Floors And Ceilings

By Author: Robert Nance
Total Articles: 1
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Can I really buy a company with no money out of my own pocket... No money down?

So the question I receive most often today is... Can I actually buy a company with no money down?

The answer very simply is... yes. The process however, is fairly complicated if you don't have the right structure in place. This article deals with one piece of that fairly sophisticated structure: Floors and Ceilings.

“So what do I mean by Floors and Ceilings? I initially came up with this concept when buying my first company over 20 years ago. I had little to no experience in business acquisitions. At the time I was a real estate developer. My initial intention was to buy a 20,000 ft² building downtown Dallas that just happened to house a Mexican meat distributor which had sales in access 5 million dollars per year. Knowing real estate transactions intricately and nothing at all about business acquisitions... I set out to create a contract for a business acquisition.” Said Robert Nance.

Real estate values are fairly illiquid...Meaning, once the property is appraised and contracted there is very little the seller could ...
... do to vary that value. I was also aware that Businesses could vary greatly in value from day to day much less the 30 to 45-day time frame I knew it would take me to close the transaction. Knowing that, I developed the concept of Floors and Ceilings simply to protect myself, the buyer, during this time frame (from the time I placed the business under contract to the closing date).

Knowing once I put a business under contract it was going to take me 30 to 45 days to close and that during this time frame the seller would have complete autonomy and control over the business and it's assets and liabilities...the concept of Floors and Ceilings became quite apparent as a necessary key component of the contract. I would use this concept in every acquisition from that day forward.

Floors are relevant to assets as Ceilings to liabilities. I believed that I needed to put a minimum (floor) on the assets of the business when the seller brought this business to the closing table, and a Maxim (ceiling) on the liabilities of the business from the time of contract to the closing and have it based on the original financial statement (balance sheet) given to me by the seller when we began negotiations.

For example, if the business has $100,000 in current accounts receivable (Asset) at the time the business is contracted, that's a floor to be added to the contract. Meaning when you take the business over in 30 to 45 days there can't be less than $100,000.00 in current accounts receivables (based on the company’s standard terms) or the difference is reduced via cash at

closing from the amount you, the buyer, owes in the form of down payment. All assets are delineated in the assets section of the contract with the same type of language.

All liabilities are required to have ceilings within the contract. For example if the company had $100,000.00 in accounts payable at the time of contract (within the balance sheet) that language would go in the section of liabilities with a Ceiling being placed on that $100,000.00 liability. If the Seller was to bring the company to the closing table with an amount above the stated $100,000.00 liability, the difference would be credited to you, the buyer, via cash toward the down payment at the closing.

CONCLUSION:

This is a very simplistic example of the complicated process of buying a company using the concept of Floors and Ceiling as a tool for the down payment. There are many other factors that support this core concept however, this is THE KEY CONCEPT in the NO MONEY DOWN acquisition strategy.

So to answer the frequently asked question: Can I actually buy a company with no money down?
The answer very simply is... yes.

About Robert Nance

In addition to being a funding director for one of the largest (privately held) specialty financial institutions in the country; Robert Nance continues to be an active investor. Robert spent most of his adult life in Dallas Tx. where he became one of the largest private real estate developers in the country and later founded an acquisition firm specializing in privately held multi-million dollar corporations. A beach lover, Robert now enjoys spending most of his time at his house on the beach in Miami looking at different investment opportunities.

info@robertnance.blog
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I am an investor and coach. For more information please visit: www.robertnance.blog