At a certain point in time, almost every business owner will be faced with the question: What is your machinery/equipment really worth? Book value is rarely an accurate representation of what the equipment is really worth. More importantly, inquirers want to know the real value, which is accurate and can be substantiated.
Knowing what to expect during an equipment appraisal process can help business owners be more prepared.
Smart Business spoke with Theresa Shimansky, a manager at Cendrowski Corporate Advisors LLC, about the impact of machinery and equipment appraisals.
When is it time to have a certified appraiser evaluate a business’s equipment?
There are numerous reasons why businesses may need a machinery/equipment appraisal. Some of the most common reasons for appraisals are mergers and acquisitions, business valuations, bankruptcy, financing and SBA lending, insurance, buy/sell agreements, property taxes and partnership dissolutions.
A certified, reputable appraiser has the training, expertise and knowledge to provide a value that can be substantiated and reflects the true value of the equipment.
Are there different types of certified appraisal reports?
Yes, according to the Uniform Standards of Professional Appraisal Practice (USPAP) for personal property appraisals, Section 8, there are two types of written appraisals: Appraisal Reports and Restricted Appraisal Reports. A Restricted Appraisal is one in which the client and intended user of the report are the same.
However, if the intended user(s) includes someone other than the client under USPAP standards, the appraiser must use the Appraisal Report format. If anyone other than the appraiser’s client will be relying on the report, it cannot be a Restricted Appraisal Report.
How long does an appraisal take?
Time depends on several factors. First, how much equipment is being appraised? A large factory with thousands of pieces of machinery will take far longer than a small restaurant with only a couple of dozen pieces of equipment.
Other factors that can affect how long the appraisal will take are timing requirements — when do you need it, how many levels of value are being requested, and the type of equipment. Is it rare or can comparable items be easily found?
What will a certified appraisal cost?
Every appraisal has different requirements. The simplest answer is the cost will vary with the scope of work.
What can I expect during the process?
Expect the appraiser to view the equipment and document any pertinent information that will help to identify the equipment. The appraiser will ask about the make, model and serial number of the equipment, along with its current condition.
Appraisers will also need to know whether the equipment has been properly maintained, if there are maintenance records and if the equipment has any special features or upgrades. Appraisers may let clients know in advance what they will be looking at and any documentation they will need so that it can be available during the inspection.
Once the appraiser has documented the equipment, the research process begins. The appraiser will establish a value for the machinery/equipment and then write and certify the report.
Is the appraiser required to personally view the equipment?
An appraiser does not need to personally view the equipment. The appraiser can rely on another party (including the client) to provide necessary documentation. This is considered a “desktop appraisal,” and the appraiser is required to disclose this within the report and in the report certification.
What should a business owner look for when choosing an appraiser?
When choosing an appraiser, a company should only use a “qualified appraiser.” This individual, as defined by the IRS, has earned an appraisal designation from a recognized professional organization for competency in valuing property. Also, qualified appraisers regularly prepare appraisals for which they are compensated and demonstrate verifiable education and experience in valuing the type of property being appraised. ●
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