Equipment Appraisal Blog | Understanding Machinery Appraisals

5 Ways an Equipment Appraisal Helps in Getting Financing

Posted by Equipment Appraisal Services on Mon, Nov 30, 2020 @ 08:30 AM

Equipment Appraisal to Secure Financing


Whether you are acquiring a new business, expanding your capital asset requirements or restructuring debt, searching for available financing is a critical part of the process. In any of  these cases, if your operation includes machinery & equipment, obtaining a current asset valuation will be an important step. An equipment appraisal will help document your business' assets, adjust the depreciated values on your balance sheet to realistic market data and assist potential lenders in getting your credit approved.

Here are some other benefits of having a current machinery valuation completed for financial service providers and equity investors:

An equipment appraisal provides verification of your company s existing assets. If you have equipment with existing loans & liens associated with them, the lender/investor can use the information provided in the appraisal to determine how much equity you may or may not have accrued. The appraisal also estimates the current market value of the machinery instead of relying on an internal pre-determined depreciation schedule that likely will not show an accurate picture of your business' financial health.

The appraisal supports the value of the machinery you are purchasing or refinancing. When you are considering used equipment, it can be difficult to find an objective source to assist in understanding the marketplace and how it reflects back on your business . An equipment appraiser is an unbiased third  party, with no stake in the larger transaction, and therefore, is relied upon as a credible service provider by all lending institutions.

An equipment valuation can provide this same information to related third parties such as insurance agents and property tax assessors so that you're receiving adequate coverage and not overpaying your share of taxes. This also assists the lending institutions who want to be confident they are covered in the event of any casualty loss.

Financial institutions also work with government lenders such as the Small Business Administration, who have their own set of requirements for approving loans. If you qualify for these beneficial programs, it is important to ensure you can meet these requirements for a small business loan, whether you are just starting out, expanding your company or to help with a temporary cash flow situation.

By keeping these circumstances in mind, having a machinery and equipment appraisal performed by a qualified machinery appraiser will make your financing collateral review process go much more smoothly. Make sure the equipment appraiser is a member of the American Society of Appraisers and is current with the Uniform Standards of Professional Appraisal Practice (USPAP), which requires certified updates every two years.

Tags: Equipment Appraisal, bank loan, financing

How can a bank appraisal help you get more out of your equipment?

Posted by Equipment Appraisal Services on Mon, Feb 26, 2018 @ 09:56 AM

When your business has a significant investment in your equipment assets, knowing the value of those assets and having the ability to leverage that capital can make all the difference when you're trying to grow your company. Though you could simply take an equipment dealer's word on that value, a bank appraisal can provide you with an accurate value that takes a wide range of factors into account. Here's a quick overview of how this type of equipment appraisal helps you leverage your company's machinery assets for better growth.

How can a bank appraisal help you get more out of your equipment?

If you're considering growing or making changes to your business, it's pretty common to pursue bank financing to make those changes. However, with the increased rules and regulations that were put into place following the 2008 recession for business loans, many financial institutions are requiring additional assurance that you have the ability to pay back a loan. One of the areas where this can impact your company's assets is through an appraisal of your company's machinery. How does this type of appraisal work and what other benefits can you reap from the process?

A financial appraisal takes a solid look at your company's assets and their value in the free market. A certified equipment appraiser spends their days reviewing equipment values. This gives them a very specialized skill set and an advanced knowledge of machinery that can be leveraged for your company's growth.

To start, the equipment appraiser will look at the equipment's condition. Because they have extensive experience working with a wide range of equipment, they know what to look for in terms of wear and tear, potential abuse issues and overall value on the open market. This also makes them very good at noticing potential issues with your equipment that may have otherwise been missed. By catching these issues early, you can make repairs or additional maintenance before small, easy problems become big, expensive ones.

Another area where you can see strong benefits for your company is by knowing the right value for your equipment. Most companies use tax-agency-based depreciation tables to determine what equipment is actually worth. However, that doesn't mean that the value from those tables is correct. Almost every company has a piece or two of ancient equipment that is still providing exceptional service long after it was declared worthless by the depreciation tables, whether it's an aging table saw or an old truck that keeps on rolling. At the same time, many companies have purchased equipment that has failed prematurely, either through abuse or excessive use, or through poor engineering and design. These same depreciation tables show that equipment as having value long after it has become virtually worthless.

Knowing what your equipment is worth through a solid bank appraisal allows you to leverage that equipment to grow your company into a promising new future. But don't trust just anyone who knows a little about equipment values to give you an accurate value. Certified equipment appraisers use tested methodologies that hold up well in virtually all circles, whether financial, legal, insurance or tax concerns are under scrutiny. Make sure you work with a certified appraiser to ensure the money you spend on an appraisal provides you with the most accurate results available.

Tags: Equipment Appraisal, bank appraisal

Dealing with a Business Loss: Retrospective Appraisals

Posted by Equipment Appraisal Services on Tue, Jan 23, 2018 @ 02:34 PM

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Your workshop catches fire and burns the equipment that was stored or used within. A hurricane floods your office and destroys both the maintenance records and the vehicles that were kept on site. A vandal breaks in and causes irreparable damage to your machinery over a late night or long weekend. Whatever situation you find yourself in, one of the thoughts that may raise your stress levels is how to prove the value to your insurance company. Here's a look at how retrospective appraisals can help in these difficult circumstances.

Dealing with a Business Loss: Retrospective Appraisals

How can an appraiser determine the value of equipment that has been significantly damaged? Though some of the process may involve some level of educated estimation, most of it is grounded solidly in appraisal practices and methods. Some information will be easily obtained, while other information will require careful study of what's left and any paperwork that is left after a disaster.

Let's take the example of a cargo van that has been burned in a warehouse fire and had significant damage due to the heat involved. Most business owners and equipment operators, even many mechanics, would only see the burned shell of the van. Fortunately, equipment appraisers take a different view of the machinery they're appraising.

To start, the appraiser will work with any paperwork and information that is available.  The original purchase paperwork, maintenance logs, receipts from repairs: all these papers paint a picture of what kind of van it was, the care it was given over the years and possibly a record of how many miles it had on it at the time of the loss. This information allows the appraiser to calculate the cargo van's value in general terms, based on the market conditions and demand for that type of vehicle.

But what if the van had been poorly used over the years? What if there was unrepaired body damage or significant problems with its mechanical systems due to being neglected or abused? On the other hand, what if it had much lower miles than most vehicles of that age and was maintained in impeccable condition? What if the business had added machinery or options to the vehicle that would increase its overall value? These are all aspects the equipment appraiser must take into account when calculating the value of a piece of equipment after a loss.

Another area to consider is when the damage took place. If the van was stored at a remote site and the damage was discovered months after the fact, how do you determine value? What if the bottom has fallen out of the van market in the intervening weeks and months? Should the van be appraised at the value it held when the damage was discovered or at the estimated time of the the loss? An equipment appraiser can retroactively value the machinery to the loss date using verified, tested appraisal methods.

Having to deal with a business loss is stressful, but having the option of getting retrospective appraisals performed on damaged equipment helps reduce the load. Whether you're claiming a loss on tax returns or pursuing compensation from your insurance company for the damage, a retrospective appraisal can help your business get back on its feet faster. Make sure you work with certified equipment appraisers, as the methodologies they use will hold up well against scrutiny in court, insurance and tax agency circles.

Tags: Equipment Appraisal, retrospective appraisals

How do Standards of Value Impact Your Equipment's Appraisal?

Posted by Equipment Appraisal Services on Tue, Dec 19, 2017 @ 01:40 PM

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When your equipment is a large part of your business assets, the value of that equipment can strongly impact your bottom line. When equipment is appraised, standards of value are used to help calculate that value. But what are these standards, how can they impact your equipment's value and why are they used in particular situations? Here's a quick overview to help you get started in understanding this appraisal concept.

How do Standards of Value Impact Your Equipment's Appraisal?

Standards of valuation have been developed over the years to ensure that machinery is being appraised in a way that provides consistent calculations and results. Because of this history, an appraised value from a certified equipment valuation specialist holds up well to strong scrutiny in a wide range of areas. However, values are calculated differently depending on the situation.

A company that is undergoing bankruptcy may have their equipment appraised at liquidation value, as it's expected that the equipment will need to be sold quickly to pay off any debts. Investment value refers to the machine's ability to provide business income, such as a welding robot on a factory floor. 

One of the most common types of equipment appraisal that is performed is fair market value. It's such a wide-spread appraisal type that it's required in some specific legal situations, such as a divorce or litigation involving the dissolution of a partnership. In calculating this value, the appraiser looks at a wide range of aspects including the equipment itself, the conditions in the market where it is used and similar aspects. As an example, a drill for oil exploration will have a much higher market value during an oil boom than when oil prices fall and exploration is at a minimum.

These different appraisal types can drastically impact your equipment's appraised value. Fair market value assumes that you can wait a while for the right buyer who is willing to pay what the machinery is worth, while liquidation value may be much lower to assure a fast sale. Different values may be determined for large or difficult to move equipment based on whether the machinery is sold in place or to be moved, due to the high cost of moving it to a new location.

The different values are impacted by a wide range of factors, and the final appraised value may not match what you've been told by a local machinery dealer. Why? If a machinery dealer offers you a higher price for your equipment than what is calculated, it may be due to a push to move their new equipment, allowing them to make a higher offer on older machinery to get their new equipment moved.

On the other hand, they may offer you a much lower price to convince you that your machinery is virtually worthless to help encourage you to replace it with equipment that has more equity. Whatever reason for the disparity, a certified equipment appraiser has been taught specific methodologies during the certification process that have been proven to hold up well in legal, financial, insurance and tax agency circles.

By knowing how standards of value affect your equipment's reported value, you can get a deeper understanding of how the valuation process works and how different situations and conditions can impact that value. This helps you get a better comprehension of appraisal reports, allowing you to better leverage your equipment value to your company's benefit.

Tags: Equipment Appraisal, standards of value, ASA accredited appraiser

How is depreciation of equipment figured and how does it impact value?

Posted by Equipment Appraisal Services on Tue, Dec 12, 2017 @ 10:04 AM

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When you own machinery assets for your home workshop or your company, you know that the depreciation of equipment can rapidly change the value of those assets. But what is depreciation? Exactly how is depreciation figured? How does depreciation impact your bottom line and the value of the machinery? Are there any other ways to determine value for machinery assets? Here are the answers to these questions and more.

How is depreciation of equipment figured and how does it impact value?

Depreciation is one process by which equipment values may be estimated. It's commonly used for taxes and similar business financial documentation. Generally speaking, it breaks down the estimated value of a piece of equipment over the expected period of time that machinery will function. It creates a simple way to lower equipment values over time, accounting for the change in value of the asset. It's one of the most common ways to track changes in machinery value for many businesses. But that doesn't mean it's the best possible option for your company.

A depreciation table assumes that all machinery of a particular type ages at the same rate. But what about when you have a piece of equipment that is expected to last much longer because it's well cared for and lightly used? What about when a piece of equipment is abused and worked hard beyond its expected limits? At that point, the expected lifespan of the equipment may vary widely compared to a piece of equipment that has more standardized care and maintenance. This makes a strong impact on the machinery's actual value when compared to the depreciation table, throwing your business' finances off - specifically the value of your assets.

There are a few different but very common situations where this happens. Well maintained machinery will still have value after it has been fully depreciated. Abused equipment will fail before it has been fully depreciated. In either instance, the machinery's depreciated value does not accurately reflect its actual value. When you have machinery that is initially used extensively but then takes a back burner to other processes, the rate at which it depreciates can change over time, making the value change as well. What can you do to depreciate the machinery using an accurate value and timeframe?

When you have a machinery valuation performed, you get all the information you need to set up a proper depreciation schedule. The valuation will determine the machinery's estimated value using standardized methodologies and the expected useful lifespan of that piece of machinery. By having these two pieces of information available, you can create your own depreciation table that is backed up by the valuation report and is customized to your company's situation. Because the methodologies used by certified equipment appraisers has been developed over the past several decades in legal, financial, insurance and tax agency circles, they stand up well to strong scrutiny.

By knowing how depreciation of equipment is determined, you can figure out exactly what type of value method works best for your assets. But when you're starting with equipment that isn't brand new, how do you figure out an initial value to determine your depreciation from? Many equipment owners have found that having an equipment valuation performed can make a big difference in being able to track realistic machinery values. 

Tags: Equipment Appraisal, depreciation of equipment

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


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

Posted by Equipment Appraisal Services on Tue, Oct 04, 2016 @ 01:00 PM


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.

Tags: Equipment Appraisal, business planning

How a Shop Equipment Appraisal Protects Your Investment

Posted by Equipment Appraisal Services on Tue, Aug 16, 2016 @ 09:30 PM


When you run a business, there's always some risk to your investment. Being a wise business owner means you know how to recognize those concerns and how much of a risk they pose to your company. Though many business owners discount the value of shop equipment appraisal, it can be vital to your business' success or failure. Here are details on how that happens:

How Shop Equipment Appraisal Protects Your Investment 

  • Providing documentation of value: If you need to document the value of your machinery, whether for financial documents, a loan to expand your operations or to disprove a high property tax assessment, a machinery valuation prepared by a certified equipment appraiser serves as legal proof of the value of your workshop equipment. Because a certified appraiser uses recognized, accredited methodology to calculate the equipment values, it will stand up to strong scrutiny from virtually any source, making it much easier to bring negotiations around to the actual value of your business and equipment, saving you time, effort and money in the process.
  • Ensuring appropriate insurance coverage: When your business suffers a loss, whether it's from a fire, a natural disaster or a theft, your insurance company will require you to provide proof of value. The problem is that many businesses aren't sure of the value of their machinery at the time of a loss, due to changes in market conditions, depreciation and similar issues that are often dealt with in equipment appraisals. An equipment appraisal also ensures that you're carrying the appropriate level of insurance on your workshop equipment. If you have an appraisal from a certified equipment valuation specialist, it provides legal proof of value, minimizing the chance that you'll have to take your insurance company to court to collect the proper valuation on a loss.
  • Ensuring correct depreciation: Many bookkeepers and tax accountants only depreciate your shop equipment and other depreciable business assets based on the federal tax code's schedule of depreciation. But what if your equipment is being heavily used and is no longer worth the amount shown on the depreciation schedule? On the other side of the coin, if you've spent good money investing in and maintaining quality shop equipment, it may be worth significantly more than the depreciated value, which is very important to the asset side of your balance sheet when you need to get a load for expansion, to prove value when selling equipment or for other business transactions.
  • Helps protect against unexpected early machine failures: Part of the equipment appraisal process is estimating the expected lifespan of machinery. Though most appraisers can do a fair job of estimating this figure, equipment valuation specialists who work primarily on industrial equipment are far better at this than most. Because they deal with machinery on a daily basis, they can help you determine how much longer the equipment you have is estimated to last, making it much easier for you to start making plans to replace it when the time comes. Though this figure is not set in stone, it is a good gauge to help you plan for your business future expenses.

By having a shop equipment appraisal performed on your workshop machinery, you can ensure that your investment in your business is protected, no matter the exact risk at hand.

Tags: Equipment Appraisal, shop equipment appraisal

Dealing with Divorce: How an Equipment Appraisal Can Help

Posted by Equipment Appraisal Services on Tue, Mar 29, 2016 @ 10:00 AM


Divorce is almost virtually never a simple process. When people who shared their lives decide to leave a marriage, it's natural for each party to want what's best for them. When it comes to dealing with equipment values, having a professional equipment appraiser provide a machinery valuation helps ensure everyone gets a fair share of the business. Here's why.

Dealing with Divorce: How an Equipment Appraisal Can Help

  • Equipment values are different that that of home, auto or cash item values. While it's much easier to identify the value of common, everyday items, machinery values can have a range. This range can be manipulated by one party to ensure they're getting a better deal than the other party is receiving. This often plays out that the leaving partner wants a higher amount of the business than the remaining partner is willing to sacrifice out of concerns for whether the business is able to remain solvent. Which ever side of the divorce you're on, having an equipment valuation performed by a certified machinery appraiser means the value will be determined in a way that is fair to everyone.
  • You need to meet legal requirements. Though there are a wide range of appraisal methods that can be used on business equipment, the court system often limits the methodologies that can be used to determine equipment value when dealing with the dissolution of marriage. The most common methodology is determining fair market value, which takes a wide range of changing factors into account, to determine a value that is fair to both sides of the dissolution if the business is to remain in operation.
  • But what if there's a push for one partner to get out of the business? In cases like this or when the equipment needs to be sold quickly so that both parties can receive their appropriate profits, fair market removal may be used.
  • If a situation is in place where both parties want out of the business and need the money quickly to start their lives over, they may be willing to settle for liquidation value, which provides a significantly lower value for the machinery, but tends to produce a solid cash value for the equipment which would then be split equitably among the parties. Though this is a rarely used technique, it is still in place in many no-content divorces and similar situations where neither party is remaining vested in the company's interests.
  • Certified machinery appraisers can work from a variety of positions. They can be hired by one spouse, the other spouse or by council. They can also work for both spouses, helping both parties reach an equitable distribution of the business value. Because divorces often demand a certain amount of testimony, make sure your appraiser has experience working in that type of situation.

Divorce can be a messy process, but equipment appraisals helps make sure everyone's interests are addressed during the process. If you haven't had the chance to speak with a certified equipment appraiser, we're here to help.

Tags: Equipment Appraisal, Litigation, divorce appraisal

What Is Fair Value?

Posted by Equipment Appraisal Services on Tue, Dec 01, 2015 @ 11:00 AM


When you're considering having a machinery and equipment appraisal performed on your business equipment, you'll hear a lot of different terms used in regards to how equipment value is calculated. One of the more common terms you'll hear used is fair value. But what is fair value, how concrete is it in term of equipment values and in what situations is it used? Let's take a look.

What Is Fair Value?

Though it seems as though the value of machinery should be the same no matter your purpose, that's not always the case. In divorce proceedings where one person is buying out the other person's interest in a business, one party wants a low appraisal and the other a high one. In donation appraisals, both parties may want a higher appraisal than is warranted, so that one party can get a higher tax write-off and the other can claim higher donations to their cause. Fair value falls in the middle of these equipment appraisals.

Fair value is determined by using a solid methodology that is unbiased and is based on rational processes of determining the value. It looks at the costs of acquisition, replacement costs, utility, market demand, the risk involved and similar properties. Fair value is not always the same as market value, depending on conditions at the time. 

Is Fair Value a Final Value?

Fair value is determined using a consensus basis. A group of auditors will typically include the services of a machinery valuator, then the team takes into account many different factors and determines the best methodology and rationale to calculate value. After that, the calculated value is reviewed and either approved or rejected based on information uncovered during the review process, including whether the scope and objectives of the appraisal were appropriate choices, whether the machine appraiser had a truly unbiased view of the appraised equipment and if the machine appraisal as a whole was done using correct methods and formulas..

Because the reviewer will want to know the methodology used and whether the methodology fit in with the applicable standards, it's typically much better to use an accredited equipment appraiser to ensure that the proper processes were followed during the equipment valuation. In its most essential form, fair value is a more subjective value than the usual objective values determined by accountants using specific processes. 

In What Situations Is Fair Value Used?

There are a wide variety where fair value is used. Many financial reporting standards require or allow the use of fair value to report their company's assets and liabilities in a standardized fashion. It is typically much closer to the actual selling price of an asset than the asking price that a company wants to receive for selling that same asset. It is commonly used in accounting situations where a current value needs to be determined instead of basing the value on outdated historical prices or other accounting methods that may present an inaccurate financial picture of the business' assets.

Though many different calculations are inaccurately labeled fair value, now that you know the difference it will be much easier to arrange to have a machine appraiser provide the exact information you need to determine fair value. If you're still trying to find the right equipment appraiser for your company, please contact us. Our Machinery & Technical Specialties appraisers are accredited through the American Society of Appraisers and provide the best possible machine appraisal of your company's machinery assets.

Tags: Equipment Appraisal, valuation, fair value