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Buying for Zero Money Down – Really Possible?

“That’s impossible!!”  That was the reaction of a friend when I told him we had just closed on buying a company with $30 million in revenues – for no money out of my pocket.

 

Actually, it’s quite possible.

 

Obviously not all companies can be acquired for zero cash down.  You want to buy Tesla, for example, it would require quite a bit of cash.  But for the rest of us looking at relatively small businesses it can be done.

 

How can it be done?

 

There are several possible ways to get an acquisition financed.  Below are some of the possibilities:

 

  1. Use the acquired company’s assets. That’s what I did on my acquisition.  They had sufficient receivables and inventory that I was able to borrow the entire purchase price.  Look for companies with a lot of receivables, inventory, real estate or other bankable assets.
  2. Give the seller a promissory note. Let’s say you want to buy a small business – think ice cream shop.  Purchase price of $500,000.  Let the seller finance it for you and pay them over the next 5 years with interest.
  3. Give the seller an earn-out. An “earn-out” is where you pay the seller out of the future earnings of the company.  It’s similar to a seller note but gives the seller some incentive to help you be successful in the business.  Generally an earn-out is based on a fixed percentage of the earnings over the next five years.
  4. Or a combination of the above. Let’s say the purchase price is $1,000,000.  You can use the assets to fund $750,000 plus a $250,000 seller note or earn out.

 

With a willing seller, deals can be crafted with little or no money down.  The only out of pocket for a real no-money down deal will be for expenses prior to the acquisition – such as legal, accounting, travel or other expenses incurred while doing the deal.  Those expenses can be reimbursed by the company after closing resulting in no money out of your pocket.

 

We can help you identify and close transactions like this.  See the Contact Me section of this website and let me know what you want to accomplish.