Maximizing Returns on Surplus Equipment

Maximizing Returns on Surplus Equipment

4.21.04

J. Boyd Heath, CEO, Network International

Surplus equipment, often overlooked or unaccounted for, can have serious ramifications for all types of businesses. Financial implications of carrying these assets and compliance with new laws governing their management are driving many companies to divest surplus more aggressively. These conditions have led most companies to reevaluate current processes and consider the most efficient ways to sell surplus equipment. Luckily, there are industry specialists that assist in all stages of the process, from identification to post sale support.

The True Cost of Surplus

The value associated with surplus equipment is typically thought of in terms of revenue associated with the future sale of the assets. In actuality, the real value of divesting surplus is far greater, due to the costs associated with owning the equipment. These costs include storage, maintenance, transportation, insurance, legal fees, and property taxes. Conservative estimates place these carrying costs at over 10% a year, not including cost of capital. But perhaps the most expensive aspect associated with surplus equipment stems from the management of the assets, usually performed by engineers or procurement managers with varied competencies or job responsibilities. Cumulatively, these factors have led to a renewed interest in the importance of recovering maximum value for surplus equipment.

Recovering Value

Companies seeking to recover value from idle assets have a number of options. The most efficient use of equipment will always be internal redeployment. As straightforward as it sounds, most companies have little visibility into surplus assets company wide, and few make a conscious effort to move assets internally. The second option most companies employ is to sell equipment back to the original manufacturers. While highly convenient, this method rarely recovers the maximum value. Manufacturers are able to buy back equipment at these prices because of the convenience they offer, but rarely pay actual market value. In addition, “barter” transactions of this nature are frowned upon by regulatory agencies and will continue to come under increased scrutiny. The third option involves reselling the equipment.

Maximum Sales Value

Unfortunately, most companies oversimplify the process of selling equipment. Broker networks thrive off companies with limited resources to deploy towards the sales process. Many times idle inventory is sold quickly by accepting private offers, involving minimal marketing or price negotiation. While providing the seller with convenience, these brokers are offering far less than market value, and typically resell the equipment themselves for a significant profit.

There are actually many steps involved in recovering maximum value from the sale of surplus equipment:

Assets are identified as surplus
Equipment details and records must be identified. These can include test reports, warranties, or similar documentation.
Communication must occur with the associated yards or warehouses holding the equipment to ensure that it is complete and appropriate to sell.
The equipment must be described and marketed appropriately to generate significant interest.
The seller must provide a suitable inspection period to accommodate all interested parties and must be available to field questions from prospective buyers.
All bids for the equipment must be reviewed for the most advantageous offer price and terms.
Winning buyers must be notified and the terms for payment and equipment pick up must be determined.
Legal and tax documentation such as tax exemption certificates and Bills of Sales must be executed, and money must be received.
Ownership of the equipment can be transferred officially to the buyer.

Your Core Competencies

If the activities described above seem out of your area of expertise, you are not alone. While sellers of equipment may have valuable knowledge of the application or original value of equipment, they rarely have the time required to handle all sale aspects mentioned above. To maximize value, companies should focus on their core competencies and consider outsourcing ancillary business functions.

There are now alternatives for surplus divestment. More and more frequently, companies are turning to specialists to provide the above-mentioned divestment services, in exchange for commission on the equipment sales prices. The best businesses in this class offer numerous advantages to traditional internal sales efforts including Internet exposure for wide market reach, extensive industry specific databases of potential buyers, and dynamic bidding offered through online auctions.

But technology is only part of the advantage in using these specialists. They also offer numerous traditional services such as performing inventory work, writing descriptions, taking pictures, calling customers, fielding questions, and collecting taxes and legal documentation. Additionally, these companies are typically very knowledgeable about tax issues such as like-kind exchanges and transportation issues. While many of these services can be performed internally, most companies are beginning to realize the value of letting asset recovery specialists manage the process once equipment has been identified as surplus.

Why Sell Surplus

Aside from the revenue generated by selling surplus and the reduction in carrying costs identified earlier, management now has additional reasons to sell idle assets. As mandated by the Sarbanes-Oxley Act of 2002, measures must now be in place for the appropriate recognition and management of assets. This combination of factors has generated a renewed interest in surplus asset sales. In turn, many companies are also reexamining their core competencies and efficient use of time and capital. These factors have contributed to the rise of professional surplus equipment experts, and make them a viable alternative worth investigating.