When is an Equipment Appraisal needed?
There are numerous times when a Certified Machinery or Equipment Appraisal is appropriate. A professional certified appraiser like Wiley & Associates should be involved to establish accurate value.
The following list will help you decide when the time is right for you.
Mergers and Acquisitions / Sale of a Business Entity
An equipment appraisal is performed when one company acquires another, or when a business owner is contemplating selling their business. A professional appraiser such as Wiley & Associates should be involved to establish an accurate value.
In many instances banks, and especially SBA backed loans, will require an equipment appraisal to underwrite and approve a loan, especially when acquiring a business or a business interest. Typically, the appraiser will provide the bank with fair market value amounts to support the loan.
Closely held privately owned businesses will often seek a certified equipment appraisal to determine a value to cover their equipment in case of a sudden loss due to fire, theft, or damage. Many insurance companies require a current asset valuation to place the policy.
When a business owner divorces, an appraisal may be required to divide the marital assets. Ideally, both parties will obtain separate appraisals. However, it is possible to have a single appraiser if both parties agree.
Change in Corporate Entity
When a privately held company chooses to change their corporate entity, as an example changing from a C Corp to an S Corp, it is necessary to have all company assets valued.
Shareholders and Partnership Disputes
Ownership disputes arise from different circumstances, such as disagreements between owners or conflicts between partners. Asset appraisal is necessary when establishing value.
Equipment Appraisal Terminology
Equipment appraisal uses three valuation categories: fair market value, orderly liquidation, and forced liquidation value.
Fair Market Value (FMV)
FMV is the price at which an asset is available to buy on the open market. FMV is used for legal situations, taxation, lending, and insurance.
Orderly Liquidation Value (OLV)
OLV is an estimate of the amount that a tangible asset would fetch if the seller were to sell their assets on an “as-is, where-is” basis. It assumes the seller will be given reasonable time to find all buyers, and the seller will have control of the sale process.
Forced Liquidation Value (FLV)
Unlike OLV, FLV does not give control to the seller. It is the amount of money an asset would fetch if it were to be sold at auction immediately. It aims to identify a company’s financial position in the worst possible situation. The assumption is that the company will sell its assets in the quickest time possible.
Types of Machinery Appraisal
As the name suggests, it is the process of determining the value of equipment a company owns. An appraisal helps you budget for parts, repairs, and when to sell or acquire machinery. Three methods are used: cost, income, and comparison.
- Cost method: This method is used to appraise unique or outdated items. It considers the quality and age of the product. Based on the product’s original cost, the appraisal is performed from residual value.
- Income method: This method considers the residual income equipment may accrue over time. While the value decreases as the machine ages, it can still be used and generate income when sold. This method is seldom used.
- Sale comparison: Certified appraisers such as Wiley & Associates prefer this method to establish the value of used equipment. It compares price points for similar used equipment sold.
Wiley & Associates provides detailed and confidential Certified Machinery & Equipment Appraisal services to facilitate a successful and accurate value.
About Susan Wiley
Susan Wiley brings hands-on expertise on how to start-up, lead, and grow a small business. Susan formulates the deal structures that are the basis for the successful business transfer process and is a Certified Machinery and Equipment Appraiser (CMEA). Learn more about Susan here, contact her or connect with her on LinkedIn.