Buying an existing business gives you a head start: there are already customers, cash flow, staff, and systems in place from day one. The risk is lower, the ramp-up time is shorter, and the returns can come far quicker.
For business owners looking to grow through acquisition, secured business loans to buy an existing business are available through Geddes, so you can move fast when the right opportunity appears.
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Start With the Numbers, Not the Story
Every business owner selling their business will tell you it has potential. Your job is to look past the story and into the financials.
Ask for at least three years of financial statements. You want to see income statements, balance sheets, and cash flow statements. What you are looking for is consistency. Does the business make money regularly, or are there wild swings from one year to the next? A business that had one exceptional year and two average ones is not the same as a business that grows steadily.
Pay particular attention to cash flow. Profit on paper can hide a lot. If the business is profitable but constantly short on cash, that tells you something about how the money moves through the operation. You want a business that collects what it earns.
Ask Why the Owner Is Selling
This is one of the most important questions you can ask, and it deserves an honest answer. Owners sell for many reasons. Some are retiring. Others want to move on to a new venture. Some are dealing with health issues or personal circumstances. These are all understandable.
But sometimes a business is on the market because it is struggling, losing customers, or facing a legal or financial problem that the seller wants to walk away from.
Do your research. Talk to the owner directly and listen carefully to what they say and what they do not say. Cross-check their explanation against the financial records and any other information you can find.
Understand What You Are Actually Buying
A business is not just its name or its premises. When you purchase a business, you are acquiring a combination of assets, which may include equipment, stock, intellectual property, customer lists, contracts, and goodwill. Goodwill is the value assigned to intangible things like reputation, brand recognition, and customer loyalty.
Make a list of everything included in the sale. Then determine what is owned outright and what is leased or financed. If equipment is old or leases are nearing their end, that is a cost you will inherit. You need to know this before agreeing to a price.
Look at the Customer Base
A business is only as strong as its customers. When evaluating a purchase, find out how many active customers the business has, how long they have been buying, and whether any single customer accounts for a large chunk of revenue. If one client makes up 40% of sales and they decide to leave after the ownership change, you have a serious problem on your hands.
Ideally, you want to see a broad and loyal customer base with recurring revenue. Long-term contracts, subscription models, or repeat purchase patterns are all positive signs that the income will continue flowing once you take over.
Understand Where the Revenue Comes From
A business that earns its income from ten different clients is in a very different position from one that relies on two or three large accounts for the bulk of its revenue. High customer concentration is one of the biggest risks you can inherit without realising it.
Ask whether any major contracts are tied to the current owner personally. Some clients do business with a company because they trust the person running it. When ownership changes, those clients may leave. This does not mean you should walk away, but it does mean you need to price that risk into your offer and plan for how you will manage those relationships during the transition.
Legal, Compliance, and Hidden Liabilities
This is the area where deals can fall apart, or where buyers end up paying for problems they did not create. A thorough legal review needs to cover outstanding litigation, pending disputes, tax compliance, lease agreements, and any supplier or client contracts that have change-of-ownership clauses.
Some contracts automatically terminate when a business changes hands. Others require consent from the other party before the transfer is valid. You need to know this before you sign anything.
Also check whether the business is up to date with SARS, has all the necessary licences and permits, and whether there are any environmental or compliance obligations attached to the premises or operations.
Consider the Market Position and Competition
A business that is profitable today could be struggling tomorrow if the market is shifting or a strong competitor is about to move in. Take time to understand the industry the business operates in. Is the sector growing, stable, or shrinking? Where does this business sit in relation to its competitors? Does it have a clear advantage, whether through pricing, quality, reputation, or location?
You want to buy a business that has a defensible position in its market, not one that is barely holding on in a crowded or declining space.
Get an Independent Valuation
The asking price is a starting point, not a conclusion. Before you agree to anything, get an independent business valuation from a qualified professional. This gives you an objective basis for negotiation and protects you from overpaying.
A standard valuation method looks at a multiple of the Seller’s Discretionary Earnings, adjusted for risk factors, asset values, and industry benchmarks. Your accountant or a business broker can help you understand what a fair price looks like for the specific type of business you are considering.
Negotiate With Information, Not Emotion
Once you have done your due diligence, you are in a position to negotiate from a place of knowledge. If you find issues during your investigation, those become part of the conversation. A lower asking price, a seller guarantee, an earn-out arrangement where part of the payment is tied to future performance: these are all legitimate tools when the numbers support them.
Do not rush the process because you are excited about the opportunity. The sellers have had time to prepare. You deserve the same.
Funding the Purchase: How Much Do You Need?
Once you have done your homework, the next question is how you will fund the acquisition.
This is where many buyers underestimate what is required. The purchase price itself is only one part of the calculation. You also need to account for working capital to run the business in the months immediately after the sale, any refurbishment or equipment upgrades required, professional fees for legal and accounting advice, and a buffer to cover unexpected costs in the early period of ownership.
At Geddes, we offer secured business loans of up to R15 million for business owners looking to acquire an existing business. This level of funding can cover not only the purchase price but the full range of costs involved in taking ownership and running the business from day one. We work with established business owners who have existing assets and understand the value of moving quickly when the right opportunity arises.
The question to ask yourself is not only whether you can afford the asking price, but whether you have enough funding behind you to take ownership confidently, service the debt from business income, and still have room to invest in the business once it is yours. Getting that calculation right at the start makes everything that follows considerably more manageable.
Apply for our business loans to buy an existing business or contact our team to discuss your options.