Posts Tagged ‘present value’
Financial Advisors Urging Business Owners to Know the Value of Their Businesses
Because of the economic downturn, many business owners are reluctant to think about the value of their businesses. Fearful that their businesses have lost value, it’s the last thing they want to hear about. An article in Financial Advisor suggests that many business advisors are urging their clients who own businesses to have their businesses valued in order to gauge their business health and for planning purposes, including adjusting estate and succession plans.
Business owners have different reactions when they find out that their businesses are worth less than they once were. Some decide to delay selling their business, and others use it as an opportunity to make necessary changes. One business owner who was interviewed said that he was glad to know the value of his business because it enabled him to determine steps he needed to take to improve the business and prepare to potentially sell it within 10 years.
According to experts, some businesses are worth 30% less than a few years ago, and they argue that understanding the value of a business can help owners determine whether or not they should sell their business or bequeath it to the next generation. On a positive note, a lower valuation can benefit owners in terms of taxes right now. The article highlights the fact that if owners are planning to pass on the business to their children, now might be the time to do it, since estate taxes are “expected to rise next year and new restrictions on use of trusts could also be coming soon.”
By: Present Value
Additional Reading:
How Does the Economy Affect Business Value?
The 7-Step Scope of Work for a Typical Machinery and Equipment Appraisal
As part of a typical machinery and equipment appraisal, the appraiser will outline the scope of work involved in an assignment. The USPAP (Uniform Standards of Professional Appraisal Practice) has put forth guidelines that machinery and equipment appraisers should include in the scope of work. The minimum standards for scope of work include the expectations of the client and other users and the actions of other appraisers who carry out similar assignments.
When you engage an appraiser, these are the steps that an appraiser typically will take prior to determining the value of your machinery and equipment:
- Identify the assets to be appraised
- Define the purpose of the appraisal
- Establish the valuation date for the appraisal
- Determine the appropriate valuation concepts and approaches to be used
- Determine the type of valuation study to be completed
- Select the type of appraisal report to be provided
- Check the availability of data and information
The scope of work is the first step in any appraisal. Without a specific scope of work, the conclusions of an appraisal may not stand up to scrutiny.
By: Present Value
Additional Reading:
Certified Machinery and Equipment Appraisers: Present Value
The Importance of Inventory Appraisals and Asset Verification Services for Businesses and Lenders
Businesses often need inventory appraisal and asset verification services to meet federal government requirements and the ever-changing regulations in their industries. They could also be looking to secure financing or investments, which would require the verification of their existing collateral. Additionally, investors and lenders, especially in a difficult economy, want to know where and how their money is being used. And, they need to know that the business assets they support are physically on a company’s premises, year after year.
Inventory appraisal and asset verification services can include barcoding, software implementation, spreadsheets, and valuation with detailed information for an easy-to-use and adjustable platform, and can range from a one-time data collection service to an ongoing yearly service contract.
Present Value offers many types of inventory appraising and asset verification, including, but not limited to:
- Furniture fixtures and equipment (FF&E) appraisals and verification
- Barcoding and tagging of assets with or without valuation
- Implementation of inventory management systems
- Asset verification with or without valuation
- Inventory appraisals of stock, products, and goods
Contact Present Value to learn more about our inventory appraisal and asset verification services.
By: Present Value
Additional Reading
Case Study: Pre-Loan Asset Verification
Small Business Lending Still Considered Sluggish, According to Federal Reserve
Despite recent indications that banks were beginning to lend to small businesses again, which we discussed in a recent blog post, at a recent small-business forum, the Federal Reserve chairman, Ben Bernanke, indicated that he was still concerned about the lack of small-business lending.
A recent New York Times article notes that experts are unsure why small-business lending has continued to decrease. Bernanke was quoted as asking: “How much of this reduction has been driven by weaker demand for loans from small businesses, how much by a deterioration in the financial condition of small businesses during the economic downturn, and how much by restricted credit availability?” He then went on to say that it was likely all three were contributing factors.
The article posits that small business owners believe that lenders are not lending to creditworthy businesses because of heightened paranoia following the economic downturn, while economists cite potential borrowers’ weak economic fundamentals as the reason for sluggish lending.
According the article, lenders say they have returned to basics in terms of lending fundamentals after being too lax, which means conducting more careful due diligence, including taking into account businesses’ collateral and cash flows. Understanding what lenders are looking for and how a certified appraisal fits into lending criteria can help business owners find the funds they need to grow.
By: Present Value
Additional Reading
Glimmers of Hope in Small-Business Lending
5 Cs of Lending (How Appraisal Fits in Even Though It Doesn’t Start with C)
Lenders Turn to Present Value LLC for Pre-Loan Due Diligence
Common Definitions of Value for Machinery and Technical Assets
We talk a lot about the importance of knowing the value of your machinery and equipment, but sometimes the language used in the industry can be confusing. It’s also important that you are able to understand what all of the terms mean when you engage a machinery and equipment appraiser. Below are some common definitions for different appraisal values as they apply to machinery and equipment, as defined by the American Society of Appraisers.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Present Value is always available to answer any other appraisal questions or needs that you may have. Please feel free to contact us.
By: Present Value
Additional Reading:
Know the Value of Your Machinery and Equipment Before an Auction
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
Estate Planning: What Legacy Will You Leave Your Family?
Many people think that because they don’t have a whole lot of money or valuables estate planning is something that isn’t necessary for them. Unfortunately, however, families sometimes become divided over estates that are considered not worth much – even when there is a will. While the word estate may confuse people, estate planning is really just a process of organizing a person’s affairs before he/she passes away, which can include drawing up a will and/or setting up trusts.
We recently came across an example of how even disputes over a small estate can cause a huge rift in a family after the death of a loved one. In this case, the father passed away, leaving his assets – including a house full of furniture and belongings, a couple of old vehicles, some equipment, and an old tractor, none of which had been appraised – to his three children. One sibling wanted the house and the other siblings did not want any of the physical assets. The executor was slow to file the will; none of the assets had been appraised and they were guessing at their values.
When it came time to talk about dividing the assets, tensions were high and tempers began to flare, potentially causing a long-term or permanent rift in a previously close-knit family. A lack of understanding about asset values and specifics about how the estate should be divided in the will is causing a whole lot of problems for the family.
Unfortunately, when it comes to property, asset, and financial disputes, people sometimes can get ugly, take sides, and get paranoid and possessive about what they believe should be rightfully theirs. When thinking about what you may be leaving your family, it’s always best to work with professionals, including estate planners, lawyers, and appraisers, who understand the ins and outs of the process. It’s best to know the value of what you are passing on in order to avoid causing additional strain for your family at an already difficult time.
By: Present Value
Additional Reading:
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
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)
Appraisers Seeking Resources to Determine the Value of Green Buildings
Real estate appraisers are struggling to determine the value of green building construction because the market is still in its infancy; there is lack of comparable property data and other market information. The current real estate market poses difficulties for any new construction appraisal, and the nascent green building construction market is exceedingly more difficult for appraisers.
There are some resources available for appraisers, however, to be better equipped to appraise in this burgeoning market. The Appraisal Institute, membership association of professional real estate appraisers, offers seminars and a certification program that can help appraisers value green buildings, including its upcoming webinar: Residential Green Valuation: Tools for Valuing High Performance Properties. The proposed Green Resources for Energy Efficient Neighborhoods (GREEN) Act legislation will mandate that appraisers have all relevant information about residential property – including plans and specs, green energy labels, and certifications and Home Energy Rater Score (HERS) ratings.
It is clear that green building is only going to become more popular, especially once the real estate market turns around; although it may take some time, appraisers will need to understand all the new complexities in this field of appraisal and adapt.
By: Present Value
Additional Reading:
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