Archive for the ‘Machinery & Equipment Appraisal’ Category
Businesses Appraised by CMEAs
A CMEA is a Certified Machinery & Equipment Appraisal. It can tell you the fair market value, liquidation value, salvage value, or replacement cost of the equipment and machinery used by your company or business. A CMEA prepared by a professional and licensed appraiser meets the requirements of financial institutions, government agencies, buyers, sellers, shareholders, partners, and the IRS, and will withhold scrutiny in court.
There are many different types of businesses that can benefit from a business appraisal, including many that are out of the ordinary, such as (but not limited to):
- Aerial Spraying Services
- Asphalt Plants/Sand Pits
- Candy Shops
- Chemical Manufacturers
- Chemical Distributors
- Country Clubs
- Dental Practices
- Donut Shops
- Gasoline Stations
- Historical Buildings
- Ice Cream Stores
- Janitorial Companies
- Machine Shops
- Maid Service Franchises
- Mall Specialty Shops
- Medical Clinics
- Millwork Shops
- Moving and Storage Companies
- Oil and Gas Refineries
- Refuse Hauling Companies
- Rock Quarries
- Rodeo Stadiums
- Supper Clubs
- Swimming Pool Builders
- Wallpaper Stores
- Well Drilling Companies
- Well Servicing Companies
- Woodworking Shops
- Wrecker/Towing Services
Irrespective of your business, a CMEA is the best way to assess the value of your company’s assets. To request a CMEA, contact Present Value today.
By: Present Value
To Sell or Not to Sell?
In previous posts, we have discussed that if a business owner is looking to sell equipment or machinery, he/she needs to know three separate types of value that their assets could bring in the market – orderly liquidation value, forced liquidation value, and fair market value. The differences among these types of machinery and equipment asset valuations are dependent upon the situation of the business and the time frame in which the assets need to be liquidated. Recently, however, we have seen that in certain markets, like California, there may be almost no difference between orderly liquidation value and fair market value due to sluggish market conditions.
Because there is such a large amount of equipment and machinery available in the market, buyers have more options than they normally would. Of course, there are other circumstances that determine the current value of equipment, such as in the case of custom machinery. And for that reason, potential sellers need to know what it’s all worth.
Some sellers, like those whose businesses are in dire circumstances, may be forced to sell and get the best price for the equipment as quickly as possible. However, for others who may not be in such a rush to sell, understanding the current types of equipment value can help them make better informed decisions about whether to sell now or not.
As we have mentioned often in other posts, it is essential for business owners to know the value of their equipment, especially if they are looking to sell so that they can receive the best possible price in the current market.
By: Present Value
Idle Speculation
Last week, in our post titled Location, Location, Location, we discussed the ways in which state laws and the geographic location of a piece of equipment can affect its value. Today, you’ll have to forgive our speculation as we imagine what would happen if California’s emissions laws spread east.
First of all, keep in mind that our imaginations are not running wild. Given the current administration’s focus on the environment, there’s a chance that emissions laws will become stricter. And what if they do?
Buyers will have a whole new set of factors to consider when purchasing a piece of equipment. Suppose there is a used piece of construction equipment for sale that is not compliant with countrywide emissions standards. Would it be in a buyer’s best interest to purchase a used piece of equipment with a lower value and invest in making it compliant? Or would it be better to simply purchase the new piece of compliant equipment that has a higher value? And if all buyers decide that it makes sense to exclusively purchase new equipment, what’s a seller with a used piece of non-compliant equipment to do? Perhaps, keeping shipping costs in mind, his or her only option would be to sell the equipment to a country with less restrictive emissions standards.
Whatever happens, idle speculation aside, you can trust that Present Value is thinking a few steps ahead.
By: Present Value
New Year, New Planning
This year, 2009, has been a tumultuous one. While there is no way of knowing what the future will hold, you can plan for the future. Planning for the future of your business is always a sound move. You need to know the value of your assets and the value of your business.
Over the past year, we have covered a number of issues that can affect your business. Today, more than ever, it is important to know what it’s all worth. As a business owner, it is important to know the true market value of your machinery, equipment, and business, for things such as business planning, succession planning, business insurance, and business valuation.
In the new year, it makes good financial sense to obtain a credible certified equipment appraisal report that will hold up under scrutiny with financial institutions, government agencies, buyers, sellers, shareholders, or partners. Make sure you know what it’s all worth.
By: Present Value
Location, Location, Location
One of the things an appraiser has to take into consideration when determining the value of a piece of equipment is its location. Each state is governed by its own set of laws that can affect the worth of a piece of machinery or equipment.
Take California, for example, where Present Value has an office. In California, the Environmental Protection Agency (EPA) has placed stringent laws on construction equipment emissions. The full set of regulations and standards can be found here. If a piece of used machinery doesn’t have the proper upgrades required to make it compliant with those laws, a buyer knows that he’ll be responsible for the investment required to make it compliant, and the equipment, therefore, may be worth less. The same piece of equipment in another state that doesn’t have the same emissions laws will not need the same upgrades and could, therefore, have a higher value.
Keep in mind, when choosing an appraiser, the importance of working with a company that understands the complexities involved in determining the value of a piece of machinery or equipment.
By: Present Value
Expansion Financing in a Down Economy
While the economy is showing signs of improvement, many small businesses are still finding it difficult to stay afloat. However, there are a number of businesses that have been able to not only survive, but succeed despite this economy. For companies like this, a down economy can be seen as a time for growth.
A period of growth, for some companies, might require expansion financing to obtain capital to grow their business. Such financing could be used to support the business’s growth through endeavors such as hiring additional staff, purchasing equipment, acquiring real estate, or ramping up marketing efforts.
Businesses need to demonstrate the clear value of their growth in order to justify financing. While the sources of financing can vary greatly – from banks to friends and family members – for the most part, lenders will require detailed, complete business and operating plans. As we discussed in our last post, lenders are conducting more vigorous due diligence than in the past. So, in addition to the traditional business information, lenders are requiring third-party appraisals to provide greater protection for themselves and their investments.
An appraiser must be able to take into consideration all aspects of a business, including operating costs, assets, equipment, revenue, etc. in order to establish a complete picture of the value of a business. Business potential, economic growth, and market growth are other factors that need to be taken into account for this type of appraisal.
In addition to providing clarity to a potential lender, an appraisal can also help business owners make crucial decisions in a time of economic uncertainty.
By: Present Value
Case Study: Pre-Loan Asset Verification
Asset verification is a significant part of Present Value’s services. We’ve written about it in the past here and here. Today, we’ll highlight a real-world example that demonstrates the importance of asset verification for responsible due diligence.
Present Value had a client who owned a strip mall that included a movie theater. The movie theater began to lose business, the theater owner could no longer pay rent to the property owner, left the strip mall, and defaulted on his equipment loan. According to the terms of the lease, the property owner could take over everything in the property in 45 days.
Present Value was asked to appraise the equipment in the movie theater and came up with a value one-fifth the value of the loan. The reason for the huge discrepancy was that when the movie theater operator took out his equipment loan, he misrepresented the value and type of movie equipment he owned and planned to purchase. As a result, when the theater owner defaulted on the loan, the lender lost quite a bit of money.
This problem could have been prevented if the lender had requested an asset verification prior to approving the loan. If this had been done, the lender would have had assurance that the equipment it was supporting was equal to the value of its loan.
By: Present Value
Auction Value: Fair Market Value
We’re continuing our discussion of the three different types of value a certified appraiser will provide before a company auctions off its assets. Read the other posts on this topic here.
Fair market value (FMV) is the estimated potential value of equipment and machinery if it were sold in an open market. The following assumptions are made when determining FMV:
- Both the buyer and the seller are willing and knowledgeable about the asset, and neither party is being forced into the transaction.
- The market is open and accessible by many buyers and sellers.
- All rights and benefits attributable to the asset are included in the sale.
Additional factors are considered when assessing FMV: the cost or selling price of the item, sales of comparable assets, replacement costs, and expert opinions. FMV can be somewhat subjective because it is based on the circumstances of place and time, and the availability of sales data for comparable machinery or equipment.
This concludes our series of posts on the three types of asset values that a business should know prior to an auction. Understanding the three types of asset value that should be provided by an appraiser can help a business set appropriate price ranges at auction and receive the highest possible profit from auction sales.
By: Present Value
Auction Value: Orderly Liquidation
In last week’s blog, we began a discussion about the three different types of value that a certified appraiser will provide prior to a company auctioning off its assets. In this blog, we will address the first type, orderly liquidation value.
A liquidation value is the estimated amount of money a company’s assets could quickly be sold for if the company went out of business. In a normal, growing industry that shows profit, a company’s liquidation value would be much less than the share price. In an unprofitable or shrinking industry, the liquidation value would likely exceed the share price. Though not always the case, if the liquidation value exceeds the share price, the company will go out of business.
The orderly liquidation value is based on the idea that a company can afford to sell off its assets to the highest bidder. It assumes an orderly sale process in which the seller can take a reasonable amount of time to sell each asset in its appropriate season and through channels of sale and distribution that fetch the highest reasonable price.
In the next blogs, we will examine forced liquidation value and fair market value.
By: Present Value
Know the Value of Your Machinery and Equipment Before an Auction
While the economy is showing signs of improvement, there are still a number of companies that are being forced to close their doors, which in many cases includes liquidating their equipment and machinery assets. Oftentimes, the most quick, efficient way to do this is through auction.
When considering an auction, a company should first contact an appraiser in order to get a sense of the value of its equipment and/or machinery. In a previous post on equipment auctions, we discussed the role of appraisers in the auction process. In this and the next few posts, we will cover more detail about the three different types of value that a certified appraiser will provide prior to an auction – orderly liquidation value, forced liquidation value, and fair market value.
It is important to understand various ways that a business’ equipment will be valued in the marketplace in order to set appropriate price ranges at auction and receive the highest possible profit from the auction sales.
By: Present Value
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