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.