If an asset that is 20 years old is still functional, still being used, or if there is an active market for the asset, it still has value from an appraisal perspective. Although it may not have value from an accounting perspective, if the business owner were to sell the asset it would be worth more than zero, which is what it is valued at from an accounting perspective.

It can be confusing so it’s always best to speak to a professional at Present Value LLC if you have questions about the depreciation of your machinery and equipment or if you are looking to sell.

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Additional Reading:

What’s It Worth?

Machinery and Equipment Types of Value Definitions!

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.

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Recently at Present Value, we have worked on some fascinating appraisal projects that we thought might of interest to our readers and also show the breadth of businesses that we work with on a daily basis.

The first project of interest was a radiology clinic, where we appraised the various X-RAY, CAT-scan, and MRI machines that comprise the assets of the business. Another cool project was at a construction company. In this case, we appraised all of the large earth-moving equipment – backhoes, front-end loaders, and dump trucks – and smaller equipment like Bobcats. One of the most fun projects was for a movie theater company that had a dozen theaters and one IMAX theater that we appraised.

Although these projects varied widely in scope and by industry, they demonstrate that understanding the value of machinery and equipment assets are of paramount importance to any business.

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In an effort to reverse this decline, Obama’s economic stimulus package tried to make SBA loans attractive again by reducing fees and increasing the government guarantee on 7(a) loans. However, recent SBA policy guidance regarding goodwill may thwart this effort.

Goodwill is the premium that a business buyer pays to a business owner for the business’ established market share, existing customer base, or premium location. Real estate and tangible assets, like machinery and equipment, are not considered part of goodwill. Under the SBA’s new policy, only 50% of a 7(a) loan can be used to finance goodwill, and that 50% may not be more than $250,000. The reason behind the SBA’s policy is that goodwill is a risky investment. In the event of a loan default and business liquidation, goodwill has no monetary value.

This policy will make it difficult for people to put SBA loans toward many business acquisitions, particularly those whose value is primarily derived from existing customers and name recognition. Because concerns have been raised about the ramifications of this change to its SOP, the SBA has agreed to review on a case-by-case basis loan requests that do not meet its policy, and may revise its policy in September of this year.

In the meantime, many banks and attorneys are taking a closer look at the value of a business’ tangible machinery and equipment assets, hoping that their value will offset the limitations placed on goodwill. The certified appraisers at Present Value can help determine the value of those assets. To order an appraisal, click here.

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The following values are defined in the publication Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery & Technical Assets, Second Edition, by the American Society of Appraisers.

1. Fair Market Value is the estimated amount, expressed in terms of money, that may reasonably be expected for a property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both fully aware of all relevant facts, as of a specific date.
2. Fair Market Value – Removal is the estimated amount, expressed in terms of money, that may reasonably be expected for an item of property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell and both fully aware of all relevant facts, considering removal of the property to another location, as of a specific date.
3. Fair Market value in Continued Use is the estimated amount, expressed in terms of money, that may reasonably be expected for a property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both fully aware of all relevant facts, including installation, as of a specific date and assuming that the business earnings support the value reported. This amount includes all normal direct and indirect costs, such as installation and other assemblage costs to make the property fully operational.
4. Fair Market Value – Installed is the estimated amount, expressed in terms of money, that may reasonably be expected for an installed property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both fully aware of all relevant facts, including installation, as of a specific date. This amount includes all normal direct and indirect costs, such as installation and other assemblage costs, necessary to make the property fully operational.
5. Orderly Liquidation Value is the estimated gross amount, expressed in terms of money, that could be typically realized from a liquidation sale, given a reasonable period of time to find a purchaser (or purchasers), with the seller being compelled to sell on an as-is, where-is basis, as of a specific date.
6. Forced Liquidation Value is the estimated gross amount, expressed in terms of money, that could typically be realized from a properly advertised and conducted public auction, with the seller being compelled to sell with a sense of immediacy on an as-is , where-is basis, as of a specific date.
7. Liquidation Value in Place is the estimated gross amount, expressed in terms of money, that could typically be realized from a failed facility, assuming that the entire facility would be sold intact with a limited time to complete the sale, as of a specific date.
8. Salvage Value is the estimated amount, expressed in terms of money, that may be expected for the whole property or a component of the whole property that is retired from service for possible use elsewhere, as of a specific date.
9. Scrap Value is the estimated amount, expressed in terms of money, that could be realized for the property if it were sold for its material content, not for a productive use, as of a specific date.
10. Insurance Cost New is the replacement or reproduction cost new as defined in the insurance policy less the cost new of the items specifically excluded in the policy, as of a specific date.
11. Insurable Value Depreciated is the insurance replacement or reproduction cost new less accrued depreciation considered for insurance purposes, as defined in the insurance policy or other agreements, as of a specific date.

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