Equipment Appraisal Blog | Understanding Machinery Appraisals

When appraisers are tasked with valuing equipment in industries which are continuously evolving due to events such as technology improvement, law and regulation revisions, or new government initiatives, how do they adapt to the likelihood there will be limited market data and comparable resale information available to consider.

Some of these ever-growing markets include biotech, cannabis, solar energy, and electric-powered vehicles. There are businesses popping up all the time in support of these industries that need capital to withstand the early stages of growth and become successful. The assets of these companies will be limited to the property and equipment being acquired to operate, with many types of machinery having little to no resale history to research and estimate value for.

The fact is that appraisers come across these types of challenges quite often, even with long-established businesses that operate customized equipment with similar limitations in the secondary marketplace. So how do they adjust their approach knowing that comparable sales data will be virtually non-existent for these types of machinery?

Fortunately, an experienced, accredited appraiser understands there are two primary methodologies that are established and supportable, especially when used in tandem, to complete a reliable and defendable equipment valuation. Once it is determined that comparable equipment resale data will not be a factor to consider, the appraiser will look to contact the manufacturers and vendors involved with the specific build, as well as similar types of equipment in the market.

The focus of the discussions should revolve around opinions of replacement cost new, useful life, and reasonable levels of market depreciation expected over this period. They can also gather general research on the equipment and overall marketplace available from relevant third-party websites with experience in the industry, to better understand the ability to resell the equipment in the future.

Another important component will be obtaining and reviewing the actual investment for the equipment, including the purchase price and costs associated with the installation. This can be found in documents such as purchase orders, quotes, invoices, and capital asset accounting records.

Once the research is completed in these areas, the appraiser can reasonably estimate value for these more unique and specialized assets, that have little to no resale history associated with them. The ability to still consider market sources under this type of approach will balance the investment cost information provided by the business, resulting in a reliable appraisal.

These emerging and expanding markets will eventually have a history that an appraiser can rely on going forward, however, the ability to adapt and utilize the resources available in these early stages, is critical to meet the current challenges appraisers face today.

Regardless of the industry you work in or the business you own, there will likely come a time when you need to obtain an updated equipment appraisal as you continue to transact in the marketplace. Whatever future plans you have for your business, it is very likely that an appraisal of your capital assets will be beneficial to the process, and possibly even a requirement.

Here a few of the most common reasons why an updated equipment appraisal will be a valuable resource for you:

Bank Financing & Leasing

The most common instance where an appraisal is beneficial and required by all the parties involved occurs when you look to raise capital to maintain and grow your business. The traditional process is working with banks, leasing companies, and similar financial institutions who will require a review of the company’s assets.

If your business requires machinery & equipment to effectively operate, as most manufacturers and service providers do, an updated appraisal will support the current value of your machinery as part of the loan approval process. These assets may end up being the primary collateral the finance company needs for you to successfully secure the loan you need.

Private Equity Investment

A secondary source your business may need to secure capital is in the form of private investment, in the form of equity, which will allow your business to expand its resources and promote growth.

These investors may want to acquire a stake in your business before laying out cash, which will need to be supported by a valuation of your company and the underlying capital assets. Machinery & equipment items generally support a long useful life which will translate to value retention over time and therefore, these assets will comprise a significant component to the overall business value.

Buying & Selling

If you’re considering buying or selling a business, or distinct machinery & equipment as part of a larger transaction, you will want to consider an appraisal to confirm your assumptions about the value of these assets. The time and tension involved in successfully negotiating a sale is significant enough to have a third-party experienced appraiser provide you with the assurance that your pricing strategies are supported and credible.

Tax, Accounting & Insurance Compliance

Tax, accounting and insurance requirements are numerous when it comes to maintaining compliance with all of these facets of your operation.

Tax assessments and regulations, accounting standards guidelines for capitalizing and depreciating your equipment, and adequate insurance coverage are just some of the boxes you need to check in these important areas. Routinely communicate with your accountants and agents to ensure you are up to date on these requirements and see if an equipment valuation might benefit the process, both long and short term.

In summary, your company’s revenue and income typically fluctuate over time depending on the markets and industries you operate in however, the value of your machinery & equipment will likely remain steady through these periods. Understanding the current value of your machinery & equipment by hiring an accredited, experienced appraiser will benefit your business across multiple fronts and provide you with peace of mind as you go forward into the future.

Virtually every business in the world that manufactures, transports, warehouses or otherwise supports any tangible product needs some type of material handling equipment to manage their inventory. It is important to understand the value of these types of assets when considering any financial transaction within your business so you can be sure to get the most benefit from the utilization and strength of these long lived machines.

What Types of Machinery are Considered Material Handing?

The first thing that comes to mind when discussing material handling for most businesses is forklift trucks. Forklifts are the most common type of equipment that falls into the material handling category, however, there is a considerably diverse amount of lift equipment that belongs as well.

Forklift Trucks

Forklift trucks alone have an immensely broad range of sizes, builds, and other specifications which can be overwhelming and fall into different categories of material handling. From the smallest manual pallet jacks to the largest type of container handler, there are hundreds of makes and models in between. From lifting a 500 lb. box to a 90,000 lb. shipping container, these types of assets are critical to effectively moving product from place to place.

The most common types of forklift trucks you see generally range from 3000-15,000 lb. capacities and are used in and around warehouses, loading docks and shipping centers. The lifts can be powered by rechargeable battery, propane gas, or diesel. Several domestic and international manufacturers compete in the industry, many with solid reputations for quality, producing long life durable machinery. Even if you have a 20+-year-old forklift, as long as it has been well maintained throughout its life, you can expect it to hold value over time.

What are Other Types of Material Handling Equipment?

The answer to this question may be a little subjective depending upon the industry or business you work in. I would consider these types of equipment to be included:

• Order Pickers
• Narrow Aisle Reach Trucks
• Automated Pick & Place Retrieval Conveying Systems
• Bulk Processing Equipment (Including Conveyors, Hoppers, Elevator Lifts & Augurs)
• Pallet Racking, Shelving & Related Storage Equipment
• Aerial Boom Lifts
• Certain Types of Cranes

Similar to forklift trucks, these assets are typically long lived and hold their value well over time.

In summary, always consider material handling machinery & equipment as part of your asset listing when you need an updated appraisal. When deciding to engage a professional for this task, the best choice is an accredited ASA appraiser.