How to buy a business in South Africa

1. Decide what to buy and why

Start with your own position before you look at a single listing. Be honest about your budget (including the working capital you will need after the purchase), the sectors you actually understand, how hands-on you want to be, and your time horizon. A buyer who can run operations day-to-day can consider an owner-dependent business at a lower multiple. A buyer who wants a passive investment needs a business with a management team already in place.

Write down your acquisition criteria: minimum profit, maximum price, preferred province, must-have and deal-breaker characteristics. Clear criteria make it far easier to say no quickly and concentrate on the few opportunities worth pursuing. Most experienced buyers look at dozens of businesses for every one they buy, so a tight filter saves months.

2. Search and shortlist

Browse opportunities by sector, location, price and profit. On DealExchange, public listings are deliberately anonymous teasers: you see the shape of the business and headline figures, while the trading name, exact address and full financials stay confidential until you are qualified. Shortlist on the fundamentals. Does the profit justify the price, is the business growing or declining, and how dependent is it on the current owner or a single customer?

Browse businesses for sale

3. Enquire, qualify and sign the NDA

Submit a qualified enquiry with your budget, timeline and funding position. This is where serious buyers separate themselves from tyre-kickers, because sellers and brokers release sensitive information only to buyers who can demonstrate they are credible. Once your enquiry is qualified you will be asked to sign a non-disclosure agreement (NDA) for that specific mandate, after which the confidential information pack is shared and you can speak directly with the broker or the DealExchange representative.

Have your proof of funds ready at this stage. A bank statement, a finance pre-approval letter, or a simple letter from your accountant confirming available capital will move you to the front of the queue on any in-demand listing.

4. Understand the valuation

Most owner-managed South African businesses are priced on a multiple of normalised profit. Normalising (or adding back) adjusts the reported profit for once-off costs, owner personal expenses run through the business, and above-market or below-market owner salaries, to show what the business would really earn for a new owner. Scrutinise every add-back, because aggressive add-backs are the most common way an asking price is inflated.

• Earnings multiple: sustainable profit (EBITDA or seller-adjusted earnings) multiplied by a sector multiple, typically around 2x to 4x for SMEs.
• Net asset value: a cross-check for asset-heavy businesses (equipment, stock, property).
• Risk discounts: heavy reliance on the owner, a single big customer, or an expiring lease all reduce what a business is worth.

What pushes a multiple higher: recurring or contracted revenue, year-on-year growth, a spread of customers so no single client is critical, a management team that runs the business without the owner, clean financial records, and a long secure lease. What pulls a multiple lower: declining turnover, one customer making up a large share of sales, an owner who personally holds the key relationships, short or uncertain lease terms, and messy or unverifiable books.

You can sanity-check an asking price with our business valuation estimator. Figures shown are seller-supplied and have not been independently verified by DealExchange. Verify all numbers through broker discussion, NDA pack review and professional due diligence before making an offer.

5. A worked valuation example

Imagine a small Johannesburg engineering workshop on the market. The seller advertises it at R3.6m and shows a reported net profit of R600,000 for the last year. Here is how a careful buyer rebuilds that number.

First, normalise the profit. The owner pays themselves a R180,000 salary, well below the roughly R420,000 it would cost to hire a manager to do the same job, so a realistic owner replacement cost reduces profit by about R240,000. The accounts include a R90,000 once-off legal cost from a dispute that is now settled, which adds back. They also include R60,000 of family motor-vehicle expenses that a new owner would not carry, which adds back. Netting these out gives a normalised profit closer to R510,000 (R600,000 less R240,000 plus R90,000 plus R60,000).

Next, choose a multiple. The workshop has steady but flat turnover, a five-year lease with three years left, and two large customers that together make up 55% of sales. That customer concentration and the flat growth justify a multiple at the lower end of the range, say 2.5x rather than 4x. A value built on normalised earnings is therefore about R510,000 multiplied by 2.5, or roughly R1.28m, plus the value of any equipment and stock that transfers with the business.

If the equipment and stock are worth about R700,000, a defensible offer range is roughly R1.3m to R2.0m depending on how the assets are treated, which is well below the R3.6m asking price. That gap is the whole point of doing the work: the asking price assumed full reported profit and a generous multiple, while the rebuilt number reflects owner dependence, customer concentration and a flat trend. None of this means the deal is bad. It means you now negotiate from evidence, not from the seller's headline.

6. Arrange your funding

Know how you will pay before you make an offer. It strengthens your position and prevents wasted due diligence. Common routes in South Africa include:

• Bank acquisition finance from the major banks, secured against the target cash flow and assets. Banks typically want to see that the business profit comfortably covers the loan repayment, and they usually expect the buyer to contribute a meaningful deposit from their own funds rather than financing the entire price.
• Seller financing, where the seller leaves part of the price in the deal to be paid from future profit over an agreed period. This is also a strong signal that the seller believes their own numbers, and a seller who refuses any deferred portion is worth a second look.
• Development finance such as facilities from the Small Enterprise Finance Agency (SEFA) for qualifying buyers and sectors, which can suit first-time and previously disadvantaged buyers in particular.
• Equity from partners or investors, where you contribute less cash but share ownership and control.

Lenders will expect reviewed or audited financials, a business plan that shows you understand how the business makes money, and meaningful contribution from you. Approach funding early, because a finance approval that arrives after your offer expires helps nobody.

7. Make a conditional offer

Once the headline numbers stack up, put a written offer on the table, often as a letter of intent or a conditional offer to purchase. A good offer is clear about the price, what is included (equipment, stock, the trading name, intellectual property, customer lists), what is excluded, and how and when payment happens.

Crucially, make it subject to suspensive conditions: satisfactory due diligence, funding approval, landlord consent to assign the lease, transfer of key licences, and the retention of major contracts. These conditions are your safety net. If a condition is not met, you can walk away without penalty. Consider whether to include an earn-out, where part of the price depends on the business hitting agreed targets after takeover, which is a useful tool when the seller is more optimistic about the future than you are.

8. Do your due diligence

This is the heart of the process. Verify everything the seller has claimed, ideally with your accountant and attorney. A practical checklist:

• Financial: three years of financials and management accounts, bank statements to confirm the money actually moved, the debtors and creditors ages, and proof that the add-backs are real.
• Tax: SARS compliance status, VAT, PAYE and income tax up to date, no disputes or outstanding assessments. Ask for a current SARS tax compliance status confirmation.
• Legal: CIPC records, shareholder agreements, material contracts, and any pending litigation.
• Commercial: customer concentration, supplier terms, the order pipeline, and how much revenue depends on the departing owner.
• Operational: the condition of equipment and stock, IT systems, and key-person risk in the team.
• Lease and licences: remaining lease term, renewal options, and which licences are transferable.

9. Lease, staff and supplier transfers

Three things routinely make or break SME deals:

• The lease. Most leases require the landlord written consent to assign. A short remaining term or an unwilling landlord can sink a location-dependent business, so confirm consent early as a condition of the deal.
• Staff. Under section 197 of the Labour Relations Act, when a business transfers as a going concern, employees transfer automatically on the same terms, with their service history intact. Confirm headcount, contracts, leave liabilities and any disputes.
• Suppliers and customers. Key contracts may have change-of-control clauses. Make sure the relationships that drive the profit will actually follow the business to its new owner.

10. BEE, tax and structure

B-BBEE status can directly affect a business ability to win customers, especially where corporate or government clients are involved. A poor or expired BEE level can quietly cost a business contracts, while a strong level can be a real asset, so factor the target current and achievable BEE position into your plan and your price.

On structure and tax, decide with professional advice whether to buy shares or assets. A going-concern asset sale can be VAT zero-rated when both parties are VAT vendors and the agreement is worded correctly, which avoids a large cash-flow hit on transfer. A share sale is often simpler to run because contracts and licences stay with the company, but you also inherit the company history and liabilities, which makes thorough due diligence even more important. Budget for Capital Gains Tax implications, transfer duty where fixed property is involved, and the cost of any licence or registration transfers. Always confirm the tax treatment with your own accountant before you sign, because the wrong structure can add a meaningful cost to the deal.

11. Regulated sectors

Some sectors carry extra approval steps that must be cleared before closing, or as a condition of it. Fuel, mining, energy, liquor, health and financial-services businesses all involve licences that are not automatically transferable. Petrol stations in particular need Department of Mineral Resources and Energy (DMRE) site and retail licences and supplier agreements. If your target is in a regulated sector, read our dedicated guide:

Buying a petrol station in South Africa

12. Red flags and common mistakes

Most deals that go wrong show warning signs early. Watch for these:

• Profit that only exists on paper. If the bank statements do not back up the reported sales and profit, trust the bank statements.
• Add-backs that keep growing. A long list of one-off costs that recur every year is not one-off. Treat optimistic add-backs as a negotiation, not a fact.
• One customer or one person. A business where a single client drives most of the revenue, or where only the owner holds the key relationships, is riskier than the headline profit suggests.
• A lease running down. Two years left on a location-dependent business, with no renewal secured, is a serious risk to value.
• Reluctance to provide documents. A seller who delays or filters the financials during due diligence is telling you something.
• Paying before conditions are met. Never release funds until your suspensive conditions, including funding, lease consent and licence transfers, are satisfied.
• Skipping professional advice to save fees. The accountant and attorney cost is small next to the cost of buying the wrong business.

13. Close and take over

Closing happens once every suspensive condition is met. Your attorney prepares and lodges the sale agreement, funds are paid (often into a trust account), assets, shares, licences and the lease are transferred, and SARS and CIPC records are updated. Plan the first 90 days deliberately: introduce yourself to staff, customers and suppliers, keep the people and processes that work, and avoid sweeping changes until you understand the business from the inside.