What is FF&E (Furniture, Fixtures & Equipment)?
FF&E (or FFE) is an accounting term that refers to the furniture, fixtures, and equipment used in the process of valuing, selling, or buying a business. FF&E represent the moveable items that furnish and equip a building and includes desks, chairs, computers, electronics, tables, bookcases, lighting, and any other items that are not permanently affixed to the building. When assessing the value of a business, whether for maintaining daily operations or preparing a business for sale, FF&E are important costs to consider. These items depreciate over time and in an asset sale, FF&E is especially important if the business is going to be liquidated.
FF&E: Tangible Assets
Tangible assets are physical and measurable items that depreciate in value over time. FF&E will vary by industry, but most often include the following tangible assets:
Furniture: desks, chairs, tables, sofas, cabinets, etc.
Fixtures: cubical partitions, lamps, artwork, decorative items, etc.
Equipment: computers, servers, monitors, and industry specific equipment, etc.
There are many items that are specific to industries that may also be considered FF&E. For example, in the restaurant industry, FF&E will also include commercial ovens and freezers, tables and chairs, pots, pans, utensils, etc. While FF&E for the manufacturing and construction industries may include tractors, manufacturing tools, machinery, etc.
What Is Not Included in FF&E?
When it comes to FF&E, there are many items that businesses use day-to-day that are not included in FF&E. Any consumable product: food, drink, printer ink, office supplies, etc. are not included. Also not included are building features like windows, wallcoverings, and built-in desks or furnishings.
Value of FF&E
FF&E is valued at its fair market value. The value of FF&E when selling a business is determined by a number of factors:
- Type of business
- Industry
- Location
- Size of the business
- Condition of the FF&E
- Depreciation of FF&E
- Current market value of similar FF&E
The value is a price that both the seller and buyer agree to during due diligence. There are a few traditional ways to value FF&E:
- Replacement cost method: This method assesses FF&E based on the amount of money it would take to replace it with new materials.
- Depreciation replacement cost method: This method values FF&E by calculating the cost of replacing it with new equipment, with consideration for its depreciated value.
- Market value method: This method for valuing FF&E is based on the cost of similar FF&E being sold in the current market.
- Income method: This method assesses the value of FF&E based on its ability to generate revenue.
How Accountants Determine the Value FF&E
Typically, accountants allocate the cost of tangible or physical assets over their useful life. The useful life will vary and is dependent on each specific item and the estimated number of years the item is likely to be serviceable for the purpose of cost-effective revenue generation.
Items must have a useful life that last a year or more, to be considered FF&E although most items have a longer useful life. The IRS deems computers, office equipment, and vehicles to have five years of useful life while office furniture has a useful life of seven years. Accountants use depreciation to spread the procurement costs of FF&E over time.
FF&E is a core part of a business and its operations and often included in the sale price. Listings on BizBuySell may include the market value of FF&E, unless the seller specifically calls out that it is not included in the listing description. Knowing how to accurately allocate and value FF&E is important for good accounting practices and essential when determining the value of a business when considering the purchase or sale of a company.