Posts Tagged ‘equipment appraisal’
Buying a Business? Make Sure to Do Your Homework
It may seem easier to purchase an established business than to start one from the ground up. While this may be true in some cases, there could be problems with an existing business that may not be clear upon first look. However, oftentimes purchasing a business can end up being just as costly and labor intensive as a startup. Sometimes there are inherent flaws in a business, which is why it is up for sale. As when starting a new business, you need to conduct the proper research and due diligence on any company that you may be thinking about purchasing, which includes getting an unbiased business appraisal of that company.
We’ve written multiple posts on why it’s important for a business owner to know the value of his or her business. It’s equally important for a potential buyer to understand the value of a business that he or she is considering for purchase and to know what he or she is getting in the deal.
Of course there are many things to take into account when contemplating buying a business, such as your own strengths and weaknesses, your understanding of business fundamentals, and your understanding of the potential market in which the business operates. Obtaining a professional business valuation can help you better understand the ins and outs of a particular business, like a business’s cash flow, the value of its assets and/or equipment, how the company acquires customers, and the market in which it operates.
If you’re thinking about buying an established business, get an appraisal. You need to know what you’re getting into.
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
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
Article for the NEBBI Newsletter
Chris Kinzie and Chris Spinelli of Present Value had an article featured in the latest National Equipment and Business Builders Institute (NEBBI) newsletter. The NEBBI is an international organization that trains and certifies certified machinery and equipment appraisers to perform appraisals that comply with USPAP standards, and Present Value is proud to be an NEBBI member. NEBBI members share resources and information, cross sell, and network, all in an effort to improve their individual businesses and the machinery and equipment appraisal industry as a whole.
In Present Value’s article, Kinzie and Spinelli discuss the company’s evolution from strictly a real estate appraisal company, to a more diversified company that offers a full complement of appraisal services, including machinery and equipment appraisals. They share with the NEBBI members some tips about creating a business plan, creating a business identity, and creating an effective marketing plan. The full article follows:
The Successful Partnership Between Chris Kinzie, CMEA, San Diego, CA and Chris Spinelli, CMEA Newton, MA
Becoming a CMEA has been a huge benefit to our business. Our background is in real estate appraising and many years ago we wanted to diversify our business into other areas of appraising. As members of the NEBBI we have some of the best resources at our fingertips. We have this incredible forum to exchange information, network, cross sell, and grow. We’ve worked with several other members on joint ventures, included several more on individual assignments, all the while watching the impact on our bottom line increase. It wasn’t a fast process for us and we had to learn our in and outs as any other business. Our hope is that our insight in this article might benefit you and your situations. We thought this article would be good to focus information toward newer members getting their business off the ground or others who might be struggling to get things going. It benefits us all when more of us are doing better.
One of the best places to start when reworking your current situation or just new in the business is to “form a plan.” Sit down and write out a simple business plan which would include what you want to do with this designation and education, research your competition, research the marketplace, who would be your potential clients, decide where you want to specialize (this is an important one), set your time goals, set your pricing for services, financial goals (short-term, long-term), create a budget for your business infrastructure and your marketing.
Create an identity for yourself in this business. It gives you focus and credibility, which is crucial to success. You need to stand out in some way from the rest. One way is to specialize in a particular field of M&E appraising or consulting, another might be to offer a boutique of services. Pull from your background, your interests, or your former career contacts.
Marketing is by far the hardest thing to grasp in business, especially if you’re working the business and your marketing at the same time. We’ve discovered the more personal the interaction with a potential client the greater the chances for turning a lead into a job in a shorter timeframe. People need to know who you are and what you do. People especially listen more when you have something to offer rather than something to sell. Don’t sell someone your service, offer them help. A great way to get in front of people is join a networking group … join a few. It gives you a voice, adds credibility, and provides a new sphere of influence that will grow. You might have to visit a few but when you find the right one it can do wonders. If you don’t know where to start try www.meetup.com.
Another source for leads is your own accountant, CPA, or tax attorney. They may not give you business but they’re a resource to interview and show you the inside track of how they think and where there may be a need. Talk to everyone! If you have a fear of speaking in front of people or making presentations, one resource to work on is www.toastmasters.org.
Follow up, follow up, follow up! If you do a letter campaign, phone campaign, or any other type of marketing you had better follow up on those leads. Be consistent, dedicate time, and keep in contact. If you’re not good at marketing, join forces with someone who is.
So who needs you? Many lenders have approved lists but not like residential appraisers are used too. You might get a call from the lender or they may make the borrower find you. The commercial lending department is a good place to start for the decision maker. From our experience it doesn’t matter which appraisal discipline you work in, typically it comes down to pricing and turn-around time who gets the job. With regard to attorneys and accountants, we’ve found it really depends on their clientele. Most areas have a book of lists, which most business journals have. This has been a good resource to find more about the local and regional leaders in industries. The larger the company the more complex and diverse the needs are for your services; if you’re targeting large corporations you may be looking at multiple decision makers and multiple streams of income.
We hope some of the ideas that have helped us be more successful will help you. Be good and remember to be honorable and upfront in all that you do.
By: Present Value
Loan Refinancing
There’s one thing that most of us have in common these days – families and businesses alike are all struggling to reduce expenses as the country weathers this economic storm. Businesses are re-negotiating with vendors and stripping down to basic operations in order to survive. But another viable money-saving solution for businesses to consider is loan refinancing, even if they’re not necessarily struggling to make their monthly loan payments.
A business owner needs to be aware of the environment in which his/her company is operating in order to protect its financial health. And one characteristic of the current environment is extremely low interest rates, which makes it a perfect time to refinance loans. When most people think of loan refinancing, they don’t think past their commercial mortgage loan. But it may be a good idea to refinance equipment loans as well. By refinancing an existing equipment loan, a business owner can lower his/her interest rate and as a result, reduce his/her monthly payment and free up cash that can go toward growing the business or taking care of emergency expenses he/she may be facing.
If you decide that refinancing is right for you and begin talking to a lender, the first thing a lending company will require is an appraisal of your assets so that it can understand the value of your business or equipment.
Refinancing alone may not protect your business, but combining this method with other means of cost reduction should help you survive the current economic climate and emerge healthy and ready to grow.
By: Present Value
Equipment Auctions
Companies may consider equipment auctions when they are asked to leave a rental property and can’t afford to move their equipment from the space, or if the business simply fails for any number of other reasons. The goal of an equipment auction is for the struggling or failing company to quickly sell off equipment with as high a profit as possible.
The first step a company considering an equipment auction should take is to have its equipment appraised by an equipment and machinery appraiser. An appraiser will give that company three different values of its equipment – the orderly liquidation value, the forced liquidation value, and the fair market value – so that the company will have an idea of how much money it could get for its equipment at auction. After the company knows these values, it can contact an auction house. The auction house will send an e-mail blast to interested buyers and make sure that they are aware of the equipment that is up for sale for 45 days prior to the scheduled auction. Then, the live auction takes place at the facility.
In recent years, online auctions have increased in popularity. Incorporating online auctions with live auctions provides significant benefits to both buyers and sellers. Buyers can find the equipment they need without being limited by geography, and sellers have a convenient way to access a larger pool of buyers.
If you are considering an equipment auction, contact Present Value. Present Value’s certified appraisers will represent you throughout the entire transaction. They will tell you the liquidation, forced liquidation, and fair market values of your equipment, and then put you in touch with one of the two auction houses with which the company works.
By: Present Value
Selling Your Business? Get a Business Broker.
So, you’re looking to sell your business or liquidate your assets. First, you need to make sure you have a certified appraisal of your business, machinery, or equipment. But, where do you go from there? In order to simplify the process, get more offers, and get the best price for your business or equipment, you should work with a business broker.
Business brokers work similarly to real estate agents. They can help you with advertising, initial discussions with buyers, negotiations, and the final transaction processes. Most importantly, a business broker can be a decision-making partner during this crucial time for a seller or buyer.
It is essential to realize that deals are being done, despite the current economic climate. Although there is a lot of doom and gloom out there, there are businesses that are making money and looking to increase their opportunities through acquisition or purchase of assets or equipment. These deals are just being done differently than in the past. Because of the current state of the credit markets, buyers and sellers are developing creative deal-structuring strategies to facilitate transactions and satisfy both buyers and sellers.
In order to take advantage of the opportunities that are still out there and make sure that you are getting the most out of the sale of your business and equipment, partner with an experienced business broker.
In addition to valuation services, Present Value provides business and equipment brokerage services. Present Value has an extensive team of business and equipment brokers who help buyers and sellers come together for transactions with businesses, machinery, and equipment. Present Value’s research team also has relationships with hundreds of equipment and business brokers at both national and international levels.
By: Present Value
What’s It Worth?
Everything has a value. 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 and equipment for a whole host of reasons, such as insurance and business valuation. It is relatively simple to determine the value of a farm tractor or an out-of-the-box piece of equipment. An appraiser will look at various factors to determine value, including its original price, wear and tear, depreciation, and current market value. It is a straightforward process because there are millions of pieces of equipment against which they can be compared to determine fair market value. However, it is much more difficult to determine the value of custom-made equipment such as dies, molds, or custom machinery.
An appraiser must take into account that such equipment may be one of a kind, which makes it more difficult to value because there are no other pieces against which to compare it. A whole host of considerations must be taken, including the cost of its production, the value of its usage, the cost of its replacement, depreciation, salvage value, and scrap value. The appraisal of custom equipment requires the specialized skills of a professional who has the expertise and certification to examine all of these factors and more to determine its true fair market value.
Whether you need to know the fair market value or other standards of value such as liquidation value, salvage value, or replacement cost, 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 worth.
1031 Exchanges
Tax time is here, and even while you’re puzzling over that pile of papers on your desk, you may already be planning for next year. If selling an asset and purchasing another is in your plans for 2009, you may want to consider a 1031 exchange.
A 1031 exchange is an IRS-recognized method of deferring capital gain taxes. A capital gain is any profit that comes from the sale of a property, and this income is taxable. However, there is a way around this particular type of tax. If you sell one asset and acquire another within a specific time frame, you’ve performed a 1031 exchange. The logistics of an exchange are the same as in a sale, except that the asset sold and the asset purchased must be of equal value, or like-kind, and must be used for a business in order for the transaction to qualify for the tax deferral. The idea behind this particular section of the tax code is that when money gained from the sale of an asset is used to purchase another like-kind asset, there is no economic gain.
The tax code is fairly clear on its definition of like-kind when it comes to depreciable property, like a piece of machinery, but its definition of like-kind in real estate transactions offers less guidance. This is where working with an experienced appraiser becomes important. Because the IRS keeps an eye on these types of transactions, you want to make sure that you’re working with an appraiser who understands the IRS like-kind definitions.
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