Equipment Appraisal Blog | Understanding Machinery Appraisals

If you're preparing to sell a company, odds are you have a lot on your plate. It may seem tempting to streamline the process and skip steps to get the business sold. One step not to skip is a business appraisal that includes equipment values for key business assets. Learn how an appraisal protects you and the business you've worked so hard to build, while ensuring a smooth sales process. 

Why Get a Machinery Valuation Before Selling a Company

A prospective buyer of your business wants to make sure they are getting a good deal. They want to know the business has a convenient location, efficient processes, skilled employees, a loyal customer base, and (last but not least) the right tools for the job. With a business appraisal demonstrating the values of equipment and machinery, you can position the company for a quick sale at a fair price. This often means getting a machinery and equipment appraisal in addition to a business valuation.

In a machinery valuation, an equipment appraiser reviews the business assets. The appraiser researches the value of machinery based on age, condition, "useful life" and other factors. 

The information presented in an appraisal may spell the difference between selling your business quickly and struggling to command offers for your company. Rather than avoid getting an equipment appraisal because you don't want to waste time, consider getting the appraisal to save time and effort. If you have to wade through lowball offers because you didn't properly prepare your business to sell, you'll come to regret it. 

If you get an appraisal when the sale is far off, you can make informed decisions based on their equipment value. For example, you can go ahead with routine maintenance for your tractor or invest in new wheels if these repairs are likely to keep the equipment at a high value. If your tractor is only worth $2,000, and you know you'll be selling the business soon anyway, you can instead use the money you would have spent on maintenance for something that will add more value to your company. 

What to Expect in a Machinery Valuation

When you schedule an appraisal, an appraiser will visit your factory or plant and inventory all equipment. The appraiser will then examine all assets, take photographs, and gather data. They might ask to see service records, which indicate how well the machinery was cared for. For example, an appraiser might review a business vehicle service log or photograph the dented frame of a forklift. The appraiser will then review their findings and compare the age and condition of your equipment with comparable pieces in use elsewhere. Taking all the data into account, the appraiser will then issue a machinery valuation for your business equipment. 

The valuation gives you a starting point when selling the business and helps potential buyers understand the true value of your company. By providing third-party proof of value, an appraisal can make the sales process easier on your end. Potential buyers who do not understand the true value of your business will leave, while those who are serious about investing in your business can make a deal.

Equipment appraisers who are familiar the industry you work in are the best choice to conduct the machine appraisal, since they understand the equipment, processes, and tools. Find equipment appraisers with relevant industry experience and schedule an appraisal ahead of time, so you will not be rushed. This way, you can make decisions without feeling pressured. 

When your company is undergoing a change in ownership, you may already be having enough to do just keeping things going. But have you considered how a metalworking equipment appraisal can help? Here are some situations where getting a metalworking equipment appraisal done ahead of a serious change can help make things go more smoothly and with much less drama:

Bankruptcy

In a bankruptcy, you may be forced to liquidate your assets to pay some of your creditors, At this point, a machinery valuation is often based on liquidation values, either through an orderly liquidation, forced liquidation or liquidation in place. Having a machine appraisal completed by a qualified, certified machine appraiser helps ensure that you can sell the least amount of equipment to settle your debts, helping keep your company more intact than may otherwise be possible.

Divorce or Partnership Dissolution

Though this type of situation can also lead to asset liquidation, it's much more likely to be finished amicably if both sides know that a fair and logical process of determining equipment values has been followed. In this type of situation, the party getting out of the partnership will often want the highest possible valuation while the other party will want the lowest valuation in order to pay the least amount to keep the business solvent. Having a certified machine valuation specialist develop a quality report based on standardized methodologies helps ensure that both parties get a fair equipment value.

Corporation Restructuring

When certain laws went out of effect a few years back that were keeping C corporation taxes low, many businesses have begun considering changing their corporate structure to a pass-through organization such as an S corporation. If company equipment values have been inflated in the past or not properly depreciated, they could carry inaccurately high capital gains through the conversion process. In businesses where this has happened, the amount of capital gains often completely wipes out any potential tax savings that the company would otherwise have realized during the through the restructuring process.

Business Sale, Purchase or Merger

How would you like to go to the negotiating table with a tool that helps guarantee that you'll get a fair price for the company you're selling, buying or merging? Equipment appraisals help provide legal documentation to back up your asking price, but only when they're completed by a certified equipment appraiser. Because metalworking companies often have a lot of capital tied up in machinery value, knowing the exact fair value of that equipment is a very strong bargaining chip when negotiating a business ownership transaction.

Settling an Estate

When a business owner passes on, there can be a million tiny and not-so-tiny details to attend to, especially if the owner died unexpectedly. Because estate taxes can take a large chunk out of a business legacy, knowing exactly what the equipment is worth makes a big difference in how large a bite the IRS takes. If the business owner wished for donations of equipment to be made, a certified appraisal report must be filed with the proper IRS form to ensure the donation can be tax deductible.

By having a metalworking equipment appraisal already in place, you can avoid some of the hassles and headaches these situations may create. If you haven't had a chance to have a quality machinery and equipment appraisal performed by a certified machine appraiser, why not take the opportunity to do so now? At Equipment Appraisal Services, our highly-qualified equipment appraisers are ready to help at any time. Please contact us today with any questions or to schedule an appointment with an equipment appraiser.

The price you would be willing to accept if you were selling a company is highly related to your motivation for selling your company. If someone came up to you and held a gun to your head, you would probably agree that any price they suggested was reasonable.  If you were a billionaire and decided you were tired of one of the companies you owned, you could take your time and wait until you got the price you wanted.

Before selling a company with assets that include expensive machinery and equipment, it is important to know the machinery and equipment values. A machinery and technical specialties (MTS) appraiser is the person to call because he or she has the specific knowledge and expertise it takes to accurately determine machinery and equipment value. A professional equipment appraiser will do a thorough analysis of the equipment, taking into account its age, condition, replacement cost, and many other factors. In addition to the in-depth analysis of the machinery and equipment, the reason for selling a company will help the appraiser provide you with the most accurate equipment appraisal.

Levels of Machinery and Equipment Values

Levels can be thought of as reasons for selling a business. While there are many nuances to machinery valuation, most sales can be categorized as being sold at fair market value, at an orderly liquidation value, or at a forced liquidation value. Each of these values take into account the uses for the equipment, the compulsion to buy or sell, and the time that you have to sell.

Fair Market Value

Used machinery equipment appraisals are opinions and the value quoted is a starting point for negotiation between the buyer and the seller. It is natural for some tension to exist between the two parties to any negotiation. If a buyer is in desperate need of a seller's equipment, the seller can usually negotiate a higher price. If the seller "needs" to sell equipment, the buyer may get the equipment for a bargain. When a willing seller and a willing buyer are under no compulsion to buy or sell machinery or equipment, a machinery and equipment appraisal can help to establish a fair market value and facilitate a sale. 

Example: A seller could command top dollar for his machinery under the following scenario. A crucial piece of machinery breaks down and halts the production line. For every day the machinery is down, the company loses $10,000. The owner of the manufacturing company finds out that it will take three months to fabricate a new machine. So, he scrambles around and finds another manufacturing company that has the same type of machine. Under normal circumstances, the machine may have a fair market value of $50,000, but because the buyer is in a desperate situation, the seller can ask and get $70,000 for his machine.

Orderly Liquidation

In an orderly liquidation, the seller has a reasonable amount of time to sell the company's machinery and equipment. A machine appraiser would consider the date at which the machinery must be liquidated and the reasonable valuation that would attract a willing buyer within that time period. An example of the need for an orderly asset liquidation might be an owner who wants to retire by a certain date and will need the proceeds of the sale to buy his luxury condo in Miami Beach.

Forced Liquidation

A machine appraisal would probably come in at the lower end of the spectrum when the sale of a machine is mandatory and not a matter of choice. A judge in a bankruptcy case may order the machinery, equipment, and other assets of a company to be liquidated in an attempt to compensate unpaid creditors.

Equipment appraisers are careful to examine all the factors that go into the value of equipment. Sometimes, why you are selling is almost as important as what you are selling.