Equipment Appraisal Blog | Understanding Machinery Appraisals

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.

When a business is sold, the price you negotiate is based on a wide range of factors, including real estate, anticipated income, goodwill and assets. But how do you determine the equipment values of what you're selling or purchasing? The best method is by allocation of assets, which puts a price tag on everything that is changing ownership, allowing you to document the data and for each items to be depreciated and accounted for it in the business' records. But how is the total price determined and allocated across the business? This is where asset allocation using equipment appraisals can help.

How an Equipment Appraisal Can Help with Allocation of Assets

Whether you're determining the value of your assets or need to break down the price you're paying for a business across its assets, an equipment appraisal can make all the difference. It will look at each individual piece of equipment or groups and document the equipment value for a wide range of purposes. Beyond allocating for tax purposes here are a few additional thoughts:

• Purchase of a business: When you need to set up accounting for a business you've purchased, knowing which portion of the purchase price went into equipment helps you determine the initial values and makes it easier for you to depreciate the value of each piece of equipment based on its expected useful life span.
• Donations to charitable organizations: If you didn't initially set up separate equipment values when you purchased equipment, you may not know what it's worth if you donate it to a charity. Without the needed documentation, it can be difficult to prove value to a tax agency for the price paid versus the value when donated.
• Insurance claims: When you have a loss due to fire, theft, vandalism or other disaster, you need to quickly settle your insurance claim so that you can get back to business as quickly as possible. Unfortunately, without proof of the machinery's value that will stand up to scrutiny, this process can be much longer and more drawn out. Having a valuation report from a certified appraiser makes the process go much more quickly.
• Loan collateral: Whether you're expanding or upgrading your business, or are simply using machinery as collateral for a particular project, being able to document what that collateral is worth makes the process go more smoothly and makes it more likely that you'll be approved for financing.

By getting a quality machinery valuation performed by a certified equipment appraiser, you can document the allocation of assets across a business, ensuring assets can be properly tracked. But don't just go to a local dealership and hope they give you the right numbers, because that can prevent you from fully realizing what your equipment is worth. They may be providing biased numbers to get a trade-in.  A certified equipment appraiser has gone through training in the appropriate methodologies to provide you with an equipment appraisal that will hold up to scrutiny.