Does machinery add to the value of my business?

Why isn't the machinery added to the earnings value?

A buyer pays for the profit the business can keep making. The presses, CNC machines, cranes, forklifts and trucks are how it makes that profit. Valuing the earnings and then adding the machines would charge the buyer twice for the same thing, once for what the machines produce and again for the machines themselves.

When does machinery change the value?

• Condition and age. Plant overdue for replacement means a capital bill the buyer will deduct. Recently renewed plant means less spending ahead, so more of the earnings are free cash.
• Finance. Chattel mortgages, hire purchase and finance leases are debt. They come off the enterprise value to reach the value of the shares.
• Surplus equipment. Machines not needed to earn the income can be valued on their own and added.
• An asset floor. Where profits are too low to justify the plant, what it would fetch in an orderly sale can exceed the earnings value and becomes the better measure.
• Spare capacity. Room to grow without new capital interests buyers, but market value does not pay in full for growth a particular buyer would have to deliver.

Do I also need a plant and machinery valuation?

Usually not for a business valuation. A plant and machinery valuation is separate work, done by a plant and machinery valuer, usually for a lender, an insurer or a sale of the assets themselves. We value the business. Where a plant valuation already exists we can use it as an input, particularly when testing surplus assets or the asset floor, and we say at the scoping call if one would help.

Our article on plant, equipment and business value works through these tests in more depth, and the machinery and equipment business valuation page covers dealers, hire companies and repairers. For a formal figure, request a quote; fees by turnover are on our pricing page.