As part of a going concern business valuation with considerable tangible assets, determining the accurate value of machinery and equipment is key. The most commons reasons a business needs its machinery appraised is establishing value for sale of its assets, resolving any litigation disputes, meeting capital lender requirements or using the collateral for debt.
Not all appraisers specialize in the determining the value of equipment, so it is important that you find the right type of specialist, based on the need and reason for valuation, who can validate their opinions with potential buyers, lenders, litigators or for tax purposes.
As a business owner or advisor to your client, it is important that equipment valuations be prepared by an accredited, credentialed professional and in alignment with IRS, GAAP and IRS guidelines and that they are compliant with the Uniform Standards of Professional Appraisal Practice (USPAP). You also need to ensure the equipment appraiser is accredited through either the American Society of Appraisers (ASA) or the National Equipment & Business Builders Institute (NEEB) to help defend the appraisal report. If the business owner guesses on the value of equipment or simply uses book value or a depreciation schedule to appraise the worth of equipment, the appraised value will not hold up to scrutiny and the basis falls apart with banks, government agencies and potential buyers.
There are typically three standards of value in determining the value of equipment that can be blended or used to validate conclusions of another:
- The Cost Approach evaluates replacement costs if the equipment were new. Most commonly, it also determines value of used equipment adjusted for depreciation including an array of factors such as the asset’s physical deterioration, functional usage in the business relative to alternatives in the market and macroeconomic factors like industry regulations, market demand for the equipment, excessive supply, interest rates, etc.
- The Income Approach lets the appraiser value assets based on the future benefit it will bring to the owner. It’s not a commonly used approach for most equipment appraisal reports but it is valuable in a more thorough business valuation of a going concern and a potential acquisition.
- The Market Comparison Approach bases equipment value off recent sales and transactions that are comparable to the assets under review. Adjustments to value are then made based on the working condition, available supply to replace, costs to install or deliver, etc. The goal with a market comparison is to establish replacement costs of the equipment, both new and used.
Our business appraisal partners bring deep experience and accredited credentials to machinery and equipment appraisal reports and can deliver their expertise through either onsite visits or offsite (ex. desktop report) channels.