Equipment Appraisal Blog | Understanding Machinery Appraisals

Companies in many diverse forms of commerce such as construction, automotive manufacturing, tool and die fabrication, aerospace, and foundries often rely on the use of heavy-duty industrial equipment and freight vehicles to get the job done. Quite often during the course of ordinary business, an accurate accounting or estimation of the value of that equipment is required. That is when your company needs the services of a professional industrial equipment appraiser.

The need for an accurate equipment appraisal might be based on a business reason, or it could be required by a bank, lender, government entity, court, or accountant. At these times a simple book value or “guesstimate” of the equipment value simply will not do. An industrial equipment appraiser provides an accurate, legally defensible estimate of the value of equipment in accordance with the guidelines and Uniform Standards of Professional Appraisal Practice (USPAP). Here are just a few of the many reasons why your business might need the services of an industrial equipment appraiser:

• Business is good: If you are thinking of merging, selling or expanding your business, you want to have a good handle on how much it is worth. A certified appraisal gives you leverage with potential buyers, and is often required by banks to justify collateral estimates if you decide to take out a loan to finance your strategic growth. Effective in January 2014, the Small Business Administration updated and clarified its Standard Operating Procedures regarding appraisals and valuations accepted for its Lender and Development Company Loan Programs.
• Business is bad: Sometimes it happens that a business just doesn’t work out, and you need to have an appraisal performed for a partnership dissolution or bankruptcy filing.
• Always be prepared: We never expect the worst-case scenario to happen, but we certainly need to be prepared. An industrial accident or natural disaster might occur which would require definitive proof of the equipment valuation for insurance reimbursement purposes. If you can’t prove what the equipment is worth, the insurance company might be left to its own best guesses and that seldom works in your favor.
• Tax and accounting purposes: Quite often your accountant will request an equipment appraisal to back up tax return and depreciation schedule information. Also, businesses that are converting from a C to an S Corporation will require an up-to-date appraisal to verify the value of the company at the time of the conversion.
• Shareholder accounting and Sarbanes-Oxley compliance: Public companies have an even higher degree of fiduciary responsibility to shareholders. They also have to be in compliance with the Corporate Responsibility Act of 2002, which was designed to improve financial disclosures from corporations. Provisions of this Act require increased corporate responsibility for financial statement accuracy and impose severe criminal penalties for non-compliance.
• Personal needs: In certain companies, personal needs will sometimes overlap with business functions. If an owner or major shareholder is going through a divorce, setting up an estate, or creating a personal trust, an accurate accounting of the business assets and equipment will be required.
• Lawsuits: Businesses that are splitting up, or those that are called to defend themselves in a court situation, will need to justify the stated value of the company.

An accredited appraiser takes many factors into consideration to arrive at an accurate equipment appraisal. The skills and experience of an unbiased industrial equipment appraiser will result in a Certified Appraisal Report that you can rely on with confidence to meet any individual reporting requirement.

If you spend any time looking at the news, you're probably noticing the same thing we are - the more the news says, the more uncertain the market looks. How do you make smart business decisions when the market seems to be in a constant state of flux? Surprisingly, an industrial equipment appraisal may help. But how does knowing the value of your industrial equipment help your business get through these changes in the market? We thought you'd never ask:

Weather market changes with an industrial equipment appraisal

• A poor economy tends to cause a related rise in crime. Having an equipment appraisal helps ensure that you can recover the full value of your equipment from your insurance company when you have a theft at your business.
• A poor economy also increases the number of people who are homeless. We've all heard horror stories about a squatter's fire getting out of control and burning down any number of buildings in the area. A machinery valuation can prove the value of your equipment even if it isn't performed until after a loss.
• Of course, a good economy means governments want to raise taxes. Have you ever received a property tax assessment that was so high as to be completely ridiculous? A machinery appraisal proves the value of the machinery using standardized methodologies that have stood the test of time.
• Tax increases also provide the opportunity for tax deductions when you donate your industrial machinery to a worthy cause. But how do you know how much the donation is worth? Having an appraisal performed provides rock solid documentation of the value of the equipment you've donated.
• Are you considering expanding your business? When the economy was doing poorly when the housing bubble burst, new regulations came into effect to tighten access to business loans. Having your equipment valued provides you with documentation so you can use your equipment - and only the right amount of equipment - as collateral to secure a loan for expansion.
• When the economy is recovering, it's very tempting to upgrade your industrial machinery so you can increase production, improve quality and similar concerns. When you have a machinery appraisal, you know exactly what you can get for your old equipment to help finance the purchase of the upgraded machinery.
• If you're ready to expand your business but have sticker shock over the cost of new equipment, have you looked at used machinery? Having an equipment appraisal on a used piece of machinery ensures you'll know what kind of conditions the equipment is in and won't have any nasty surprises.

Whatever happens with the market and economy, having an industrial equipment appraisal can help you keep your business running smoothly. But where should that appraisal come from? Though you could get a quote from a local dealer, their focus is selling you equipment, which will color their appraisal. They may say your equipment isn't worth much or that it's worth far more than you think it should because they want it as a trade-in. You could look in the local paper, but unless there's another business in the area selling the same equipment you are, it's not going to be an accurate assessment either. Using a certified equipment appraiser ensures that you'll receive an appraisal report that will stand up to scrutiny in legal, financial and insurance circles.

When your business involves industry, it can be difficult to operate without excessive risk. A change in your electricity rates, a supplier goes out of business, an employee gets hurt on the job and you have to cover OSHA fees: all these issues can cause a drastic change in your overhead expenses. One area that is often overlooked is your equipment. How do you know exactly what your equipment values are? If you don't know, how can you make intelligent decisions about your business that won't expose it to risk? One tool many business owners use is an industrial equipment appraisal.

How an industrial equipment appraisal helps reduce business risk

Did you know that your industrial machinery can have more than one value? How do you know which one is the right one? Some business owners go with depreciated value on the tax records, but that doesn't provide an accurate value for the 20-year-old pump in your factory that was fully depreciated ten years ago but still continues to function day in and day out. It could be that you have equipment that has not been fully depreciated yet but had to be used hard during a crisis and is in imminent danger of failing prematurely. Using tax accounting records to determine machine value can make it impossible to operate your business effectively.

If your equipment is overvalued, you may offer it as collateral for a loan so you can take advantage of a fabulous new business opportunity. But what happens when the opportunity falls through and you're on the hook for more than your equipment is worth? If it is undervalued, you may be reluctant to take advantage of an opportunity that would lead to significant growth for your company. How do you know which way to go at that point?

Many entrepreneurs use a machine appraisal to get a better idea of what their assets are worth in the real world. Quality equipment appraisals deal with issues such as expected remaining useful life, giving you an idea of how long the equipment may last before it needs to be replaced. It looks at market conditions, and whether your equipment is in demand or if there are already too many pieces of similar used equipment on the market that are driving the prices down. It will consider whether the equipment can keep up with rising trends, such as integrated sensors and reporting that is quickly becoming the norm for new products. 

What about your equipment's location? If it took some serious work to get it in place, it will take serious work to remove it if it is sold. A good machinery appraiser will take that into account when calculating the equipment's value. What are the circumstances for the appraisal? The court may require a particular type of appraisal methodology in divorces or hostile partnership breakups. All these aspects are taken into account when  you work with a good machinery valuation specialist.

By having an industrial equipment appraisal performed, you can avoid much of the risk prevalent in many industrial businesses. But before you hire just any appraiser, it's important that you find an equipment appraiser who is certified to ensure the machinery valuation report they produce will stand up to scrutiny.