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

There will come a time when your business or individual practice will need to appraise your used equipment. You may have a desire to sell and replace with newer machinery, refinance an existing inventory, seek new investors, settle an estate or transfer the assets of the business into a new entity. Depending on the type of equipment you own and operate, the amount of data available to review in the marketplace will range from overwhelming to non-existent

The most difficult step in the process of estimating used equipment value is making sense of the information you uncover, or lack thereof. For commonly resold assets such as construction equipment, trucks, and forklifts, you can find many similar comparisons in the market, however, the range in pricing can vary greatly. On the other hand, if you own a specialized piece of machinery that is customized to your specific operational needs, the resale market will not be the best place to search for information.

Equipment appraisers face these challenges every day, which is an excellent reason to consider engaging with an experienced, accredited valuation expert to assist in this effort. Over time, a seasoned appraiser will have developed sound strategies to reasonably determine value regardless of the type of assets you own. In the meantime, here are a few tips that can help you along the way:

Consider Multiple Sources

It’s not uncommon to see used equipment with the same year, make and model selling for vastly different prices in the marketplace at the same time. This could be due to any number of variables such as condition, hours/mileage, location, and recent refurbishments being completed. Oftentimes it's simply because dealers are testing the waters to see if they can obtain an inflated price given no immediate concern to sell. With all these factors at play, it is difficult to make sense of the varying data.

It’s important to investigate as many distinct sources as you believe reasonable and see if you can determine patterns that will allow you to better value your equipment.

Look at Multiple Perspectives

Given the inconsistent data found in the marketplace, alternate perspectives can bring the valuation process into better focus. Research what you paid for the equipment when you originally purchased it and consider the history of your usage and time since it was acquired. Determine what you believe to be a reasonable useful life for that equipment along with typical levels of depreciation that make sense in the context of your experiences as an owner-operator.

Finally, consider contacting your local equipment vendor to discuss what similar new equipment is selling for and gather their opinions on the current market.

Recognize the Specific Premise of Value You Need to Measure

Appraisers can provide estimates of value at different market levels, and your situation may fall into one or another, as you determine the need to sell. If you are in a hurry to turn your assets into cash, or just don’t have a lot of time to market your equipment, consider an Orderly or Forced Liquidation. If you are selling the assets as part of a larger transaction and the purchaser will be taking over some or all of your operation, then Fair Market Value is realistic, with consideration for applicable installation costs and related expenses to bring the equipment into operation.

In summary, it is always a good idea to consider bringing in an experienced appraiser to help you through this analysis who can develop an independent, unbiased process that will be supported by one or all of these methodologies.

Tradesmen International's recent study of the economy and construction industry projects that the construction sector will be one of the fastest growing areas of the economy over the next few years. Where is your contracting firm positioned to take advantage of this growth? Using a machinery valuation as an asset to leverage your company's value may help you get the best growth from the current boom cycle before we hit the next downturn. Here's a quick look at several ways you can use an equipment valuation to improve your company's growth and solidify your position in the market.

Using Construction Machinery Valuation to Grow Your Company

• Does your equipment still have value, or is it just about shot? Because equipment appraisers spend all day looking at machinery, they have a pretty good idea of what regular wear and tear looks like compared to failing parts that may cause expensive repairs down the road. Use the information to decide whether to repair or replace your aging equipment instead of taking a wild guess at its longevity.
• Can you afford a lot of down time? By knowing what condition your equipment is in allows you to replace it when it makes sense, rather than waiting for it to break down and wreak havoc on your job site. Use the appraisal information to make planned replacements instead of having to make an emergency purchase at the wrong time. This allows you to make the purchase when you're ready.
• Do you really need that much insurance coverage or are you too low? It's hard to decide how much coverage you need on your equipment. When you have an equipment appraiser take a solid look at and value your machinery, it becomes much easier to know how much coverage to retain, especially since an appraisal report from a certified appraiser will hold up well under scrutiny by your insurance carrier.
• Are you ready to get that loan from the bank? The economy is still a little shaky, and financial institutions aren't as willing to put out loans as they were before the recession. Being able to document your equipment's value allows you to provide solid proof of your assets as well as providing a basis for collateral if it's needed for your business loan.
• Are your taxes in line with your equipment's real value? Property taxes are a pain, but if you've noticed a strong upswing in your taxes without a related asset purchase, you may need to fight the appraisal. By having the documentation you need, you can spend less time fighting your appraisal and more time investing the money saved in the process.
• What will that old equipment really sell for in the long run? When it's time to sell that old skid steer, backhoe or loader, are you just guessing what the market will bear or are you basing your asking price on real-world figures? Having an appraisal means you have a solid basis to back up your end of the negotiations.

By taking the time to have a machinery valuation performed on your construction equipment, you can leverage that information to get the best possible growth out of the current upswing. Consider each of these points carefully, then hire a certified equipment appraiser to get a high-quality report you can use for a wide range of purposes. 

After you've been in business a bit, you may have heard the term machinery valuation tossed about on occasion. If you've wondered what it's all about and why you might want to consider getting one on your own business, you're not alone. Here's a quick look at what exactly an equipment appraisal is and the many benefits it can bring to your company.

What exactly is machinery valuation and how does it benefit your business?

Most people have been through or are somewhat familiar with the process of having a home appraised or a vehicle valued when considering selling it or trading it in. Someone who seems to maybe know what they're doing will look it over, hem and haw and finally tell you what it's worth. This process tends to be a good bit more reliable in real estate than cars or trucks, but either process can be up to some level of interpretation. 

Now imagine this process but with machinery. You may be dealing with an equipment dealer, but much like the process of trading in a car, you'll often end up getting the value they want you to get - high if they need sales or low if they don't want to deal with selling your used equipment. Fortunately, there's a much better way to have your equipment assets appraised - by using a certified equipment appraiser.

When equipment appraisers work through the process, they are an independent third party. They don't have any reason to push for you to trade now or keep your current equipment. They simply analyze what is. Instead of worrying about what their commission will be, they can get into the nuts and bolts of your equipment, the industry and what it's actually worth. They use this information to create an equipment valuation report that provides you with a number of benefits:

• The appraisal itself tells you something about the condition of the machinery. Is there a particular part that you missed a recall on? Perhaps there's some wear that isn't that interesting in and of itself, but it could point to wear and failures elsewhere in the machine that could lead to expensive repairs.
• Because appraisers are familiar with your industry, they may know that though the region you're located in is currently in a slump, the market in another area may still be rather hot. They may even have some connections there, giving you the opportunity to make a profit off of machinery that would otherwise sit around or lose value.
• Certified appraisers use tested methodologies to calculate the value of your equipment. Because these methodologies have been around for a long time, they've been tested in court, tax agencies, financial institutions and insurance companies. That means they stand up to strong scrutiny, allowing you to save time when dealing with these organizations.

Now that you know what a machinery valuation is and the many benefits of having one performed on your equipment assets, it's time to act. By having an equipment appraisal performed on your assets now, you can help avoid a lot of hassles no matter what life throws your way. Make sure you work with a certified equipment appraiser to ensure that they're familiar with the many factors that can come into play when you have your machinery appraised.

When you deal in international trade of equipment, it's very easy to end up with questions about your import and export documentation. How do you back up the information in your documentation to ensure your machinery passes easily through customs. One method is using equipment appraisals to back up your paperwork, but how should you approach the valuation process? Here are some details on how an equipment appraisal from a certified equipment appraiser can help provide documentation that will make your customs experience go more smoothly:

Papers Please: How Machinery Valuation Supports Import and Export Documentation

Avoid Customs Hassles

Going through the customs process can be a very complicated process. Some businesses choose to simply avoid dealing with international business. But the benefits of purchasing or selling often outweigh the drawbacks of dealing with customs. Because a certified equipment appraiser's report follows certain protocols as it is drawn up, customs officials give more weight to the report's value and are less likely to scrutinize or impound the machinery while working through the process.

Legal Documentation

Import and export paperwork, if not completed properly, can lead to legal troubles with customs. If you've had the value of a piece of machinery questioned at customs, having a machine appraisal on hand to prove the documentation of the machine's value goes a long way towards resolving the situation without additional hassles. Because an appraisal report from a certified equipment appraiser follows standardized methodologies, it's accepted in many legal situations where a rough estimate will not be accepted.

Certification Matters

Why is a certified appraiser's report better able to stand up to scrutiny than, for example, an advertised price for a similar piece of equipment or the estimated value from an equipment company's sales representative? The certification process teaches the machinery appraiser what to look for in equipment to determine value. It teaches which type of value can or must be used in certain circumstances and what the differences are between the various types of appraisal values. It teaches specific methodologies that have been standardized across the board to provide a fair value for the equipment that is being appraised. Working with an uncertified appraiser means the money you're paying may not give you a report that will stand up to scrutiny in customs.

Standardized Methodology

The certification process includes instruction in standardized appraisal methodology, so any certified appraiser can come up with a similar result when faced with the same situation. It teaches the best kind of appraisal approach to use in different situations.  For example, if you're selling the equipment because of a divorce, you may be required to meet fair market value or other type of valuation process as determined by the court overseeing the divorce. Same goes for importing and exporting.  Having a standardized methodology means the valuation that is being performed will be uniform across the industry.

When your business deals with machinery on the international market, having a certified equipment appraiser's machine appraisal support your import and export documentation can make the process much easier. The standardized methodology used by a qualified equipment valuation specialist bears up against scrutiny.