What is the difference between an equipment appraisal and a business valuation?
An equipment appraisal gives a formal opinion of value for machinery and equipment under CUSPAP’s Machinery and Equipment Appraisal Standard. A business valuation, such as one by a chartered business valuator, values the business or its shares. BDC says a valuator may in some cases call in an equipment appraiser.
The two documents answer different questions. An equipment appraisal concerns specific machinery and equipment. A business valuation concerns the business or its shares. BDC says the value of equipment depends on the purpose of the valuation and the appraisal method used. This page sets the two side by side, using BDC, the Appraisal Institute of Canada and CBV Institute. It gives no values.
Equipment appraisal and business valuation compared
| Aspect | Equipment appraisal | Business valuation |
|---|---|---|
| What is valued | Machinery and equipment, a category of personal property | The business or shares |
| Who prepares it | An equipment appraiser | A business valuator, such as a chartered business valuator (CBV) |
| Standards named | CUSPAP Machinery and Equipment Appraisal Standard | CBV Institute Practice Standards |
| Purposes named | Buying or selling, insurance, continued use | Disputes, tax events, buy-sell agreements, going to market |
Who does each and under what standards
CUSPAP, published by the Appraisal Institute of Canada, has a Machinery and Equipment Appraisal Standard for developing and communicating a formal opinion of value for machinery and equipment, used with its Reporting Standard. BDC quotes an accredited equipment appraiser who is an Appraisal Institute vice-president. For businesses, CBV Institute says its Practice Standards and Code of Ethics are mandatory for CBV professional practice.
Purposes
BDC names buying or selling equipment, insurance and continued use as the three most common categories for valuing equipment. CBV Institute says a CBV quantifies business or share value in shareholder disputes, matrimonial law and tax disputes, among others, supports buy-sell agreements and shareholder buyouts, and says that before going to market, or making or accepting an offer, a defensible valuation is needed.
Where they meet
BDC says the valuator may in some cases need to call in a real estate or equipment appraiser for additional input. See asset-based valuation. Where a Canada Small Business Financing Program loan is involved, section 5.5 of the guidelines requires the lender to obtain an appraisal of the asset’s market value in listed cases, including a purchase of all or substantially all the assets of a going concern. The section also says no appraisal is required where a seller not at arm’s length sells the borrower an asset it bought from a vendor at arm’s length to the borrower, subject to the proof-of-cost and timing conditions in that section. Ask the lender what it requires.
Related reading
15 pages on the same subject, grouped by topic.
Valuation
- DefinitionEquipment appraisal
- DefinitionAsset-based valuation
- DefinitionOrderly liquidation value (OLV)
- DefinitionGoodwill
- ComparisonBusiness valuation vs real estate appraisal
- ComparisonAccountant vs business valuator
- Expert answerShould equipment be priced at original cost or current worth in a business sale?
- Expert answerWho can value my business in Canada?
- Expert answerHow is a fleet valued in a trucking sale?
- GuideBusiness valuation methods for small businesses, compared
- GuideBusiness valuation certification in Canada: the CBV, and how to find one
- Expert answerHow do I choose a business valuation firm?
- Expert answerWhat happens during a business valuation, step by step?
- Expert answerWhen is a business valued at no more than its assets?
Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentEquipment valuation: How to do it
- 02Business Development Bank of CanadaGovernmentBusiness acquisitions: How to value a company
- 03Appraisal Institute of CanadaIndustryCanadian Uniform Standards of Professional Appraisal Practice (CUSPAP), effective January 1, 2024
- 04Appraisal Institute of CanadaIndustryAbout the Appraisal Institute of Canada
- 05CBV InstituteIndustryWhen to Engage With a CBV
- 06CBV InstituteIndustryPractice Standards & Code of Ethics
- 07Innovation, Science and Economic Development CanadaGovernmentCanada Small Business Financing Program — Guidelines
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