Equipment Appraisal Blog | Understanding Machinery Appraisals

What do you need to know to protect your interests in a dissolution?

Posted by Equipment Appraisal Services on Tue, Sep 19, 2017 @ 10:12 AM

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Let's face it - nobody gets excited about a dissolution. Whether it's your business, a partnership or a marriage, breaking up something that's worked well in the past can be a difficult and trying process. But instead of simply getting it over with, you may want to consider how to protect your interests before you lose out. Here's how to use an equipment appraisal to help document your assets in a way that will hold up well during negotiations and in legal circles.

What do you need to know to protect your interests in a dissolution?

We've all heard horror stories about how a dissolution can come out badly. Whether it's the businessman who lost the company Jaguar and computer lab while taking care of the employees or the divorced individual whose ex sold off all the equipment at a pittance, it's important to know what to do in these situations. Doing nothing will often leave you with nothing.

But what if you're not sure how much your assets are worth? As an example, an insulator in northern Minnesota was a handy sort. When he started his business, he had purchased a box van and installed a blower system for cellulose insulation. Because he had a keen eye for mechanical maintenance, the system was in excellent condition when, after many years in business and no takers to buy the company, he dissolved the business. The system had been fully depreciated many years before, yet it still retained excellent value because of the care it had received over the years.

On the books, the equipment had no value. In real life, it was worth quite a bit, especially when an enterprising sort from a few hundred miles away contacted him as the equipment sat in his empty warehouse. Years after the equipment had been purchased, the retired insulator ran into the young man who had purchased the machinery. "You know, I would have paid three times what you were asking for that equipment," the young man admitted.

This type of story is classic to any type of dissolution, but when two partners, either in business or marriage, dissolve a business, things can get ugly. If a divorce had been involved in the above case, the spouse could have come back and claimed the husband had intentionally gotten rid of the asset at a low price to avoid paying a fair share for the equipment during the dissolution.

When you have an equipment appraisal performed, you're able to provide documented evidence for the machinery's value. One party in the dissolution may claim equipment has a much higher or lower value to cause problems or get more out of the situation. The best way to resolve the issue is by having an independent third party determine the fair market value of the assets involved. This ensures that both parties get a fair shake out of the deal.

Dissolution is never fun, but it can be less painful if you take the time to protect your interests during the process. But don't expect your local equipment sales rep to provide you with a solid appraisal that will hold up in court! When you work with a certified equipment appraiser, you'll get a fair report of your equipment values that meets or exceeds legal requirements that won't be thrown out if things get ugly.

Tags: Equipment Appraisal, Divorce, dissolution

How a Machine Appraisal Helps During a Dissolution of Partnership

Posted by Equipment Appraisal Services on Tue, Jul 26, 2016 @ 01:30 PM

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When you're considering the dissolution of partnership, a corporation or a marriage, you're often dealing with parties that have their own interests at heart rather than in the interest of the business. The person leaving the union wants to get the best possible price, while the individual that is remaining wants the lowest possible price so they can pay it off and continue to operate the business as best they can. How can both sides be dealt with fairly? One way to start down the right path is to use the proper valuation method for equipment values.

How a Machine Appraisal Helps During a Dissolution of Partnership

As part of the larger business appraisal process, a machinery appraisal provides you with a good idea of what equipment in your company is worth. If you base your business' value on the value of its assets, using tax records that depreciate machinery using a standardized table can give you an incorrect value. If your machinery is in particularly good condition, a standard depreciation can undervalue your equipment, giving the partner who is leaving less than the partner who remains. On the other hand, if the machinery must be used hard or in poor conditions, the standard depreciation may estimate too high a value, providing more money to the partner leaving and leaving the remaining partner without sufficient assets to keep the business in operation successfully. 

Methods of Appraisal During Dissolutions

Fair Market Value

When appraisals are performed for the sake of a dissolution, the most common method used to value equipment is based on fair market value. This is a value determined by a qualified valuation specialist based on the condition of the equipment and the market at the time of sale. It is often considered the most equitable way to determine value when a piece of equipment is to remain in production after the dissolution is completed.

Fair Market Removal Basis

But what if the parties want to sell off the machinery or assets? If there is at least some amount of time before the dissolution, there may be time to sell the equipment piece by piece. Fair market removal is the fair market value minus the cost of removing the equipment from the premises.

Liquidation Value Basis

When both parties want to dispose of all assets quickly and then divide the funds from that sale, liquidation value is used. This will provide the lowest possible value, the value raised during a fast liquidation where there may not be time to find an optimal buyer and the sellers will settle for the scrap value of the assets. 

Other Basis for Valuation

In some situations, such as a divorce, there may be legal requirements to the type of valuation basis used to determine equipment values. In these situations, having an equipment appraiser who is familiar with the law and who will provide the legally required valuation basis is important.

Dissolution of partnership is never an easy process, but having a qualified equipment appraiser provide you with a machinery valuation can help ensure that everyone gets a fair shake out of the deal.

Tags: machine appraisal, dissolution, partnership

What Happens in a Business Dissolution or Divorce?

Posted by Equipment Appraisal Services on Mon, Aug 31, 2015 @ 10:00 AM

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Whether it's retirement or a partner leaving a business, dissolution can be a very confusing process. How do you get a fair value from the assets and, in the case of a partner leaving, decide on a fair price for the leaving partner's share? Let's take a good look at the dissolution process and how having equipment appraisals completed can help make that process go more easily for all concerned.

What happens in a dissolution?

Though dissolution can be very different based on your company's structure and policies, they usually follow the same basic steps:

  1. The decision to close or leave the company is made. For a sole proprietor, this can be as simple as making a decision, but in a partnership, LLC or corporation, it can be much more complicated. A partnership may require a meeting to discuss how the leaving partner needs to hand off existing clients and be compensated for their part of the company, typically using equipment appraisers to ensure that the machine valuation reflects the proper values. An LLC or corporation often requires a meeting with the shareholders to approve a resolution to dissolve, usually by following the procedure outlined in the bylaws.
  2. File dissolution forms with the state. Depending on your state's requirements, this step may either fall at this point or after taxes have been taken care of. Usually filed as a Certificate of Dissolution, talking to your state's Secretary of State office is a good starting point to gather details on what needs to be done.
  3. Cancel any licenses, permits and fictitious names.  If you've needed to pick up any regulatory documentation, you'll want to cancel them, because you can be charged for renewals if you fail to cancel these items. Cancelling a fictitious name, such as a DBA, protects you from liability if someone else does business under that name after you've dissolved your business.
  4. File taxes.  You'll have local, state and federal taxes to file. Many states require proof that your tax burden has been finished before they'll dissolve your business, often in the form of a tax clearance of verification of good standing. Don't forget payroll deductions and sales tax returns while you're working on closing taxes.
  5. Settle creditors' claims. Any companies or agencies you owe money to should be settled prior to the dissolution. If needs be, this can be accomplished by selling some assets following a machinery and equipment appraisal by a qualified equipment appraiser.
  6. Distribute any remaining assets.  This can be the hardest one, especially if the company doesn't close, such as in a divorce or when a partner leaves, and is the best time to have a machinery valuation or machine appraisal performed. Because the company is being continued after the change, the person retaining the business will want a low equipment value because they must buy out the other partner to continue, while the individual who is leaving wants higher equipment values as they are being bought out. Bringing in a qualified machine appraiser accredited by the American Society of Appraisers using the Uniform Standards of Professional Appraisal Practice can often help solve this dilemma, because they are required to appraise the remaining assets at a fair market value that doesn't favor one side or the other, though if all parties agree, a liquidation appraisal can be used.

Closing or leaving a business through dissolution can be a difficult time for all involved, but by following the steps one at a time and using the services of a professional, such as your registered agent or a qualified appraiser, it can be much easier. Your Secretary of State, the IRS and the Small Business Administration are other alternatives for information on dissolving your business.

Tags: Equipment Appraisal, Divorce, dissolution