Equipment Appraisal Blog | Understanding Machinery Appraisals

Why do equipment appraisals matter when you're buying a company?

Posted by Equipment Appraisal Services on Tue, Mar 07, 2017 @ 10:35 AM

buying a business equipment appraisal.jpg

When you're buying a company, one of the last things on your mind may be equipment appraisals. What does a machinery valuation matter compared to profit and loss, equity and overall assets? If you ask any equipment appraiser, they'll tell you just how important equipment values are in your business' bottom line. Here are a few reasons why you'll want to see a machinery valuation before you sign on the dotted line.

Why do equipment appraisals matter when you're buying a company?

  • They represent actual assets and equity rather than paper assets and equity. When a business is preparing its tax documents, machinery is often depreciated on a specific schedule. But in the real world, there are a wide range of factors that can impact how long the equipment can remain in service without compromising your profitability. A completely depreciated piece of equipment can continue working for years to come, while one that has had rough treatment or that is of poor quality may give up the ghost years before it would be completely depreciated on a standard schedule.
  • They give you a better idea of the condition of the machinery you need to operate your new business. Part of the process can involve looking over the maintenance and repair logs giving you insight into whether the machinery has been properly maintained to deliver years of service or if it is in poor repair, which may require negotiating to a lower sale price to compensate for equipment that will need to be replaced.
  • They help you plan for costly repairs or replacements down the road. An appraisal might contain the estimated normal and remaining useful lives on the equipment. This allows you to plan for these repairs or replacements long before they're needed so you can have the financial resources in place that will be needed.
  • Equipment appraisals can also be completed at the "Replacement Cost New" level which would give you insight on how much would go into replacing something if you had to buy it new.  This might be helpful when setting up your new insurance policy on the business that you are buying.

Equipment valuations may take a small part in the overall view you get when you're buying a company, but it can give you a solid view of the business from an asset perspective. But just as important as getting an equipment appraisal is the equipment appraiser who does the analysis. Hiring a certified equipment valuation specialist ensures that the calculations of the equipment values are determined by someone who has learned the appropriate methodologies for any number of different situations. This ensures the equipment values they calculate will hold up to strong scrutiny and will help you with obtaining financing, covering insurance losses or fighting a bad tax assessment.

Tags: fair market value, buying equipment, buying a company

How an Equipment Appraisal Helps When Considering Potential Purchase of Equipment

Posted by Equipment Appraisal Services on Tue, Jun 21, 2016 @ 12:30 PM

When you're considering a potential purchase of equipment, making a good deal is half of the excitement. But how do you know whether the equipment values presented are accurate? How do you know if you're making a fabulous investment for your company or are buying a lemon that will pour your capital down the drain? Before you sign on that dotted line to buy equipment for your business, have a machine appraisal performed. Here's why it's important.

How an Equipment Appraisal Helps When Considering Potential Purchase of Equipment

  • A machine appraiser doesn't have anything tied up in the transaction. When a business or broker is selling equipment, their profit is on the line. Though they may not be intentionally misrepresenting the equipment's condition, they do want to present it in the best possible light. This can lead to accidental oversights in the purchase process and less than complete disclosure of the machine's features and history.
  • Do you need to get financing in place for the potential purchase? Equipment appraisals performed by a certified equipment appraiser are taken much more seriously in financial circles, because a certified appraiser uses standardized methodologies to calculate the machine's value. Unlike the finance guy at the car dealership who says he'll give you $5,000 for your 1992 Geo Metro with 200,000 miles on it through a few math tricks in the financing paperwork, an equipment appraisal is a solid value for that particular piece of equipment.
  • What about your insurance? If you're getting a great deal because a company is going out of business, do you know how much insurance to put on the equipment? If you base your insurance coverage on a wonderful price, you'll quite possibly find yourself unable to purchase replacement equipment for the same price after a loss. By having a quality machine valuation performed on the equipment you're considering, you'll know not only how good a deal you're getting, but how much it will cost to replace that equipment in a loss.
  • How long do you expect the equipment to last? Equipment appraisers spend all day looking at machinery. For this reason, an experienced appraiser has a good idea of how long a usable lifespan the equipment has left, a boon if you're buying equipment with an unknown past. The appraiser will know to look for delayed repairs that may have caused additional damages, such as a pulley that wasn't immediately replaced causing more wear on bearings elsewhere in the system, leading to an early failure.
  • Has the equipment been abused or pampered? We all know someone who never does any of the necessary repairs to their car. As time goes on, their vehicle has more and more serious problems until it hits the point of being too expensive to repair. The same goes of your potential equipment. Has it had after-market kits added that are overtaxing the hydraulics? Was it kept in perfect repair with exceptionally detailed logs? This kind of information helps you make a smart investment.

As you can see, having an equipment appraisal performed for potential purchase of equipment can help keep you from making a very costly mistake for your business.

Tags: purchase equipment, buying equipment