Farm aid
A tractor tills farmland.
Every type of business and industry brings with it unique valuation challenges for machinery and equipment appraisers. The farming industry, for example, may be ubiquitous here in the Midwest – but it’s also very different from other equipment-heavy industries such as construction or manufacturing when it comes to appraising the machinery.
We frequently work with clients to provide appraisals and valuations on farm machinery and equipment for a number of reasons, including collateral financing, USDA loans, estate and gift tax accounting, divorce mediation, and financial reporting for acquisitions.
Even though each appraisal of farm machinery and equipment remains unique in its own way, there are some general issues and concerns we prepare or when approaching them:
Ownership: Farm businesses are often intertwined with a family’s personal finances and personal assets. All tangible asset classes – including real estate, M&E, and inventory – can be affected by this traditional family-farm business mentality. To further complicate things, recordkeeping and accounting can often be rudimentary, even for large operations. Assets and businesses are often passed down, shared, and operated on handshake agreements. This is a stark contrast to businesses such as manufacturing shops, which are almost never intermixed with a family’s personal property and finances.
In recent years, many farms have begun operating as standalone business entities which are not intermixed with the owners’ personal life. It is now common for larger operations to keep separate books, employ a full-time controller, and operate from an office rather than the family home. But there are still many large farms with traditional family-run operations.
Debt and liens: Of all industries employing heavy machinery, farms are highly likely to employ a labyrinth of financing strategies for any given piece of equipment. Large manufacturers have in-house credit programs; banks will lend against specific assets or put blanket liens against all owned assets; attachments and upgrades may be financed separately from the main machine. It is not uncommon for us to find a planter or combine subject to three separate liens, for example.
Further complicating the situation is the fact that the specific assets are often not identified in the lien filings by serial number. The original manufacturer will know which combine they hold the note on; but the bank is often lackadaisical when establishing a new relationship and does not have a proper inventory completed at the time the lien is filed.
Physical inventory: Farm machinery and vehicles may be spread between a half-dozen properties. They are often interspersed with assets belonging to adjacent businesses, such as a trucking company or dairy operation owned by the same family. Assets are often acquired or sold for cash and not reported to the accountant in a timely manner, so the asset schedule doesn’t align with the physical inventory.
It is not uncommon for the farm owner to have no idea which entity owns which piece of equipment, and to even be unsure whether a given asset is theirs, a family member’s, a neighbor’s, or another farmer’s. We’ve heard some variation of, “I remember paying for half of it, but I can’t remember who was actually supposed to own it,” more than once.
To be sure, this is rare with $100,000-plus machines, but not at all uncommon with assets worth less than $25,000 – and in a bankruptcy, tax, or divorce situation, even assets worth a few thousand dollars can become contentious to the interested parties.
Given all this, a farm machinery appraisal requires an appraisal firm which is prepared for the diligence required to sort out business assets from personal assets, properly identify and assign liens and ownership interests, and take the time to find every piece of equipment no matter how widely dispersed.