How business purchases are actually funded in South Africa
Most buyers assume they need the full price in cash. Few deals work that way. A purchase is usually funded from a mix of sources, and the mix you can assemble shapes what you can afford and how exposed you are if the first year is hard.
Seller finance is not only funding. It is protection.
Seller finance deserves its own section, because it does something no bank facility does. A seller who carries part of the price is paid out of the future of the business they are selling you. If the business is as good as they said, they are repaid in full. If it is not, they share the loss.
That single fact changes the negotiation. A seller who refuses to carry any of the price is telling you something about their confidence in the numbers. A seller willing to leave a meaningful portion in, and to be repaid over two or three years from profits, has put their own money behind the warranties they gave you. It is one of the most honest signals in a deal, and it costs you nothing to ask for.
The working capital trap
Here is the mistake that catches more first-time buyers than any other. The purchase price is not the cost of the purchase.
Three costs sit on top of the price, and all three are routinely left out of the buyer's budget.
- First-cycle working capital: the cash the business consumes before its own income starts arriving in your account. In a business that carries stock or debtors this can be a large number, and it lands immediately.
- The VAT bill if zero-rating fails: if the sale was meant to be zero-rated as a going concern and one requirement is missed, VAT at 15% applies, and agreements routinely make that the buyer's problem. The requirements, and how to protect against them, are on the purchase agreement page.
- Transaction costs: the attorney who drafts and negotiates the agreement, the due diligence work, and any advisers. Proper transaction work is a percentage of the price, not a rounding error, and it is money you need on top of the deposit.
The working capital number belongs in your funding plan from the start. A buyer who arrives at transfer with the price funded and nothing behind it has bought a cash-flow crisis with a business attached.
The handover
The last thing you negotiate is the first thing you will rely on. A business runs on relationships and knowledge that live in the departing owner's head, and the weeks after transfer are when that either moves across to you or walks out the door.
Put the handover in the agreement, not in a handshake. Duration, the seller's availability, the introductions to key customers and suppliers, and what the seller is paid for the period, if anything. A seller's enthusiasm for a proper handover is at its peak the week before payment, and contracting it is covered alongside the other obligations on the purchase agreement page.
Practically, the first ninety days are for learning, not changing. The instinct of a new owner is to fix things immediately. Resist it. The staff are watching to see whether you understand the business or only bought it, the customers are deciding whether to stay, and much of what looks inefficient is holding something together in a way that is not visible from the outside yet. Change what is clearly broken. Leave the rest until you understand why it is the way it is. The businesses that survive a change of ownership are usually the ones whose new owner changed the least in the first quarter.
The end of the journey, and the start of the work
That is the arc of buying a business: finding one worth pursuing, evaluating whether the price makes sense, verifying that the numbers are true, structuring the agreement that allocates the risk, and funding the purchase without starving the business you just bought.
The tools do the arithmetic and the guides carry the detail, but the judgement is yours. If you have not run the target's figures yet, the Fair Price Evaluator is where the numbers turn into a decision. If you are weighing how to fund it, the funding guide goes deeper than this page could. From here, the work is no longer reading about buying a business. It is buying one.
Frequently asked questions
Can I buy a business without paying the full price in cash upfront?
Yes. Most deals blend bank acquisition finance, seller finance and personal capital, structured so that no single source carries more than it should. Very few buyers fund the whole price themselves.
What is seller finance, and why would a seller agree to it?
The seller leaves part of the price in the business, repaid from future profits over an agreed period. A seller willing to carry part of the price is putting their own money behind the numbers they gave you, one of the most honest signals available in a deal, and it interacts directly with your protection: a deferred amount is money you can withhold if a warranted problem surfaces.
What is the working capital trap when buying a business?
Budgeting only the purchase price and nothing for the cash the business needs to keep running the day you take over: stock, salaries, and creditors who were the seller's problem yesterday and are yours today. A business can be profitable on paper and still run out of money in its first month if you have spent your last rand on the price itself.
Will a bank finance the purchase of an existing business?
Banks will lend against the business, but expect to fund a meaningful share yourself, offer security, and show that the business's own cash flow covers repayments with room to spare. Banks also require proof that the Section 34 advertisement has been published before releasing funds, since their own security is not safe until that window is handled.
How long should the handover period be after buying a business?
There is no fixed period, but it belongs in the agreement, not a handshake: duration, the seller's availability, and introductions to key customers and suppliers should all be specified in writing. Whatever the length, the first ninety days on your side should be for learning the business, not changing it.