Equipment Appraisal Blog | Understanding Machinery Appraisals

Whether your business is moving up a floor or downtown, your business assets can easily become lost or damaged during a move. Tangible personal property appraisals can protect your possessions from moving-related loss or damage. Learn what these appraisals are and why you should have an equipment appraiser perform a tangible personal property appraisal before a business move. 

What is a Tangible Personal Property Appraisal?

Originally a tax term, "tangible personal property" refers to any piece of property that can be picked up and moved. Your reception area furniture, business printers, and specialized tools all count as tangible personal property. Appraising tangible personal property can set equipment values for insurance purposes, depreciation, and amortization.

While any piece of tangible personal property can be appraised, it may not make financial sense to have a machine appraisal done for every item your business owns. An equipment appraiser can focus on setting the value of costly pieces of equipment, machinery, and furniture over inexpensive items like office decor or hardware.

While there are many use cases for hiring an equipment appraiser, a move is an often overlooked reason to have tangible business property appraised. 

Why to Hire an Appraiser Before a Move 

If you are working with a moving company on your upcoming relocation, they probably offer liability coverage to protect them from damaging or losing your items during the move. One of the biggest mistakes you can make is trusting that this coverage will be sufficient to protect your property. This type of insurance typically covers your things by weight, assessed value, or so-called replacement value of your items. Weight coverage values could be as low as $0.30 to $0.60 per pound, Allstate reports. In a worst-case scenario, a mover could misplace an expensive yet lightweight piece of optometry equipment and only have to reimburse your business $1.

If the loss of equipment would cause a disruption to your business and paying out of pocket to replace it would cause financial hardship, then we strongly recommend that you have a machine appraisal of your tangible personal property before your move. 

The appraiser will value your equipment, so you know exactly how much your fair market value your machinery commands. The appraiser can tell you how much it might cost to replace the optometry tool with a tool of similar value. 

Once you have the appraisal report, you can reach out to your business insurance provider and discuss covering your business assets for the purpose of the move. If something is lost, your claim will be subject to the deductible on your policy but otherwise you will receive money from your insurer to cover the cost of repairing or replacing your equipment. 

Before they can cover a claim, insurance companies want an outside opinion regarding the value of your equipment. When you have already done a machinery valuation, you can send them a copy of your appraisal report that certifies your equipment has a particular value. Getting the tangible personal property appraisal ahead of time protects your assets in case something goes wrong and gives you peace of mind during a highly stressful business move. 

Take the extra step now to protect your business assets with a personal property appraisal. Even if nothing goes wrong in the move, you will be glad to know that vital business assets are protected to their full market value.

When you run a business, there's always some risk to your investment. Being a wise business owner means you know how to recognize those concerns and how much of a risk they pose to your company. Though many business owners discount the value of shop equipment appraisal, it can be vital to your business' success or failure. Here are details on how that happens:

How Shop Equipment Appraisal Protects Your Investment 

• Providing documentation of value: If you need to document the value of your machinery, whether for financial documents, a loan to expand your operations or to disprove a high property tax assessment, a machinery valuation prepared by a certified equipment appraiser serves as legal proof of the value of your workshop equipment. Because a certified appraiser uses recognized, accredited methodology to calculate the equipment values, it will stand up to strong scrutiny from virtually any source, making it much easier to bring negotiations around to the actual value of your business and equipment, saving you time, effort and money in the process.
• Ensuring appropriate insurance coverage: When your business suffers a loss, whether it's from a fire, a natural disaster or a theft, your insurance company will require you to provide proof of value. The problem is that many businesses aren't sure of the value of their machinery at the time of a loss, due to changes in market conditions, depreciation and similar issues that are often dealt with in equipment appraisals. An equipment appraisal also ensures that you're carrying the appropriate level of insurance on your workshop equipment. If you have an appraisal from a certified equipment valuation specialist, it provides legal proof of value, minimizing the chance that you'll have to take your insurance company to court to collect the proper valuation on a loss.
• Ensuring correct depreciation: Many bookkeepers and tax accountants only depreciate your shop equipment and other depreciable business assets based on the federal tax code's schedule of depreciation. But what if your equipment is being heavily used and is no longer worth the amount shown on the depreciation schedule? On the other side of the coin, if you've spent good money investing in and maintaining quality shop equipment, it may be worth significantly more than the depreciated value, which is very important to the asset side of your balance sheet when you need to get a load for expansion, to prove value when selling equipment or for other business transactions.
• Helps protect against unexpected early machine failures: Part of the equipment appraisal process is estimating the expected lifespan of machinery. Though most appraisers can do a fair job of estimating this figure, equipment valuation specialists who work primarily on industrial equipment are far better at this than most. Because they deal with machinery on a daily basis, they can help you determine how much longer the equipment you have is estimated to last, making it much easier for you to start making plans to replace it when the time comes. Though this figure is not set in stone, it is a good gauge to help you plan for your business future expenses.

By having a shop equipment appraisal performed on your workshop machinery, you can ensure that your investment in your business is protected, no matter the exact risk at hand.

When we think about depreciation of an asset, we typically think about it based on a percentage, such as is used in tax accounting. But companies that have looked at equipment values over the years realize that a piece of machinery that has been fully depreciated on your taxes still has significant value in your business operation and can cost a lot of money to replace. In equipment appraisals, physical deterioration is a much more commonly used form of depreciation. Here's why:

How physical Deterioration is different than percentage-based depreciation

Because machinery varies so much in terms of lifespan, durability and reliability, it became much easier for the Internal Revenue Service to simply determine a set number of years over which a piece of equipment is appraised. But in reality, equipment that is well cared for may last many years, if not decades, beyond the point that it has been fully depreciated. By having a machinery valuation performed by a qualified equipment appraiser, you have a record of the equipment's actual value instead of what the IRS thinks it's worth.

Why physical Deterioration provides a better estimate of business assets

By comparison, a physical deterioration using the age/life ratio provides you with the best possible documentation that will hold up in financial, legal, insurance and tax office circles. If you  need financing for your latest project, being able to prove the value of all your assets beyond what's listed on your tax return helps you secure it. If you're dealing with a legal headache, you can document the condition of your machinery, proving that its not, in fact, worthless as the other side may contest. If you suffer a serious loss in your business, whether due to a fire, natural disaster or vandalism, you can prove the equipment values of replacing the equipment through your insurance company without any doubt as to the accuracy of the report.

But what about the flip side of the coin? If your equipment is losing value faster than the IRS depreciation tables, a quality machine appraisal provides you with quality evidence that you need to depreciate it more quickly. This can also hold true in terms of property taxes, where you may end up having to appeal your tax assessment because of a high appraisal that was performed based on standardized depreciation rates. A proper equipment valuation provides legal documentation of the equipment's actual value, allowing you to have your taxes lowered based on the lower appraised value and lowering your overhead.

By keeping track of your actual machine values through a quality machine appraisal, it's much easier to document the replacement value when you need it most. If you haven't found a company to perform a quality machinery valuation on your equipment, you could be leaving money on the table when it comes time for insurance policy renewal, financing for a big project or expansion or a property tax appeal.

When you have an auto shop, you know the kind of machinery you're using on a regular basis. But are you familiar with other types of machinery that is outside of your area of expertise? Are there machines that could make your job easier and your shop more efficient? In this guide, we'll cover a variety of machinery that we commonly see in automotive equipment appraisal practice.

Automotive Equipment Appraisal: Common Types of Machinery 

Lifts

Lifts help you move the vehicle you're servicing overhead for easier access.

• Two-Post Lifts: The industry standard, two-post lifts typically have a pair of horizontal posts that come out of each vertical post, allowing the vehicle to be supported in the optimal position and leaving the wheel, suspension and brake systems easily accessible.
• Four-Post Lifts: For jobs where you want a little more security and stability, a four-post lift is essentially a pair of extended ramps the vehicle is driven onto, which are then hoisted on the four corner posts. Though great for accessing the bottom of the vehicle, they don't work tire, brake and suspension work.
• Scissors Lifts: If you have headroom issues in your shop, scissors lifts give you additional under-vehicle clearance without taking the vehicle very far off the ground. The scissors action can create moving pinch points, so it's important to be aware of this issue.

Tire and Alignment Machines

• Tire Changers: Either sold separately or as part of a combination machine with a wheel balancer, tire changers are essential for fast tire changes, allowing the tire to be quickly removed from and remounted on the rim.
• Wheel Balancers: A tire balancer, either as a solo machine or as part of a combination, is another shop necessity if you deal with tires on a regular basis. They provide fast feedback as to where and to what extent weights are needed to balance the wheel.
• Alignment Machines: Often an expensive proposition, an alignment machine allows you to fine tune a vehicle's alignment. The vehicle is placed on the machine and the difference between the tires and the steering wheel help provide instant feedback for adjusting the alignment.

Auto Body Equipment

• Frame Machines: If you're into body repair, frame machines are vital to getting someone's wreck back on the road again quickly and safely.
• Paint Booths: To help contain the spread of paint and your workers' lungs from solvents, a paint booth helps control the environment around the car being painted, ensuring good results.

Other Auto Shop Machinery

• Air Compressors: Whether it's impact wrenches or ratchets, pneumatic tools are vital to your shop's productivity.
• Hoists: If you do serious engine or transmission work, being able to move these heavy, bulky parts around your shop is a definite necessity, allowing your employees the best access to these high-dollar components.
• Diagnostic Equipment: With the strong use of computers in today's vehicles, having a solid array of diagnostic equipment is necessary to your shop's success and efficiency.

Now that you know the different types of equipment available, you can consider whether that equipment would be a benefit for your shop. If you are considering investing in new shop machinery, have you had an automotive equipment appraisal performed to help you prove your assets and gain good financing for your new purchase? Contact a certified equipment appraiser to help determine your equipment values.

When you're considering the dissolution of partnership, a corporation or a marriage, you're often dealing with parties that have their own interests at heart rather than in the interest of the business. The person leaving the union wants to get the best possible price, while the individual that is remaining wants the lowest possible price so they can pay it off and continue to operate the business as best they can. How can both sides be dealt with fairly? One way to start down the right path is to use the proper valuation method for equipment values.

How a Machine Appraisal Helps During a Dissolution of Partnership

As part of the larger business appraisal process, a machinery appraisal provides you with a good idea of what equipment in your company is worth. If you base your business' value on the value of its assets, using tax records that depreciate machinery using a standardized table can give you an incorrect value. If your machinery is in particularly good condition, a standard depreciation can undervalue your equipment, giving the partner who is leaving less than the partner who remains. On the other hand, if the machinery must be used hard or in poor conditions, the standard depreciation may estimate too high a value, providing more money to the partner leaving and leaving the remaining partner without sufficient assets to keep the business in operation successfully. 

Methods of Appraisal During Dissolutions

Fair Market Value

When appraisals are performed for the sake of a dissolution, the most common method used to value equipment is based on fair market value. This is a value determined by a qualified valuation specialist based on the condition of the equipment and the market at the time of sale. It is often considered the most equitable way to determine value when a piece of equipment is to remain in production after the dissolution is completed.

Fair Market Removal Basis

But what if the parties want to sell off the machinery or assets? If there is at least some amount of time before the dissolution, there may be time to sell the equipment piece by piece. Fair market removal is the fair market value minus the cost of removing the equipment from the premises.

Liquidation Value Basis

When both parties want to dispose of all assets quickly and then divide the funds from that sale, liquidation value is used. This will provide the lowest possible value, the value raised during a fast liquidation where there may not be time to find an optimal buyer and the sellers will settle for the scrap value of the assets. 

Other Basis for Valuation

In some situations, such as a divorce, there may be legal requirements to the type of valuation basis used to determine equipment values. In these situations, having an equipment appraiser who is familiar with the law and who will provide the legally required valuation basis is important.

Dissolution of partnership is never an easy process, but having a qualified equipment appraiser provide you with a machinery valuation can help ensure that everyone gets a fair shake out of the deal.