Posts Tagged ‘equipment appraisal’
Partnership Dissolution
We’ve written about succession planning, buying a business, and selling a business, and the importance of securing an accurate business valuation or asset appraisal in all of these scenarios. But what should you do in a partnership situation if one partner wants to sell and the other doesn’t? In this scenario, things can get a little more complicated.
Typically, if one business partner wants to sell and the other doesn’t, the partner who wants to stay in the business must buy out the other partner. The easiest way to handle this situation is to have written documents in place spelling out the circumstances under which a buyout can occur. These documents should be written when a partnership is formed, long before either partner would even consider leaving the business. But if these documents do not exist, there are still ways to handle this delicate situation effectively.
The first step is to determine the net value of the business. This includes all physical assets, like real estate or equipment, and all soft assets, like trademarks or business reputation. Also included in a business’s net worth are profits, as well as any outstanding debts or invoices. Determining the business’s net worth will help the partners decide, ideally through an intermediary, what to offer the partner leaving the business and how much money the remaining partner will need to raise in order to complete the buyout.
After the net value is determined, the partners can discuss the details of the transaction and make sure that their plan is feasible. In many cases, because this scenario can be difficult and emotional, it is best to hire a lawyer or a mediation professional to help in the process.
By: Present Value
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Freeing Up Much-Needed Cash
When we’ve discussed online auctions in the past, we’ve typically talked about them as a simple way to sell machinery or equipment when a business fails. But what if your business isn’t failing? Maybe you’ve experienced a bit of a slowdown – and if you have you’re not alone – but are still holding strong. The local news station in Terra Haute, Indiana, described this type of situation yesterday in their article, “Terra Haute Airport Gains from Online Auction.”
The airport had several planes that it used for flight instruction, but noticed that enrollment was dwindling. Rather than let these unused planes sit on the ground gathering dust, the airport decided to engage in an online auction to sell the planes, free up some cash, pay down debt, and help the airport thrive. Four planes have been sold so far, and not only has the airport been able to pay down debt, it’s saved thousands in insurance and maintenance costs. Seems like a smart move.
If this is a move your business may consider, contact Present Value. Our certified machinery and equipment appraisers will appraise your company’s assets and facilitate the auction process by acting as liaison between you and one of the two auction houses with which we partner. Give us a call, and we’d be happy to help you explore your options.
By: Present Value
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Case Study: Desktop Equipment Appraisal
Present Value LLC worked on an international project involving equipment being purchased from the United States and delivered to two locations in South America: Brazil and Chile. Due to time constraints, the client requested we perform a desktop appraisal.
Once the client provided Present Value the necessary details, photos, and information on the equipment, we conducted all necessary research and developed the appraisal report. The client was very happy with the appraisal because they got the certified report they needed in the timeframe required.
Because the machinery and equipment appraiser does not visit the site of the equipment being appraised, a desktop machinery and equipment appraisal requires the client to provide the appraiser with all the necessary information for each of the items to be appraised, such as photos, make, model, hours, mileage, years, and original cost. The appraiser then performs an appraisal from his or her desk, as the name implies, based on all the information provided by the client.
By: Present Value
Additional Reading
Common Types of Appraisal Reports
Did Someone Call the Health Inspector?
Yesterday, an article appeared in The San Diego Union Tribune titled “County Issues Alert on Health Inspector Scam” about a scam happening in San Diego, the home city of Present Value’s west coast offices. Apparently, a phony health inspector has been calling area restaurants and, claiming that there are new procedures for arranging a health inspection, obtains personal information from the business owner. The scammer then uses that information to set up fake accounts on online auction sites. The health department wants to remind restaurant owners that health inspections are always unscheduled, and they will never provide restaurants with advance notice of their visits.
But the scam could have a ripple effect, because what happens to the people who participate in an auction conducted by a fake seller? It’s so important that buyers who choose to make purchases through auctions make sure they know that they’re working with a reputable auction house and a legitimate seller.
For several years, Present Value has been involved in the auction industry. The company can help a seller by performing an inventory inspection, conducting a machinery or equipment appraisal, and putting the seller in touch with a reputable auction house, which protects both the seller and potential buyers.
By: Present Value
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Common Misconceptions About What Auction Value Really Means
Although it may sound strange, there really isn’t a formal definition of auction value. It means: “The price that a particular property brings in open competitive bidding at a particular public auction.” The value for assets being sold at an auction will vary greatly depending on several key factors, such as the assets being sold, location of the auction, how the auction was marketed and for what length of time, the size and type of the auction, and how many attendees were present.
Oftentimes, as we have discussed in numerous post about auctions, when most people talk about auction value, they are talking about pricing for a public auction sale or “forced liquidation value.” This is where misconceptions about auction value can occur. It often assumes an unwilling seller acting under duress; in addition, it implies a diminished sales value because of buyers taking advantage of the unwilling seller.
By using forced liquidation value to mean auction value, it also presupposes inflationary or depreciable conditions that affect sales, such as physical location, difficulty of removal, adaptability or specialization, marketability, physical condition, overall appearance, and total psychological appeal. It also means that the seller must find interested buyers during a marketing period of 90 days or less. Also inherent in this definition is the understanding that all equipment or assets listed be sold on a piecemeal, “as is/where is” basis, with the buyers being responsible for removal at their own risk and expense.
By using this definition for auction value, there is no consideration for additional values that might be obtained due to product line, equipment in place, ongoing operation, or other elements of value that could or might be produced at an auction sale.
Not all auction sales occur under forced sale conditions, and auctions sometimes produce a wide array of price points equal to many value definitions, so it makes sense to always make sure you use a certified equipment appraisal to understand all the definitions of value in an auction setting. Present Value can represent companies throughout the whole auction process.
By: Present Value
Additional Reading:
Know the Value of Your Machinery and Equipment Before an Auction
Case Study: Equipment Appraisal for a Lending Institution
In February 2010, Present Value was engaged by a bankrupt lending institution preparing for cost segregation. Present Value performed an equipment appraisal, and determined the value of all of the company’s furniture and fixtures. Two value definitions were derived for the client: fair market and orderly liquidation values. The scope of the site inspection incorporated more than 300,000 square feet of floor space with three separate towers and six floors. Present Value assembled a team of qualified equipment appraisers and inspection professionals to record more than 30,000 items, which were categorized, identified by location, and valued. The assignment had strict due dates, and Present Value delivered the report on time and to the satisfaction of the client, with additional consultation provided after the report was delivered.
By: Present Value
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The Importance of an Unbiased Third-Party Opinion
To derive a proper opinion of value, no matter what the situation, getting an appraisal performed by an unbiased third party, such as a certified appraiser, is always the best course of action. To be unbiased, the professional developing the opinion of value should not have any vested interest or participation in the opinion of value.
For example, many auction companies advertise that they perform appraisal services when in most cases, their primary business is the performance of an auction and not being an independent appraisal entity. Oftentimes, an auction company will perform an appraisal in lieu of obtaining a certified equipment appraisal as part of an agreement to list and sell the property. However, because the auction company potentially has a vested interest in the outcome of the auction, their appraisal is not unbiased, which could result in an inaccurate estimation of value.
Another example we can look at is how large lending institutions perform and order valuations. The Small Business Administration requires lenders to obtain third-party valuations so there is no appearance of collusion between the appraiser and lender. Furthermore, if the valuation was not properly defined and constructed, this could affect a borrower’s ability to obtain financing for purchase or sale situations, or jeopardize buyouts, refinancing, buy/sell agreements, and anything pertaining to the value of the assets.
Make sure that your equipment appraiser is an independent third party who can truly act and perform in an unbiased manner so that the appraisal meets the requirements of financial institutions, government agencies, buyers and sellers, shareholders, and partners, and so that you really know what it’s all worth.
By: Present Value
Additional Reading
Be Sure to Use a Reputable Appraiser
Glimmers of Hope in Small-Business Lending
After more than two years of stagnation, it appears that small-business lending is on the rise. The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing, increased 4% in March 2010, the first year-on-year gain since October 2007.
A recent Time Magazine article reported that many small and community banks are now seeing more demand for loans, which is a positive sign for the economy. According to the article, economists have expressed concern that despite the 3.2% first quarter economic activity growth, there was a lack of business lending activity. Business lending demonstrates business growth, they argue. Businesses in growth mode need financing to purchase equipment and hire staff, and without that there can’t be sustained economic recovery.
As we have discussed in previous posts, banks are lending money, but they are being more cautious about their investments. This means they are conducting more careful due diligence, which includes their own certified equipment appraisals and business valuations to ensure that they will recoup their losses should a loan default. Having a defensible, impartial appraisal in hand can help increase the chances of getting much-needed money for a small business.
By: Present Value
Additional Reading
5 Cs of Lending (How Appraisal Fits in Even Though It Doesn’t Start with C)
Case Study: International Medical Device Manufacturer
In late 2009 and into 2010, Present Value LLC was engaged by a bank to perform a certified machinery and equipment appraisal and an inventory appraisal for an international medical devices manufacturer. The bank called for the appraisal in order to confirm the company’s assets as part of its pre-loan due diligence.
Present Value LLC was asked to determine the orderly liquidation and forced liquidation values for the equipment and a portion of the inventory for the company. The machinery and equipment appraisals took place at two site locations. There were more than 500 capital items and more than 1,000 support items to be appraised. The inventory appraisal included a sampling of more than 20,000 products and goods the company currently had in their inventory.
Present Value LLC was asked to perform this in half the normal timeframe because of the time constraints of the loan. We were able to deliver the report on time and to the satisfaction of the client.
By: Present Value
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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
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