Equipment appraisal
An equipment appraisal is an independent professional’s estimate of what a business’s machinery and equipment is actually worth, typically expressed as fair market value and orderly liquidation value. Buyers, sellers and lenders use it to support purchase price allocation, financing decisions and insurance coverage rather than relying on the seller’s book value or a rough estimate.
Equipment often makes up a large share of a small or medium business’s assets, but its book value on the financial statements rarely reflects what it would actually sell for. An equipment appraisal, done by an independent, typically credentialed appraiser, gives a defensible estimate of value that both sides and any lender involved can rely on.
Why an independent number matters
- Lenders financing the purchase, including through government-backed small business loan programs, often require a current appraisal to support the loan amount.
- Purchase price allocation between depreciable equipment and goodwill affects both parties’ future tax treatment, so an independent number reduces disputes.
- Fair market value and orderly liquidation value can differ significantly, and which one applies depends on why the appraisal is being done.
What buyers should check
Buyers typically confirm the appraiser’s credentials, the valuation approach used, and whether the appraisal reflects the equipment’s actual condition and remaining useful life rather than just its age, since equipment that looks fine on paper can carry hidden maintenance or replacement costs.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Treadstone LawLegal commentaryEquipment and Asset Condition Checks Before Buying a Business in Ontario
- 02Innovation, Science and Economic Development CanadaGovernmentCanada Small Business Financing Program
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