring an appraiser who really knows cranes, it's smart to hire someone who accurately understands your industry. Like real estate, any commodity is only as hot as the market at the time you want to sell. If the construction industry is in a slump, your crane will find few buyers at auction. You may need to sell for less to get rid of the equipment, or hang onto the old machinery until circumstances approve. An experienced appraiser can walk you through the market, industry and timing as they pertain to equipment value. 

4. Solid network of contacts 

You'll realize the biggest benefit if you hire an appraiser who has a rich network. Whether you need to sell the crane quickly at auction or get damaged equipment serviced, a highly connected appraiser can refer you to the right people. This may make all the difference between selecting an auction house that specialize in heavy equipment -- where your crane will go fast and for a fair price -- and ending up with a bad fit where you don't get the results you seek. 

5. Strong communications skills 

After all the above criteria have been satisfied, select an appraiser who has demonstrated strong communications skills. It's important to get an accurate appraisal, but it's also beneficial that you comprehend why your crane has a certain value and what factors affect this value. This way, you can understand what maintenance tasks are vital if you wish to sell the crane. An appraiser with good communication skills will be able to break down this information for you in clear language, so you know your next steps. 

Once you've found someone who meets all 5 criteria, you can schedule your appraisal with confidence. 

If you spend any time looking at the news, you're probably noticing the same thing we are - the more the news says, the more uncertain the market looks. How do you make smart business decisions when the market seems to be in a constant state of flux? Surprisingly, an industrial equipment appraisal may help. But how does knowing the value of your industrial equipment help your business get through these changes in the market? We thought you'd never ask:

Weather market changes with an industrial equipment appraisal

• A poor economy tends to cause a related rise in crime. Having an equipment appraisal helps ensure that you can recover the full value of your equipment from your insurance company when you have a theft at your business.
• A poor economy also increases the number of people who are homeless. We've all heard horror stories about a squatter's fire getting out of control and burning down any number of buildings in the area. A machinery valuation can prove the value of your equipment even if it isn't performed until after a loss.
• Of course, a good economy means governments want to raise taxes. Have you ever received a property tax assessment that was so high as to be completely ridiculous? A machinery appraisal proves the value of the machinery using standardized methodologies that have stood the test of time.
• Tax increases also provide the opportunity for tax deductions when you donate your industrial machinery to a worthy cause. But how do you know how much the donation is worth? Having an appraisal performed provides rock solid documentation of the value of the equipment you've donated.
• Are you considering expanding your business? When the economy was doing poorly when the housing bubble burst, new regulations came into effect to tighten access to business loans. Having your equipment valued provides you with documentation so you can use your equipment - and only the right amount of equipment - as collateral to secure a loan for expansion.
• When the economy is recovering, it's very tempting to upgrade your industrial machinery so you can increase production, improve quality and similar concerns. When you have a machinery appraisal, you know exactly what you can get for your old equipment to help finance the purchase of the upgraded machinery.
• If you're ready to expand your business but have sticker shock over the cost of new equipment, have you looked at used machinery? Having an equipment appraisal on a used piece of machinery ensures you'll know what kind of conditions the equipment is in and won't have any nasty surprises.

Whatever happens with the market and economy, having an industrial equipment appraisal can help you keep your business running smoothly. But where should that appraisal come from? Though you could get a quote from a local dealer, their focus is selling you equipment, which will color their appraisal. They may say your equipment isn't worth much or that it's worth far more than you think it should because they want it as a trade-in. You could look in the local paper, but unless there's another business in the area selling the same equipment you are, it's not going to be an accurate assessment either. Using a certified equipment appraiser ensures that you'll receive an appraisal report that will stand up to scrutiny in legal, financial and insurance circles.

As President Trump has come into office, he's made some promises to America. Part of those promises includes a proposal for spending $1 trillion to update the US infrastructure to help boost jobs, businesses and trade. But how will this proposal impact your business? How can a paving equipment appraisal help ensure you're in a good position to take advantage of the potential growth that may come out of this initiative? Here are a few areas to consider that can help you get your business off on the right foot with these prospective spending proposals.

Infrastructure Upgrades: How a Paving Equipment Appraisal Helps

What shape is your equipment in? What is it worth? Are there better options you should be considering? What will it cost to replace that equipment? As infrastructure plans begin rolling forward, whether it's originating from President Trump's $1 trillion initiative or smaller projects, this information is vital to the success or failure of your business. Why?

If you're considering splitting your crew and building your business through multiple highway contracts, you'll need equity to secure loans for additional equipment. Your financial institution will need assurances that the machinery you're using for collateral is really worth the money they're loaning out against it. An equipment appraisal report prepared by a certified machinery appraiser uses methodologies that have been tested in the court system for decades, so they are viewed as accurate in financial circles.

What if you have an equipment failure while traffic is backed up through a construction zone or you're required to meet particular time constraints for the contract? Because an equipment appraiser spends significant amounts of time combing through paving equipment, they often recognize signs of trouble well before they would otherwise become apparent. This allows you to undertake repairs or replace the equipment before it turns into a logistical nightmare on the side of a highway.

Have there been issues of equipment theft or vandalism in your area? When you receive a paving equipment valuation, you have documentation that holds up well against scrutiny, making it ideal when you need to quickly settle an insurance claim. But what about if the vandalism or theft has already taken place? Many equipment appraisers are able to retroactively value machinery to help businesses settle an insurance claim, even without a prior record of valuation.

But what if you already have a machinery valuation in place? Though it may reflect the equipment values of the past few years, there's a good chance it won't reflect current market conditions. As infrastructure jobs become more common, that equipment's value will rise. A piece of machinery that was worth $35,000 last year may be worth $50,000 next year as scarcity and demand increases its value significantly. Wouldn't you rather know what your machinery is really worth now than what it was worth during the worst parts of the recession?

Spending $1 trillion on infrastructure may seem like a large amount, but when it comes to winning highway contracts, you know that every penny counts. Every difference in supply prices, every minute spent waiting for your crew to get in gear and every penny spent on rental equipment because you've had a break down can quickly eat into your profits, turning a highly profitable highway job into a nightmare that sinks your business. Having a paving equipment appraisal performed on your machinery can make all the difference between these two states.

When you work in manufacturing, you know that customer trends and sales can be fickle at times. With the continued economic recovery, many businesses are seeing new growth, but many businesses are unsure how to respond to that growth after the depth of the last recession. How do you figure out when it's time to ramp up production and what assets you have available when it's time to invest in additional equipment, manpower or materials? Here's a quick look at how a manufacturing equipment appraisal can help the process along.

Ramp up production with a manufacturing equipment appraisal

When the market starts to shift in your company's favor, it's very tempting to purchase new equipment, upgrade your existing equipment or expand your operation for additional production. But which one is the right choice for your situation? One way to gain more insight into the issue is by having an equipment appraisal performed.

Equipment appraisals do more than simply determine the value of the machinery, though that in and of itself can be very helpful information. An experienced equipment appraiser looks at a number of factors when valuing machinery which gives you additional insight into when you should expand operations, when you should replace equipment and when simple upgrades may make the most sense. 

One area the appraiser looks at is the machinery's overall condition. Because an experienced appraiser spends time every day looking at equipment, they have a good feel for when the equipment is getting ready to fail. For this reason, they can often determine how much longer the machinery will function, also known as expected useful lifespan. If your machinery is at the end of its lifespan, you may want to replace it. If you have equipment that is fairly new but has been poorly maintained, that will impact the expected useful lifespan of that piece of machinery. If on the other hand, the ancient but well-maintained extruder you have is still in excellent condition, the appraiser may recommend you keep it in production for the foreseeable future.

Another area that is looked into is the market. Experienced appraisers have often seen the market for your sector go through changes. This allows them to estimate the value of your machinery based on market projections. They may be able to share those insights with you, saving you the expense of expanding your operations just in time for the market to downturn, leaving you with machinery that has quickly devalued with the market slowdown. If the market is expected to continue doing well for a period of time, you may be able to replace or upgrade your equipment to allow for faster or more economical production, or simply expand your production to take advantage of the steady nature of the current market.

The US economy seems to be in a solid state of recovery, with growth turning into manufacturer's higher profits. When you get a manufacturing equipment appraisal, you have the opportunity to learn a great deal about the condition and value of one of your business' biggest asset pools: your production machinery. By learning this information, you can quickly leverage that knowledge to decide whether you need to upgrade, replace or expand particular types of equipment to boost sales and profitability. The benefits of equipment appraisal give you valuable insights that help you manage your business more efficiently and with greater flexibility than ever before.