Equipment Appraisal Blog | Understanding Machinery Appraisals

Anyone who is facing bankruptcy knows how agonizing the process is. You lose all control over your assets, being allowed to only retain a small portion of what you originally owned. You're asked to provide documentation of the value of material possessions, just to find that the documentation provided often doesn't meet the needs of the court system or the financial companies involved. Fortunately, there is one way you can document values to protect your interest in your assets - equipment valuation.

Facing Bankruptcy: How Equipment Appraisals Help Verify Asset Value

But why would an equipment appraisal hold up better than documentation from a common book of value, such as a Kelley Blue Book? General value guides will provide you with the information needed to value an asset in general terms, not specific ones. If you've taken exceptional care of your machinery, you don't want it lumped in with the same value provided to poorly kept equipment. You want it to be valued fairly, which is how equipment is valued during an appraisal. Another reason why certified equipment appraisal reports hold up better in court is the neutrality of the appraiser. Because the appraiser is a neutral third party, they're not going to gain anything by creating a false value. This, in turn, gives stronger credence to your report's validity.

Furthermore, when you work with a certified equipment appraiser, you gain the benefit of their knowledge. When an appraiser goes through the certification process, he or she has the opportunity to learn what methods are acceptable in which situations. The methodology used in valuing equipment for salvage or when waiting for the perfect buyer can vary greatly, and that's taken into account when the appraiser learns their trade during the certification process. For that reason, they already know what the proper valuation method is for the situation and can apply it properly in their valuation process.

Though liquidation value is the most commonly used approach to equipment valuation, it's not the only one that is allowed by the bankruptcy code. Other methodologies that are commonly applied include value in use, net realizable value, value in trade or any number of additional valuation methodologies may also be used, depending on your situation. Because a certified machinery appraiser is aware of the nuances of different appraisal approaches, they're in the best position to provide you with good advice as to the right methodology for your situation.

Once they've finished valuing your equipment, appraisers will document the method they used and any aspects of the machinery that impacted that value. This can include kits or expansions you added after the fact that still meet the manufacturer's specifications, the exceptional condition of your very well well maintained machinery or the high or low demand for your machinery in the industry or market as a whole. Because they've documented the entire process and have used proven methodologies in their calculations, their appraisal report will stand up well in court, with financial circles or any other organization involved in the process.

When you're facing a bankruptcy and want to ensure you're getting a fair shake on your equipment values, an equipment appraisal can go a long way towards securing your interests during the process. By taking the time to have an equipment valuation performed now, you can better protect yourself from being taken advantage of during this difficult time.

When you're considering filing bankruptcy for your business, of whatever type you select, you have a lot of decisions to make and a lot of information to sort through to make the best choices for your business' potential continuation. But what happens when your business goes bankrupt? What can you expect to happen with your business assets? Will the equipment you need be sold? During the process, an equipment appraiser is typically used to perform a machinery valuation on your business' equipment and will be required to follow strict guidelines and methodologies to ensure the that the process is equitable for all the creditors and the business itself if it is decided to remain in operation. Here are some details to help you along the way.

Filing for bankruptcy: What role will equipment values play?

When it comes to dealing with a bankrupt business, there are a number of different concepts and values that are commonly used in the process when it comes to asset and equipment valuation. Because a bankruptcy requires a court of law, there can be very specific requirements that must be met during the equipment appraisal process to ensure that the process is fair to all involved and the report accurate. There are many different situations where valuation will come into play during a bankruptcy:

• Liquidation is one of the most common types of valuation used in bankruptcy situations, because your creditors will almost always want to be paid in cash rather than in your equipment. Getting a liquidation value appraisal helps the court determine the net recovery that can come from the sale of your business assets.
• Bankruptcy code does allow for other types of valuation, however. Value in use, value in exchange, liquidation value, net realizable value or other standardized methodology may be used if directed by the bankruptcy court. These values can differ based on a wide range of other factors, so it's important to use a certified equipment appraiser with experience in bankruptcies to make sure the advisors in the process provide the right value context.
• Because a court is involved, the machinery appraiser may be required to review prior court cases to determine what the proper type of valuation should be to generate the final report. In particularly complex cases, the guidance of legal counsel may be required to determine which valuation methodology should be used in each unique situation.
• The judge may also have a say in the type of valuation being used in a business bankruptcy case. It's not unheard of for a bankruptcy court judge to require a specific type of valuation if the situation calls for it. This will limit the type of valuation that can be used in that instance.

Facing bankruptcy is a difficult task, but knowing what limitations may be involved in your case or the type of valuation to expect can make the process easier to anticipate. Knowing what to expect as the process goes forward makes it easier to deal with situations as they arise. If you're considering going through a business bankruptcy, you'll want to work with an equipment appraiser who can give you details on what's what with your company.

Imagine your business is deeply in debt. You can no longer afford to keep your doors open. You have existing inventory and assets, and you know that by selling these, you can repay some of your creditors. Yet the more pressure you have to sell your assets, the less you can command for them. To understand your options, it's essential you have an understanding of forced liquidation value. 

What is Forced Liquidation Value? 

Forced liquidation value provides a snapshot of your business in a state of crisis. An appraiser assumes you need to sell as fast as possible, which usually means at auction. Both the rush factor and the auction generally mean that you'll wind up accepting less for the piece of machinery (for example, an air compressor) than you would if you were in no rush to sell. 

By understanding forced liquidation value, you can understand where you stand, even when things are going poorly. The data that you receive from an appraiser can then help you decide your next steps. 

When performing a company valuation for assets, an appraiser will estimate that your items will sell at auction within a short time frame - say, 90 days or less. They will then add up the perceived value of all items sold via auction to arrive at the business's forced liquidation value. The forced liquidation value gives a minimum worth for the business, assuming the company can sell all assets at auction. 

To come up with an equipment valuation, the equipment appraiser must also make a series of assumptions about the auction process.  As a result of this series of assumptions, the estimated value is often a big difference from orderly liquidation value and even bigger difference from the fair market value where there is much more time to sell the equipment. 

When is Forced Liquidation Value a Good Idea? 

Machinery valuation via forced liquidation value usually works to a business's advantage when the company is in trouble and actually needs to get rid of machinery (like the air compressor) quickly. 

There is no reason for a healthy business to use forced liquidation value for equipment values, even if the company plans to sell an air compressor at an equipment auction. A healthy business could service or repair equipment before selling it at auction, whereas a company facing liquidation must sell the equipment in an as-is state. For the same air compressor, a company willing to service the equipment or wait for the right time to sell could command a significantly higher price than the company that needs to sell as-is equipment immediately. An exception may be the need to clear out the equipment so that a new line can be installed in the facility.

If you need equipment appraisals for any reason, it's important to find an appraiser who understands your industry and can accurately value your equipment. "Time to sell" is an important concept that needs to be understood and helps explain why an asset may sell for different values.

Ask any business owner, and they'll tell you that running a business is hard work. When faced with serious financial problems, however, many companies have to make a choice between different types of bankruptcy to get out from underneath the financial burdens of a failing business. Whether the business owner chooses to reorganize under Chapter 11 to try to save the business and turn it around or to completely shut it down under Chapter 7, this type of legal action gives the owner some breathing space to deal with the financial issues while still ensuring that the creditors will also get their fair share of what's left. But what part does equipment appraisals play in the process? Let's find out:

Bankruptcy Alternatives

But before you hire a lawyer and start filling out paperwork, it's important that you consider all the alternatives you have to bankruptcy. One of the first steps to take is to develop a solid set of books for your business, because it will tell you whether or not you need to file bankruptcy or which type you should file. If your accounting has fallen behind because of the problems you've been facing, you'll need to catch it up to ensure you're looking at the right figures. But don't just trust what your tax return says - most tax documents will depreciate your equipment's value on a standardized schedule. A quality equipment appraisal will allow you to determine the exact amount your assets are worth. If they're worth more than you had thought, you may be able to get a line of credit or make some changes to keep your business afloat.

Chapter 11 - Reorganization

If you think that with a little breathing room, you could turn your business around, filing for Chapter 11 could be a good alternative to completely giving up the business. During this type of reorganization process, the business' assets are placed into an estate or trust created by the court, with the business owner having the use of them during the reorganization period. This type of legal set up allows business owners to continue using the equipment for production while still ensuring that the interests of any creditors is also protected by removing legal ownership from the hands of the owner. If you have equipment that is being threatened with repossession which you either have equity in or need to continue production, this action can protect your use of the equipment.

Chapter 7 - Discharge of Debts

If you feel, even after looking at the updated books and machine valuation, that the business is simply not salvageable, a Chapter 7 filing may be the route to take. In this type of action, the business actions are discontinued and a trustee is appointed to ensure the business' assets are liquidated in an orderly fashion to pay any creditors. An accurate machinery valuation helps estimate the value of the machinery assets of your company, helping the trustee determine how much each creditor will receive.

Dealing with bankruptcy is a difficult time for business owners, but it's one that can be made lighter by hiring the right equipment appraiser. If you're still looking for the right company to provide your bankruptcy machine appraisal, please contact us today. At Equipment Appraisal Services, our experienced, certified machinery appraisers are ready to help you document the value of your assets with quality work and a solid methodology.