If you are in a situation that requires a certified appraisal of your assets, whether personal or business, here are a few suggestions to familiarize you with the appraisal procedure so that you know what to expect. A little effort on your part in preparation for the appraiser’s visit will make a positive difference in the property valuation process. Whether you’re getting collateral for loan security, trading, dividing, selling or donating assets, there are important considerations for appropriate planning. Bear in mind, hiring a professional qualified certified appraiser will help assure that the Fair Market Value of your property is accurate, competently composed and compliant with the Uniform Standards of Professional Appraisal Practice.
Appraisal Preparation Procedures
Composing Your Asset List
The appraiser will initially need a list of your property assets, which could be machinery or equipment that supports your business. Most business owners keep a depreciation schedule of their assets. An appraiser can use this to assess the assignment and provide a quote for the report.
Tip: A good way to organize your assets is on an Excel spreadsheet customary to business and financial documentation. If the assets include machinery, vehicles, etc., the appraiser will ultimately need to know the year, make, model, serial numbers and purchase information.
What Should Be Considered for Valuation?
Appraiser fees are generally based on a per item basis so consider assets that have a remaining book value of $2500 or more for individual valuation. Smaller items are often grouped by category and valued using current industry metrics and depreciation standards.
Tip: Be aware that the appraiser’s examination of your assets will focus on the “effective age” of each item. That is, the present condition, appearance and remaining useful life, versus the actual age (excluding antiques). If your property assets are well maintained or refurbished, their life expectancy can be extended, which may increase their worth.
Preparing for the Site Visit
If your valuation is for a business where you may have machinery or equipment in a facility, it is recommended that you clear any clutter, waste or broken objects that may make viewing and examining the property encumbering or inaccessible. The number and complexity of the property items will determine the amount of time it will take (25 pieces may take 2 to 3 hours to document).
Tip# 1: A clean, organized work area demonstrates that you probably maintain your equipment regularly and are conscious of work safety standards. The appraiser will have a data collection procedure that includes serial and model number verification, examination and documentation of the physical and working condition of the items and photographing them, so try to make the visible impression constructive.
Tip # 2: If you have maintenance records for your items, you may want to have them on hand for the appraiser. Again, a well-maintained piece will have a higher value, especially if the market and demand is present.
The Valuation Report
If you hire an experienced certified appraiser for your valuation, you should expect to receive a quality report with the following elements: A formal presentation (average page length is 30-50 so it should be bound); value numbers that are defensible and backed by specific research methodology and source verification; a current industry report and review of market conditions; the appraiser’s qualifications, signature and certification stamp; thorough, validated content that abides by USPAP standards and Federal guidelines.
By valuing the cash flow of your company you are inherently valuing EVERYTHING that your company does. If your company did something different (made different decisions or operated under a different philosophy) your cash flow would look different and the value of your business would be different. Your cash flow reflects all the decisions you make within your company. So, I challenge you with this question, if the decisions you are making don’t increase your cash flow (and buyers will pay you only for your cash flow) why are you engaging in those activities that don’t result in increased cash flow? They are not adding value to your company.
The value of your business is not driven by its square footage and its bathrooms. It is driven by other metrics such as revenue, assets, growth, leverage, turnover, liquidity, etc. Publicly traded companies and transactions involving other private industry participants provide an understanding of how price relates to the various financial metrics of these companies. Then, just like we did in valuing your property, we apply these market ratios to the metrics of your business to determine its market value.
Ultimately, preparing for property valuation will provide benefits that help you effectively organize, realize possibilities, and make better decisions regarding the potential for your assets, whether it is for insurable value, estate planning, financing, litigation support, or selling purposes.