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“For What It’s Worth” is a monthly newsletter written by Director Rand Curtiss.
In many business appraisal assignments, it is necessary to have specialists value fixed assets such as real estate or machinery and equipment. Business appraisers are not qualified to do this. It is important to make sure that all of the appraisers are using the same premise of value; i.e. whether the fixed assets are to be valued “in continued use, as part of a going concern”, or in (orderly or forced) liquidation.
Sometimes, clients already have fixed asset appraisals in hand, which have been completed for insurance or bank financing purposes. Generally speaking, insurance appraisals have to be checked to make sure that the assets are valued “as is”, considering their current condition and used equipment market conditions, rather than at “replacement cost new”. Under the latter assumption, insurance proceeds would allow the client to buy new assets, not used ones of comparable condition. A “replacement cost new” value basis might overstate the appropriate value of the equipment that is current in use in the business.
Bank appraisals, on the other hand, are based on forced liquidation value, because banks like to assume the lowest possible value for collateralization purposes. This could be far lower than “as is” value.
Proper fixed asset appraisals will clearly state the premise of value (and some may provide values on alternate premises). If the properly premised value is provided, the business appraiser can use that data directly. If not, the business and fixed asset appraiser should confer to develop the appropriately premised values. Depending on the importance of fixed assets to the total business value and the amount of assets in question, a simple value adjustment may be proper. In some cases, however, it may be necessary to redo the fixed asset appraisal.
Valuations play a part in all tax, transaction, and litigation matters. For additional information or advice on a current one, please do not hesitate to call.
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About Western Reserve Valuation Services LLC
Western Reserve Valuation Services LLC, based in Columbus, Ohio, is a leading provider of valuation services and financial opinions relating to corporate finance transactions, corporate tax planning and compliance, succession planning and wealth preservation, employee stock ownership plans (“ESOPs”), financial reporting and portfolio / fund valuations. For more information, visit www.wesresvaluation.com or call (614) 448-3700.
Western Reserve Valuation Services is an affiliate of Western Reserve Partners LLC, a FINRA-member investment banking firm offering financial advisory services relating to mergers and acquisitions, capital raising and financial restructuring. For more information on Western Reserve Partners, please www.wesrespartners.com or call (216) 589-0900.