Equipment Appraisal Blog | Understanding Machinery Appraisals

Thinking of Selling a Company? Consider a Machinery Valuation

Posted by Equipment Appraisal Services on Tue, Jan 31, 2017 @ 11:18 AM

selling a business machinery valuation.jpg

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. 

Tags: allocation of assets, selling a company, machine valuation

How an Equipment Appraisal Can Help with Allocation of Assets

Posted by Equipment Appraisal Services on Tue, Jan 17, 2017 @ 02:07 PM

allocation of assets appraisal.jpg

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.

Tags: allocation of assets, allocation of purchase price, certified appraisal

What is Allocation of Purchase Price?

Posted by Equipment Appraisal Services on Tue, Mar 08, 2016 @ 10:30 AM


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.

Tags: allocation of assets, allocation of purchase price

16 Reasons for Equipment Appraisals We See Every Day

Posted by Equipment Appraisal Services on Tue, Mar 01, 2016 @ 02:30 PM


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?

Tags: bank financing collateral, allocation of assets, reasons for equipment appraisals