Before you insure your business, do a building and equipment valuation

What’s your business worth?

It seems like a simple question, but it has a variety of answers. To you and your employees, the answer is probably “priceless,” but there are more objective measures available.

According to the U.S. Chamber of Commerce, as of 2025, 99.9 percent of U.S. businesses — more than 33 million of them — can be classified as “small.” The Small Business Administration’s Office of Advocacy says that in 2024, small business made up almost 44 percent of the country’s gross domestic product (GDP) and employed 46 percent of private-sector workers. That adds up to trillions of dollars in economic activity annually.

And that means that, beyond their obvious value to you as a labor of love, and to your employees as a means of putting food on the table, businesses like yours are vital to the nation’s well-being and are worth protecting.

Protecting your investment

To be certain the insurance protection you purchase is adequate, you need to engage in the process of building and equipment valuation to determine the value of your company’s tangible assets — including facilities, machinery, vehicles, tools, and other equipment.

Building and equipment valuation involves more than tallying the cost of your machinery, the goods you have in inventory, and the amount of equity you have in your headquarters building. You also need to assess such factors as the current condition of your equipment, as well as the effects of inflation, tariffs, and expected business income. Once quantified, the data will enable an assessment of your business’s total insurable value (TIV), a measure of the maximum dollar amount an insurance company will pay out on a claim.

Beyond insurance

Aside from getting a clear picture of the level of insurance your business may require, determining a building and equipment valuation will also guide you in forming business strategies, as well as providing data for operations such as financial reporting, negotiating trade agreements, acquisition of new assets, and sale of assets you already have. It can also help you comply with local, state, and federal regulations, or to line up financing.

Three methods

There are three primary approaches to determining your business’s building and equipment valuation: the asset approach, the market approach, and the income approach.

Asset approach

In this method, a company’s liabilities are subtracted from its net tangible assets. This approach is especially useful if a company’s assets comprise its main value, as with manufacturing, where machinery and the inventory of durable goods produced by it make up the main part of a company’s value, or real estate, where the assets are mostly properties the company holds. The asset approach is especially useful with startups, where business earnings haven’t yet offset R&D costs.

Market Approach

As the name suggests, the market approach uses private or public markets as benchmarks in evaluating asset value. Taking a page from real-estate valuation, this approach uses “comparables” in determining asset value by comparing (for example) a company’s machinery or vehicle fleet to similar companies’ machinery or vehicles. In this approach, equipment condition, modifications, and maintenance history are salient details.

Income Approach

For stable companies that have a predictable flow of earnings associated with their equipment, it may be possible to use the income approach. Put simply, this method treats future earnings as an asset that can be taken into account when determining building and equipment valuation.

If all this seems a lot to think about, don’t worry; your insurance agent can be your partner in determining a fair and accurate building and equipment valuation. Then you can settle on the level and type of coverage that will help you to chart your company’s course safely, confidently, and profitably.

Sources: Phoenix Strategy Group; Investopedia; Acgile.com

The information included here was obtained from sources believed to be reliable, however Grinnell Mutual Reinsurance Company, SI, and its employees make no guarantee of results and assume no liability in connection with any training, materials, suggestions, or information provided. It is the user’s responsibility to confirm compliance with any applicable local, state, or federal regulations. Information obtained from or via Grinnell Mutual Reinsurance Company, SI, should not be used as the basis for legal advice and should be confirmed with alternative sources.