Equipment Appraisal Blog | Understanding Machinery Appraisals

Many businesses have been feeling the sting of unprecedented economic change since 2020 for reasons I don’t need to elaborate on. By now, we all understand the toll these past couple of years has taken on a broad range of companies, across a multitude of markets and industries. Those fortunate enough to not be overly affected by these challenges have done so by the skin of their teeth, and, therefore, the vast majority are counting their pennies a bit more closely when it comes to variable expenditures.

An unplanned variable expense you might be considering could be an appraisal, either for newly acquired or existing machinery & equipment, industrial & commercial real property, or an overall business valuation. When budgeting for expenses that are not already engrained in your company, the question may arise as to whether the benefit outweighs the cost. Is this type of expense absolutely necessary, or can your business live without it for another year or so

Some unforeseen costs are necessary but have no beneficial measurement, such as increases in overhead, like rent, insurance, and maintenance/repair costs. Others, such as asset valuation, can be weighed against the potential to save money when acquiring used equipment, or maximizing potential value in a sale or financing transaction.

When weighing these costs, it is important to consider paying a bit more for a better quality product, which will provide the best “bang for your buck,” with the benefit further supported by an experienced service provider, who won’t sacrifice quality to provide the cheapest available option.

It is always a difficult decision when entering into a relationship with any new vendor or contractor, to choose a business that not only fits with your company’s profile but can remain a long-term option, should you need to complete the process again down the road. An accredited, certified appraisal professional is one of those types of providers who will fit both your short and long-term needs, and make the expenditure easier to justify, given the overall benefit you will reap as a result.

Supporting variable costs will always be a difficult challenge facing businesses every year. Making sound decisions will come down to choosing the right partners who understand your requirements and will provide the best overall product that maximizes future benefits.

When it comes time to have a business appraised, whether it’s for a potential sale, purchase, re-financing, new partner investment, or even for internal planning and accounting, if the company owns personal property, machinery & equipment, it makes sense to consider valuing these assets as well.

A business appraisal will involve a review of the company’s financial statements, which include these tangible assets listed at some depreciated cost basis, and may not accurately reflect current market value. Especially if the property was purchased years ago and subject to a short-term, accelerated form of depreciation. This will lead to a likelihood that the net book value on the account ledgers for the personal property and equipment will be at or close to $0.

If the company being appraised will, in part, be affected by re-establishing the current value of the personal property and equipment, then engaging in a distinct appraisal for these assets should accompany the business valuation.

As an example, if the business appraiser is valuing a machine shop and, while reviewing the financial statements, finds a net book value of $100,000 in depreciated machinery & equipment, this is the figure he will use for the overall asset valuation analysis. If, however, an equipment appraisal is completed in conjunction with the valuation effort, and the current market value for these same assets is estimated at $500,000, then this figure will override the internal depreciated number, realizing a significant increase in overall tangible asset value.

This adjustment to the company’s books will truly reflect the overall value of the business and can be used for any of the purposes discussed earlier. It will also provide peace of mind to all parties involved in the larger transaction being reviewed, knowing that an independent third-party appraiser has updated the key components of the business that drive overall value.

There are a handful of appraisers in the marketplace who can value both the machinery & equipment and overall business for their clients. Many of them are larger, conglomerate-type companies who may overcharge you. Equipment Appraisal Services and our sister company, Business Valuation Specialists, can provide this capability to you at an affordable cost while delivering the highest level of service available. Contact us in the comments section below, at equipmentappraisal.com, or businessvaluations.net to see what we can do for you and your business.