Valuation of machinery and equipment
If you need to determine the value of a piece of machinery or business equipment, the market comparable method is the typical choice. The method is easier to apply than in valuations of other asset types such as real estate. Equipment models and makes are readily identified, the serial numbers give you the age of the equipment. The difference in value is usually related to the equipment condition.
One source of information of used equipment values is dealers. The dealers tend to know their market and the demand for a particular piece of equipment at the time. Most importantly, the dealers know what buyers are willing to pay for similar machines. Given the costs of handling a sale, the dealer can quickly estimate what he is willing to pay the present owner.
If you are in the market for a piece of equipment, you can either go directly to the manufacturer or contact a used equipment dealer for a quote. The price will likely reflect the machine’s age, condition, and functionality compared to a brand new piece of equipment.
If you are valuing a machine, a good place to start is to contact the dealers for that type of equipment. Many dealers are willing to provide the pricing information in expectation of future equipment sales.
Another way you can get a handle on equipment values is the auctions. The auctioneers go to businesses that need to liquidate equipment. The prices fetched reflect what similar machines are worth at the present time. The sales usually have the serial number recorded so you can estimate the equipment age. Be sure to note the time of each sale as the demand for certain types of equipment changes affecting the values.
You would need to account for the difference in values of equipment in place versus that offered for sale to a third party. There are additional costs involved in selling equipment:
- Layout and design of site
- Sales taxes
These costs should be subtracted from the value of equipment to be sold. However, if the equipment is to remain in operation, the value adjustment is not relevant.
In valuing machinery and equipment for a lender, you would likely need the conservative liquidation amount. This may be quite a bit lower than the value in use that the business recognizes.