If a business has surplus assets or needs to generate funds, liquidation is a viable solution. Business assets can be converted into capital if their value is professionally appraised. A professional appraiser is an impartial third party that instills trust in the liquidator and whatever entity purchases the assets.
Did you know that there are many types of appraisals? An appraiser’s job may seem straightforward, but there are actually many specialized skills an appraiser must possess. Read more to determine which appraisal method is most suitable for your asset liquidation needs.
Liquidated sale value is the estimated amount of money that could be generated from selling assets in a well advertised, professionally administered public auction. To come to the estimated figure, appraisers will consider physical location, the condition of the assets, specialization, marketability, difficulty of removal, appearance, and psychological appeal. The appraiser also considers the number of bidders that would be likely to attend the auction. The appraiser assumes each item is sold as is, and that the buyer would be responsible for further transportation of the item. If the items were to be sold together, the appraiser would consider how the pairing would affect any of the above conditions.
If a failed facility were to be sold intact, within a limited time, an appraiser would calculate the estimated gross proceeds of the sale.
This is similar to liquidated sale value, but with added conditions. The net auction sale value is the estimated proceeds a seller could obtain for their assets if those assets were to be:
The auction would also carry the requirements of proper advertising, and the stipulation for the buyer to transport their purchases off of the auction site. The buyer is still buying as-is. The appraiser still considers the condition of the assets on multiple levels, as well as current economic trends. The sum total of the appraisal also takes into account the expenses of running the auction.
This is the estimated gross proceeds of a sale conducted within a six-month time frame. The asset seller is expected to find a buyer within this period and is selling their assets on an as-is basis. The buyer is expected to transport the items away themselves.
This is the same as orderly liquidated value, but pertaining to an entire facility. Six months is considered a reasonable time frame to find a committed buyer, who is taking on the facility without liens or encumbrances.
When a facility is not in operation, but the owner does not want to sell, the net orderly liquidated value refers to the net total that could be obtained from selling all the items within it. The proceeds would be generated from a well advertised and run liquidation sale. Five months is stipulated as a reasonable time frame to prepare for and conduct this sale. Buyers would take on items in as-is condition, and be responsible for transporting them away from the facility.
Fair market value is the proceeds that could be obtained by the sale of an asset between a willing buyer and seller, given the date which the sale takes place and surrounding market conditions. Both parties are fully aware of all details pertaining to the sale, and the buyer is given time and opportunity to conduct due diligence.
Desktop evaluation is not technically an appraisal, but it is a service offered by many appraisers. It is the valuation of an asset under specified conditions. The appraiser does not physically inspect the asset, or dive into its history. It is a hypothetical appraisal based on current market conditions, encompassing any stipulations mandated by the client.
A walk-through evaluation is, similarly, not an appraisal. It is an expert’s attempt to define the value of an asset based on their specialized knowledge and taking into account current market conditions and any supporting details of the case. This is to give the client some idea of what they may expect if they put their assets through a professional appraisal.
There are many types of appraisals and evaluations, all designed to help clients financially prepare for business transitions. Often, businesses have surplus stock and need to weigh the pros and cons of liquidating it. Other times, businesses need additional working capital but don’t want to go through rounds of funding. Sometimes, businesses need to satisfy creditors, and asset liquidation is a tangible and immediate method of making necessary payments.
Asset liquidation should be done only after a professional appraisal. By knowing the targeted market value of your items, you can avoid both underselling and overselling. With underselling, you’ll receive far less capital than you could have with liquidation. By overselling, your assets may languish on the market.
Asset appraisal is vitally important to good business outcomes. Michael’s Global Trading performs business asset appraisals for a broad spectrum of industries. For more information, call us at (888) 471-5066 or get a quote here.