How can you figure out how much-used equipment is worth?

Many business owners have just a hazy concept of what their equipment is worth. However, knowing how much-used assets are worth can be useful for a variety of reasons.

If you’re looking to purchase or sell a used truck or machine, you’ll need to know what a fair asking price is. You may be looking for suitable insurance coverage for your equipment or to utilize it as collateral for a loan.

Choosing an acceptable value might be difficult. Do you utilize fair market value as a criterion? How much does a new replacement cost? Is there an orderly liquidation value? How do you evaluate equipment that is highly specialized or doesn’t have a readily available market?

There are a half-dozen conceivable values.

According to Darrell Thorvaldson, an accredited equipment appraiser and Vice President of the Appraisal Institute of Canada, “equipment might legally have at least half a dozen various sorts of values that apply in proper circumstances.”

He explains, “There is a hierarchy of distinct value kinds ranging from very high to very low that are all market based and completely apart from the ‘book’ equipment values that entrepreneurs see on their annual financial accounts.”

What is the valuation’s purpose?

Understanding the goal of the value is the first step in valuing equipment. This will assist you in determining which value is appropriate to utilize. The following are the three most popular categories:

1. Purchasing and selling of equipment

The following are the most frequent valuations used when purchasing or selling used equipment:

  • reasonable market value
  • forced liquidation value
  • orderly liquidation value

Which one to use is determined by the purchase or sale’s circumstances. A conventional transaction between two willing parties, for example, usually relies on fair market value, whereas a bankruptcy may use liquidation value.

2. Coverage

Businesses frequently need to know the worth of their equipment in order to file insurance claims or to verify that they have adequate insurance coverage.

The following are the most common insurance values:

  • replacement cost new
  • reproduction cost new
  • actual cash value

The premium is affected by which one is utilized and is determined by the insurance policy.

3. Use indefinitely

The “continuous usage” category relates to equipment that you intend to keep and utilize in your firm. It’s possible that you’ll need to know its value for financial reporting or to utilize the equipment as collateral for a loan.

Although some banks may collateralize equipment based on its forced liquidation value, it is common to ascertain fair market value for such purposes.