Equipment Appraisal Blog | Understanding Machinery Appraisals

Did you know that 25% of businesses that go through a disaster or loss never open their doors again? This is primarily due to insufficient insurance or not being able to prove the value of equipment and other items that were lost. How do you protect your business against this kind of unexpected problem? An equipment appraisal can go a long way towards ensuring you have sufficient insurance to protect against a loss or proving equipment value for an insurance loss settlement. Here's how:

Need an Insurance Loss Settlement? Equipment Appraisals Get You There

Determining Insurance Coverage

When you're buying business insurance, you want to make sure your equipment is being covered for its actual value. Why? Many people rely on tax return depreciation as a quick guide to machine value, but the actual machinery value may be much higher or lower than what the standardized depreciation value allows.

If it's overvalued, you may be paying too much for premiums while not receiving the full amount you've paid for during a loss. If it's undervalued, the insurance company may balk at paying you the full value during a loss because you didn't pay for sufficient coverage. A machine appraisal can go a long way to provide proof of value for your equipment and help you decide how much coverage you need to cover business losses during a fire, flood or other disaster.

Dealing with a Loss

But what about when your business suffers a loss? During that stressful time, you want to reach a settlement as quickly as possible so that you can get new equipment and get back into the swing of things. When you do have a loss, can you prove what your equipment was actually worth? Having proper documentation complete by a certified machinery appraiser available for your insurance company helps to prove the equipment's value and goes a long way in an insurance settlement. It ensures that you'll receive a settlement that is both accurate to your loss as well as speeding up the process. Why? Because a certified appraiser's report uses a specific methodology and approach to determine equipment value. 

But what if you haven't had a machine appraisal performed before the loss? Fortunately, appraisers are often able to go back in after a loss and determine equipment values at the time of the loss by taking a solid look at the condition of the machinery, the market at the time of the loss, any repair and maintenance logs that are still available and similar information. Because this type of valuation is difficult, you'll want to make sure the appraiser you're working with is certified, has experience in equipment appraisal and specifically has experience in post-loss machinery valuation. 

By having a machinery valuation performed before you have a business loss, you can make the insurance loss settlement process go much more quickly and smoothly. But when determining your equipment values, make sure you're using a certified equipment appraiser who has a certification in or significant experience in machinery valuation. Why? Because documentation from a certified appraiser holds legal weight and will hold up in court if your insurance company is reluctant to pay out.

Oops! When you've made a donation, are involved in litigation or have had an insurance loss, there's nothing quite as concerning as realizing that you needed to have equipment appraisals performed after the fact. How do you fix this problem? In this article, we'll discuss retrospective appraisals and how they can help you get the documentation you need to fix these troublesome problems. Here's how:

Documenting Donations

One of the most common areas where retrospective appraisals are used is in donations to non-profit or not-for-profit organizations that were not properly documented at the time. Especially when you're looking at taking a tax break for the donation, you need to have documentation to take the deduction. If the documentation was not prepared at the time of the donation by an equipment appraiser, it can be really difficult to otherwise prove the value of the equipment you donated. But at the end of your business year, your accountant informs you that they need you to provide supporting documentation for your donation. If you're stuck in this bind, you can still save the deduction by having a retrospective equipment valuation performed by a qualified machinery appraiser.

Proving Litigation

Another area where retrospective valuation can come into play is in litigation. One example of this is when going through a divorce where you need to buy out your spouse's interest in the business or prove that you're not hiding assets. Your spouse  may claim that you're undervaluing equipment that you've sold to keep things solvent while the transition is underway, because they want to get everything they can out of the buy out. A retrospective equipment valuation helps prove that your equipment was worth a particular amount prior to being sold, documenting that you were not hiding or undervaluing business assets.

Insurance Loss

When you've suffered a loss that sets your business back, it's upsetting when you realize you don't have documentation of your equipment values. Whether you're dealing with the fallout of a storm, a fire or a theft, documenting the value of your equipment is a vital part of the claim process. If you didn't have a machinery valuation performed ahead of time, you may be having a difficult time proving what the equipment was actually worth, especially when the equipment was customized or has unusual features that your insurance adjustor isn't familiar with. A retrospective machine appraisal helps prove the exact value of the machinery when the loss took place.

Tax Issues

What about when you're dealing with a tax agency? Equipment can lose value quickly at times, especially if it is in a struggling industry or when technology quickly changes. When a tax appraiser doesn't have a solid grip on the value of the machinery you own and just uses accounting depreciation, it's difficult to prove your side of the appeal without documentation. A retrospective valuation helps prove that the machinery was worth looking at market conditions, the condition of the equipment and similar elements that affect your machinery's final value.

If you find yourself needing to do the time warp to prove equipment values, a retrospective equipment appraisal can help document past value. At Equipment Appraisal Services, our job is helping you document equipment values, even after the fact. Please contact us today for help with your retrospective machine appraisal.