Is ZERO DOLLARS DOWN Even Possible??
Tweet · Aug 03, 2024
In the SMB world, you hear the idea of "Zero dollars down" and "Zero dollars out of pocket" often, so lets break these down for a hot second...
And then i'll leave you with an example👇
First:
Zero dollars down and Zero dollars out of pocket ARE NOT THE SAME.
Zero dollars down is where the seller isn't going to receive any cash up front and it'll be most likely structured as a SEED deal (more on that in a sec)
Zero dollars out of pocket is just zero of YOUR cash. The seller will be receiving money in some way, shape or form.
Maybe even 100% of the it. (SBA + other investors would be an example)
Making a deal work with Zero Down or Zero Out Of Pocket is TOTALLY possible. It's just a matter of knowing that it's possible and working through the deals you're looking at with these creative structures in mind.
Since this is a Twitter post, I'll keep it at the 10,000 foot overview. I'll dive deeper in my newsletter though (link at the bottom).
👆Shameless plug 😉
SEED Deals:
Sweat Equity & Earn in Deal
The basic idea is that you'd exchange something that you have other than money (time, skill, expertise, connections, network, etc.) for ownership in the company.
This isn't going to work with every scenario, but understanding that this is even a possibility is KEY.
A subsection of a SEED deal is BASELINE
You bring in whatever value you can and then set a baseline with the seller that you will take a % of anything OVER that baseline.
Example: The seller is making $300k. That's the baseline you decide on. Seller keeps that $300k.
You bring in your value, increase revenue, increase profits and now there's $500k SDE. You agree to split that 50/50 and now you're making 100k. (200k more in profit divided by 2)
There might also be a management fee on there like 5% or 5k a month.
This isn't cookie cutter, there are a ton of ways to play around with it.
THE POINT:
SBA loans are cool, but that's only ONE way to go about an acquisition.
As I learn, I promise to keep sharing the nuggets with you. 🧠