Equipment Appraisal Blog | Understanding Machinery Appraisals

Why a Machinery & Equipment Appraisal after a Purchase is Necessary

Posted by Equipment Appraisal Services on Thu, Nov 05, 2015 @ 03:00 PM

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If you have just purchased a large piece of equipment, then you may wonder why you would need to have a machinery valuation done. After all, wouldn't the equipment be worth the price you just paid for it? Not necessarily. Learn the benefits of having a machinery & equipment appraisal performed after a big purchase to ensure you make the most of your new asset. 

Why Have Equipment Appraisals After a Purchase? 

Top reasons to have a piece of equipment valued after a purchase include:

  • Reset fair market value - The business that sold the equipment to you probably did so at the point at which the piece of machinery had no book value to them. Perhaps they got a new excavator when their old one had fully depreciated on their books. Yet, you know that an asset like a used excavator still has a lot of life left in it. With an appraisal, you can reset the fair market value so that you can claim depreciation on the item. For your tax purposes, establishing equipment values is the first step toward being able to depreciate the item.
  • Insure the item - When it comes to something as large as an excavator, a machine appraisal is critical to protecting the item through insurance. If something were to happen to the excavator, would you have enough money to repair or replace it without affecting your profit and loss? If not, then you need the protection that insurance offers. An equipment appraiser can set the fair market value of an item so the insurer will cover it at its worth. 
  • Determine replacement cost - Ideally, your excavator will perform well for many years to come. Yet a smart business owner always covers themselves in case "the worst" does happen. By getting an equipment value from a machine appraiser, you can establish the cost to repair or replace equipment pieces as well as the whole machine. This allows you to make informed decisions about equipment repair and determine when the machine costs more to repair than it would to replace, saving the business money. 
  • Boost business value - It may seem strange that a machine appraisal can positively impact business value, but it is true. When you have all equipment appraised, including new-to-you used machinery, your business can have an overall higher value. This occurs in part because appraised value is higher than depreciated value. 

If you have purchased a large piece of equipment, or if you are planning on doing so in the near future, identify equipment appraisers who have expertise in your specific niche. This way, you can have them appraise the equipment so you can take the necessary steps to protect yourself once you move the new asset into business usage. 

When moving through the process of machinery appraisal, it is necessary that you work with an equipment appraiser who really understands what you do and how to value the piece of equipment that you use. This way, you end up with a fair market value for your large item that is accurate and fair. An inexperienced appraiser could guess at the value and accidentally lead you astray. 

If you would like to learn more about the equipment appraisal process for used machinery, or if you want to talk to an industry expert about valuing a piece of machinery, please contact us at Equipment Appraisal Services.

Tags: equipment appraisals, machinery & equipment appraisal

Protect Your Business Assets with a Forestry Equipment Appraisal

Posted by Equipment Appraisal Services on Thu, Sep 24, 2015 @ 01:00 PM

With the severity of the western wildfires this summer, it's hard to not feel the impact in the forestry and logging industry. But have you considered what the direct results would be if your logging equipment was lost in a fire? Wildfires can be unpredictable, and a fire can completely ruin a piece of equipment. If you haven't had a proper forestry equipment appraisal completed by a qualified equipment appraiser, you could face serious losses that could close your business. Here's how a forest equipment appraisal helps protect your business' bottom line.

No More Guessing at Equipment Value

Sure, you know what log loaders were going for at the last auction you attended, but is that what your equipment is really worth? Instead of grasping at straws and only having a vague idea of what your equipment is worth, you'll be able to get a solid picture of what your equipment value actually is and the methodology used to help determine that figure. Certified machine appraisers only appraise machines, so they have the experience of not only knowing what similar machinery is valued at, but your specific machine, including information on its condition, any manufacturer-approved kits or upgrades and other details that are often lost in the shuffle of everyday equipment values and sales.

Proper Insurance Documentation

Having to work with an insurance company can be really frustrating, especially when you don't see eye to eye on the value of your equipment following a loss. Take the example of a wood grinder that makes mulch, a very expensive piece of machinery that could cause serious problems for your business if it wasn't covered in a loss. The insurance company might base its coverage based on the industry average, which probably assumes that proper maintenance and cleaning isn't performed. The insurance company could even claim that the grinder was a fire risk because it wasn't being taken care of and that they don't need to pay the claim because the loss happened due to negligence.  Having equipment appraisals done on your machinery helps you back up the machinery's value with your insurance company, making it easier to get a claim processed for the full value of the machinery.

Get a Machine Appraisal with Legal Standing

What if your machinery is lost because of someone else's negligence or if your insurance company needs to be taken to court to get the full value of the machinery back? A machine appraisal provides legal proof of your machine's valuation that will hold up in court - if it's done correctly. To have legal standing, a machinery and equipment appraisal must be completed using the Uniform Standards of Professional Appraisal Practice by American Society of Appraisers-certified equipment appraisers. It also provides legal proof of machinery value in a wide range of other circumstances, from business sales and tax assessments to financing collateral and creating an accurate picture of your business' financial health.

Your potential for loss without a proper machinery and equipment appraisal goes far beyond wildfires, however. A bad economy, poor bookkeeping and high property taxes are other possible sources that can be helped with proper equipment appraisals performed by a qualified machine appraiser, by providing access to financing, giving you a sound picture of your business' financial health and options for appealing an inaccurate personal property tax assessment. Talking to a reputable machine appraisal company about having a quality equipment appraisal performed today to protect your business.

Tags: equipment appraisals, forestry equipment appraisal

How an Equipment Appraisal Can Help with Asset Risk Management

Posted by Equipment Appraisal Services on Fri, Aug 14, 2015 @ 08:30 AM

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Can you think of any situation where an asset you own is free from risk? Financial assets such as stocks and bonds are subject to multiple risks such as company performance, a change in interest rates or a sustained market decline. Physical assets, such as machinery and equipment, are exposed to risks such as mechanical breakdowns, safe operation, and gradual obsolescence due to new technology.

To lower risk and help protect the assets you own, it is incumbent upon you to engage in asset risk management. While your financial advisor can manage your portfolio of investments to lower your exposure to excessive financial risk, they are not qualified to produce detailed reports that quantify risks associated with physical assets. Equipment appraisers provide the detailed information you need to develop a proper asset risk management plan for the machinery and equipment used in your business. 

Machinery and Equipment Appraisal 

If you are buying a business that includes expensive machines and equipment, you don't want to guess what that machinery and equipment is worth. If you already own a business and are trying to decide whether it is better to buy new or used equipment, you definitely need to know something about machinery and equipment values. A machine appraiser or equipment appraiser can do a detailed machinery and equipment appraisal on the used machinery or equipment you are considering. You can then use that appraisal to make an informed purchase decision.

Take the case of a developer who is looking to purchase a piece of heavy equipment. A new track-type tractor that is capable of bringing down a building or leveling rocky terrain, could cost millions of dollars. Even a used Caterpillar track-type tractor can run into the high six-figures. When investing in such an expensive piece of heavy equipment, you can not rely on the seller's price or your personal opinion to determine the worth of the used equipment. You can almost be certain that the seller had an independent machine appraisal before setting a sale price. If you do your own machinery valuation, you can do a better cost/benefit evaluation before deciding whether to buy used or new. 

Other Areas of Concern

The components of asset risk management include identifying, assessing, and prioritizing risk. Following is a list of some of the potential risks an equipment owner might face.

  • Breakdowns that can lead to production delays and lost revenue 
  • Liability in the event that someone is injured by faulty or unsafe equipment
  • Lack of adaptability and customization
  • Limited capacity that can limit sales growth and future opportunities
  • Challenges you face from competitors in your industry because they have more technologically advanced equipment (lower production costs, able to do more with less, etc.).

When you know the potential problems, you can manage risk. Each of these possible asset risks can be managed. Insurance can be purchased to cover the machinery, an injured worker, or the loss of business due to a forced shutdown of the machinery. An owner can develop contingency plans such as temporarily outsourcing production while crucial equipment is being repaired or replaced. Equipment can be inspected more frequently and the interval of time for regular maintenance can be shortened. You can plan your future equipment needs when the equipment appraisal report estimates the remaining useful life of your equipment.  

Take Control of All Your Assets

Unlike financial assets which you can track by simply looking at a monthly statement, the performance and value of physical assets are a little more difficult to assess. You need expertise and experience to evaluate the worth of your equipment. Qualified equipment appraisers can accurately determine the current value so you can better manage those physical assets.

Tags: equipment appraisals, asset risk management

How a Woodworking Equipment Appraisal Protects Your Investment

Posted by Equipment Appraisal Services on Fri, Aug 07, 2015 @ 06:30 AM

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Whether you just play around on the weekend with some quality woodworking tools or are a dedicated professional woodworker who has spent years developing your craft and investing in only the best quality equipment, having a professional machine appraiser provide an in-depth woodworking equipment appraisal means you know what you have and what it's worth when it's time to trade, upgrade or collect damages from a shop disaster, especially as growing demand in this $710 million plus annual industry is expected to continue growing at a rate of 3.4% over the next five years. Let's take a good look at how a machinery and equipment appraisal helps you protect your investment.

The Equipment Appraiser

To properly protect your equipment, you'll want to make sure you're dealing with American Society of Appraisers credentialed equipment appraisers using the Uniform Standards of Professional Appraisal Practice. Hiring an appraiser for a machinery valuation who is not certified means the report produced may not be accepted by insurance companies if you suffer a loss.

Equipment Appraisals Process

The appraiser will take a good look at your machinery, both as it sits and in operation. He or she will take note about the manufacturer, the model, any features it has, any additional kits, upgrades or modifications that have been added, how well it runs and if there are any areas where it needs repair or maintenance that affects its performance or equipment value. All these details tie in to the final machine appraisal report that is prepared.

What Your Woodworking Equipment Appraisal Helps With

So what can you do with that shiny new equipment appraisal? Provided that it was obtained using a an ASA-certfied appraiser and USPAP standards, it can give you real insight into where your equipment values stand and prove the value of the equipment to your insurance company if you suffer a fire, tornado, earthquake or other damaging event. It provides documentation of its worth when your tools have been assessed way too high by your local tax assessor. If you're getting ready to go professional and need to secure a business loan, it helps prove the collateral value that's available to the financial institution you're using, and then provides an accurate valuation for tax and accounting purposes later on. A quality equipment valuation provides a starting point for negotiations if you're selling some of your equipment or trading it in for an upgraded model.

What an Equipment Appraisal Won't Do

There are, however, limitations to what an equipment appraisal will do. It won't make your 1963 off-brand table saw suddenly worth $5,000 - unless, of course, it is actually worth $5,000. It won't lower your tax assessment if the assessment is accurate (it's up to you whether you mention it to the tax assessor if your assessment is too low). It may or may not put your kids through college, but if you could afford to spend a college-education's worth of money on woodworking tools, you're probably a good enough woodworker to be able to send your kids to school without selling your hard-won tools. You get the picture.

Having a quality machine appraisal performed on your woodshop tools is a great way to know exactly what you have and what it's worth, whether it's for business purposes, tax accounting, insurance use or just to know what it's really worth. Schedule an appraisal today to protect your investment.

Tags: equipment appraisals, woodworking equipment appraisal

Equipment Appraisals and the Allocation of Assets

Posted by Equipment Appraisal Services on Mon, Aug 03, 2015 @ 08:30 AM

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When a business or manufacturer purchases another entity, Equipment Appraisal Services is often called in as equipment appraisers to provide an allocation of assets. Since a purchase price is often based on a number of factors such as real estate, buildings and equipment, inventory, goodwill, licenses and patents, and anticipated future income, it can sometimes be difficult to set values for each of these assets. Once the entities are combined, there is usually a further co-mingling of assets which makes it even more difficult to specify individual machinery valuations.

Depending on the purpose of the allocation, it may be based on “fair value” under various existing accounting standards or “fair market value” under the parameters of the U.S. Internal Revenue Code. In the immediate aftermath of the acquisition, an allocation of assets is used to set up accounting records and depreciation schedules. Fair value is the assets value at the measurement date.

When an allocation of assets is used as the basis for federal income tax reporting purposes, “fair market value” is used. This is the estimated amount that may be reasonably expected for a property in an open market exchange between a willing seller and buyer.

Both the buyer and seller of a business will need to report to the IRS how much the business was sold or bought for and the make-up of the price.  Since both parties are reporting the numbers, there needs to be consistency.

Beyond the allocation of purchase price, there are other examples where equipment appraisals might be required.  These include:

  • Insurance Claims: In the event of an accident or natural disaster, it may be necessary to set an equipment value on some of the assets of a business. If, for example, a fire damaged half of a manufacturing plant, the insurance company would want to know the value of the affected machinery.
  • Divorce Litigation: Divorces can get messy when the partners are also business partners. Each may be entitled to a share of the business. In addition, a divorce settlement may entitle a non-business partner to a certain percentage. In either case, it may be necessary to conduct a machinery and equipment appraisal in order to ensure an equitable distribution of assets.
  • Loan Financing: It is often necessary to put up asset collateral as a guarantee when borrowing money from banks or the Small Business Administration. If your business needs to borrow $1 million to purchase new equipment, our machine appraiser will help find the combination of existing equipment that will satisfy the lender’s requirements.
  • Donations: In some cases, you may decide that a piece of equipment has served its purpose for your business, but that it could still provide a valuable service if donated to a charitable organization. In this case, a donation appraisal will help to determine an accurate value for the machine so that it can be removed from your depreciation schedules and recognized as a charitable donation for tax purposes.

Equipment Appraisal Services is a nationwide provider of certified machinery and equipment appraisals for insurance recovery claims, divorce and partnership dissolutions, gifting and donation justifications, litigation, bank financing collateral, allocation of assets, property tax appeals, mergers and acquisitions, estate settlements, financial reporting, and risk management.

Tags: equipment appraisals, allocation of assets