Equipment Appraisal Blog | Understanding Machinery Appraisals

Business owners get involved with a number of annual projects they need to get done in order to accomplish the goals set forth for continuing growth and success. These may require both internal employee and external advisory interaction and collaboration to complete them in a timely and orderly fashion.

When machinery & equipment appraisers are part of the mix, they should understand this broader perspective and their specific role in it, so they can provide the value-added you’re striving for to help move your company forward. When you consider engaging with a professional appraisal firm, ensure that their experience is commensurate with their ability to work within a larger team environment.

Some of the key variables that valuation experts should consider and suggest to their clients within this overall framework are:

The Effective Date of the Valuation: The written report date and effective date are often different based on the circumstances.

The Premise(s), or Definition(s) of Value: There are several distinct market levels of value to consider in every appraisal.

Desktop vs. On-site Approach: Which of these options is the right choice given the underlying requirements of the deal and the quality of the data already developed?

Additional Opinions to Include: Experienced Accredited Appraisers can also provide comments on topics such as future (residual) equipment value and remaining useful life. Is this something that might bring added value to your transaction?

In summary, ensure that the valuation firm you select will have its most senior experts directly involved with the appraisal so you can feel secure that the analysis will be well thought out and thoroughly prepared. Less experienced appraisers can have a support role in the work effort, however, avoid the firms who use their junior staff to complete all the research and legwork with the senior manager only taking a minor review role. This can lead to costly errors you won’t know about until it’s too late.

Your longer-term business goals are important and will help steer your company toward future success. The ability to count on the right team to ensure you reach those goals is essential.

Most business owners have an opinion of what their assets are worth based on their day-to-day experience operating them. They probably remember what they paid for even their oldest vehicles and equipment while understanding the amount of maintenance and extra work that has been invested in them over the years.

If this holds true for you and your company, then why would there be a need to conduct an appraisal using an outside firm that doesn’t have this first-hand knowledge? What could they possibly know that you don’t?

The short answer is that a third-party appraisal is required from time to time. Whether it is your accountant, attorney, bank, investment partner, insurance agent, or a potential buyer, any of these employees or external relationships may recommend you obtain a valuation of the tangible assets for your business.

The advantages to obtaining an appraisal are not just limited to the requirement involved. For example, if your bank advises that the Small Business Administration (SBA) will be involved in your company’s refinancing plans, it will likely be a requirement to obtain an independent third-party appraisal of the assets, or collateral, supporting the new loan. Not only will the formal valuation report satisfy this need, but it will also provide you with an impartial, unbiased opinion of value for all your machinery, equipment, vehicles, and FF&E owned by the company. The report could be used for other internal needs as well, such as supporting a higher value for your overall business or updating property insurance coverage.

Any time you have an experienced, professional, third-party firm assist in validating the true value of your equipment, or any other facet of the business, the results will be viewed as realistic and objective, which brings a high level of credibility to you and your associates. It is always prudent to remove the inherent subjectiveness that might be weighing in with your own opinions.

As with any major life decision being considered, it is usually a good idea to obtain opinions from those who may be able to view things from a different perspective before the ultimate decision is made. Once trust is established with these partners, you will be able to rely on them to help you along the way.