Equipment Appraisal Blog | Understanding Machinery Appraisals

Regardless of the industry you work in or the business you own, there will likely come a time when you need to obtain an updated equipment appraisal as you continue to transact in the marketplace. Whatever future plans you have for your business, it is very likely that an appraisal of your capital assets will be beneficial to the process, and possibly even a requirement.

Here a few of the most common reasons why an updated equipment appraisal will be a valuable resource for you:

Bank Financing & Leasing

The most common instance where an appraisal is beneficial and required by all the parties involved occurs when you look to raise capital to maintain and grow your business. The traditional process is working with banks, leasing companies, and similar financial institutions who will require a review of the company’s assets.

If your business requires machinery & equipment to effectively operate, as most manufacturers and service providers do, an updated appraisal will support the current value of your machinery as part of the loan approval process. These assets may end up being the primary collateral the finance company needs for you to successfully secure the loan you need.

Private Equity Investment

A secondary source your business may need to secure capital is in the form of private investment, in the form of equity, which will allow your business to expand its resources and promote growth.

These investors may want to acquire a stake in your business before laying out cash, which will need to be supported by a valuation of your company and the underlying capital assets. Machinery & equipment items generally support a long useful life which will translate to value retention over time and therefore, these assets will comprise a significant component to the overall business value.

Buying & Selling

If you’re considering buying or selling a business, or distinct machinery & equipment as part of a larger transaction, you will want to consider an appraisal to confirm your assumptions about the value of these assets. The time and tension involved in successfully negotiating a sale is significant enough to have a third-party experienced appraiser provide you with the assurance that your pricing strategies are supported and credible.

Tax, Accounting & Insurance Compliance

Tax, accounting and insurance requirements are numerous when it comes to maintaining compliance with all of these facets of your operation.

Tax assessments and regulations, accounting standards guidelines for capitalizing and depreciating your equipment, and adequate insurance coverage are just some of the boxes you need to check in these important areas. Routinely communicate with your accountants and agents to ensure you are up to date on these requirements and see if an equipment valuation might benefit the process, both long and short term.

In summary, your company’s revenue and income typically fluctuate over time depending on the markets and industries you operate in however, the value of your machinery & equipment will likely remain steady through these periods. Understanding the current value of your machinery & equipment by hiring an accredited, experienced appraiser will benefit your business across multiple fronts and provide you with peace of mind as you go forward into the future.

When you run a business, you know that to roughly paraphrase Benjamin Franklin, failing to plan is planning to fail. If you don't know what direction your company is going in, how to respond to changing market conditions or even where your company is strong and weak, you can't take advantage of opportunities and avoid risks when they come along. But even for those business owners or managers who do business planning for their enterprise, there can be some areas where you don't know exactly what you're working with. One of these areas is equipment values.

How Equipment Appraisals Help You Get the Most out of Your Business Planning

Often typing up significant amounts of equity, deciding on a timeline for equipment purchase or replacement and what type of transaction to undertake can be difficult to determine. Here are some examples of how an equipment appraisal can help in the business planning process:

• When to purchase machinery. Should you purchase new equipment before starting that new contract or after it's completed and paid? The biggest part of that answer hinges on how much longer your equipment is expected to last. Though a exact point of failure or the point at which it becomes unprofitable to continue repairing is hard to determine, a qualified machine appraiser can estimate a piece of equipment's remaining usable life will be. By knowing this, you can determine whether the existing equipment will make it through the contract or if it has potential to break down and cause serious delays and financial burden.
• When to sell equipment.  If you're hitting a problem point in your cash flow, should you sell equipment or take out a line of credit to cover the lean times? An equipment appraisal allows you to know what your machinery is actually worth by looking at the current market conditions. If your industry is going into a bust cycle, you may not get much money for the equipment you'd need to sell. If, on the other hand, it's going into a boom cycle, you may want to hold onto the equipment regardless to take advantage of favorable conditions. A machine appraisal could help with this type of information.
• Buying new or used or trading in. What type of purchase should you make? If you're considering buying new, can you save significant money by buying used instead? If you're thinking of buying used, would a new machine provide a significantly longer useful life for just a little more cash? Should you buy more equipment or just upgrade by trading in your old machinery? A good machine valuation specialist can help answer those questions by letting you know what your equipment is worth. By going into a dealership prepared with the current machinery values, you're able to negotiate from a position of strength.

When you have a machine appraisal performed, that information helps lead to better business planning in the future. By having a solid plan in place that reflects accurate information for your business, you can successfully grow your business.