If you are a business owner who has a lot of equipment operating every day from a production perspective, why not consider maxing out its working potential by tapping into its other benefits? Ownership has many perks, including the ability to turn hard-earned equity into cash. Gaining access to working capital will allow you to invest in other areas of your business, such as expanding personnel or buying more machinery to handle growth needs.

Although industrial machinery and heavy equipment (M&E) will depreciate over time, as opposed to land and buildings, they continue to hold significant value through the years, as long as they are well maintained. If you paid cash for them, or your initial loans have been satisfied, even if they are fully depreciated on your books, the actual market value of these assets can be determined and used as the basis for new debt that results in a significant cash infusion for your business.

When you begin working with a bank or other financial institution, take the time to develop a detailed listing of all your M&E, while providing access to your original purchase documentation, if required. The most important data to list out would be the general description year, make, model, and serial number (or VIN) for each item. Specifications such as production capacity, size, length, tonnage, or any important capabilities will be useful.

You and your preferred lending facility can work together to begin the process of developing estimate values for all the M&E while understanding the requirements of getting approved for your working capital loan. Keep in mind the bank is investing in you and your company, while taking a lien against the equipment as collateral, therefore, it will be important for them to become comfortable with the transaction. Most lenders will approve a certain percentage of Fair Market Value or look at more conservative liquidation values as the driver of the loan amount.

An important next step will be to engage with an experienced, accredited machinery and equipment appraiser, who can independently support the value of your assets. They will research the industry and develop opinions of value at various resale levels in the market while utilizing sources who are involved with the sale of new and used machinery. The lender may allow you to arrange for the appraisal directly or prefer to handle it themselves. In either situation, you will need to participate throughout the process, to ensure the appraiser has the optimal amount of information to best understand the history and current status of your M&E.

This type of unbiased report will independently verify a reasonable value for all your M&E, so you can get approved for that working capital loan your company needs to continue to grow and be successful today and for years to come.

Many businesses rely on the use of heavy equipment to produce the products and services they sell, such as earthmoving, truck transportation, building construction, and all types of utilities, energy, and manufacturing companies.

In certain instances, the value of the machinery is the most significant component of the balance sheet, and can even be greater than the annual revenue of the business. If you own or are considering investing in a company with this type of profile, understanding the current market value of these underlying assets is as important as reviewing historic and forecasted financial statements.

To effectively measure the overall value of a business, one should consider breaking it down by the prominent asset types, both tangible and intangible, which translates to the need for an independent appraisal for each of these areas.

It would be careless to rely on the company's internal accounting records and policies to measure the value of their machinery & equipment, as they generally utilize accelerated depreciation rates to amortize the capitalized cost as quickly as possible.

If the company has a high content of expensive, long-lived machinery & equipment with an average age of over 5 years, there is every chance that the market value of these assets is much higher than the net book value recorded by their accountants. This variance can be monumental, even for small businesses with lesser sales volume.

For example, a company with $20,000,000 of capitalized machinery and equipment could effectively depreciate the entire cost over 5 years, realizing a net book value of $0 after 60 months. If these assets are used in manufacturing or construction, the likelihood is they will have a normal useful life range between 10-20 years, as long as they are well maintained.

Based on this generic scenario, it’s not unreasonable to estimate the market value of these assets to be $10,000,000 or higher, if the equipment is still relatively young, and in good operating condition. The appraised value of the company’s equipment would then be utilized as a part of the overall business valuation, instead of $0. One might say that is a difference worth determining!

Whether your targeted company is heavily reliant on tangible machinery equipment or not, it is always a prudent decision to obtain an updated Fair Market Value appraisal for these assets to effectively measure their true worth

When it comes time to have a business appraised, whether it’s for a potential sale, purchase, re-financing, new partner investment, or even for internal planning and accounting, if the company owns personal property, machinery & equipment, it makes sense to consider valuing these assets as well.

A business appraisal will involve a review of the company’s financial statements, which include these tangible assets listed at some depreciated cost basis, and may not accurately reflect current market value. Especially if the property was purchased years ago and subject to a short-term, accelerated form of depreciation. This will lead to a likelihood that the net book value on the account ledgers for the personal property and equipment will be at or close to $0.

If the company being appraised will, in part, be affected by re-establishing the current value of the personal property and equipment, then engaging in a distinct appraisal for these assets should accompany the business valuation.

As an example, if the business appraiser is valuing a machine shop and, while reviewing the financial statements, finds a net book value of $100,000 in depreciated machinery & equipment, this is the figure he will use for the overall asset valuation analysis. If, however, an equipment appraisal is completed in conjunction with the valuation effort, and the current market value for these same assets is estimated at $500,000, then this figure will override the internal depreciated number, realizing a significant increase in overall tangible asset value.

This adjustment to the company’s books will truly reflect the overall value of the business and can be used for any of the purposes discussed earlier. It will also provide peace of mind to all parties involved in the larger transaction being reviewed, knowing that an independent third-party appraiser has updated the key components of the business that drive overall value.

There are a handful of appraisers in the marketplace who can value both the machinery & equipment and overall business for their clients. Many of them are larger, conglomerate-type companies who may overcharge you. Equipment Appraisal Services and our sister company, Business Valuation Specialists, can provide this capability to you at an affordable cost while delivering the highest level of service available. Contact us in the comments section below, at equipmentappraisal.com, or businessvaluations.net to see what we can do for you and your business.

When most people call an appraisal firm, it's to get information about having an appraisal performed. But because of the number of calculations involved and the knowledge behind those calculations, another question that is frequently asked is what does a machinery appraiser actually do every day? Here's a quick look at the regular tasks that take place in an equipment appraisal firm.

What does a machinery appraiser actually do on the job?

They talk to you on the phone, show up at your location, hem and haw over your equipment, go away, then present you with a report of their findings. Machinery appraisers have a somewhat mysterious job, because much of it is hidden behind the scenes. Here's what happens during the equipment appraisal process:

• When you first call in, the appraiser may be overseeing any number of projects, studying for continuing education for their certification, studying the newest figures on the longevity of a particular model of equipment or catching up on how the market is impacting values for specialty equipment within a specific industry.
• As they gather the initial information on your equipment, they're already going into calculation mode. "Does that have the optional backhoe?" they ask, knowing this will kick the value up further. "How many hours does it have on it?" knowing that particular model tends to either fade out at 4,000 hours or go strong up into the 10,000-hour range.
• Once they've gathered the initial information, they verify their own impressions of what the machinery is valued at. Though they may remember the estimated value as a starting point for a range of machinery, equipment that they're not familiar with will require them to find a baseline value from which your machinery's condition factors will be taken into account.
• When they arrive to inspect your equipment, it seems like they're spending a lot of time just looking at it. However, in that time, they're looking at whether the pulleys or gears are aligned, if the machine is making any unusual sounds, whether that stain is just an old issue or a sign or a serious hydraulic problem and similar aspects of the equipment that will impact its value.
• Back in the office, they take a solid look at the market. If you have oilfield equipment and the industry is in a bust cycle, that will have to be reflected in a lower value on your equipment. If, however, they see that there's a hot new discovery that's being leveraged, they can provide you with that information so that you can sell at a better price outside of your region.
• Finally, they take all this information to develop a solid valuation report. This report takes into account the market conditions, type and model of equipment, the condition the equipment is in, its expected useful lifespan and any number of other factors to calculate a final value for your equipment. It's written up neatly and can be appealed for a revision if the value doesn't seem correct.

By gaining a better understanding of what happens behind the scenes at an appraisal firm, you gain a better grasp of the knowledge and experience that a machinery appraiser must have to complete their job on a daily basis. When you understand this, it gives you a better appreciation for the information these certified professionals are able to provide about your company's equipment assets.