Are you considering purchasing a petrol station in South Africa? Owning a petrol station can be a lucrative business opportunity, but it’s essential to understand the requirements and criteria set by oil companies. In this guide, we will provide you with valuable information on how to buy a petrol station and the key factors you should be aware of during the purchasing process.
Cash Contribution and Funding Requirements To Buy a Petrol Station
Oil companies have specific preferences when it comes to potential purchasers. It is highly recommended that you have at least 50% of the total funding requirement in cash, readily available. Additionally, you must be able to obtain approved finance for the remaining balance. Let’s take a closer look at an example to illustrate this:
Selling Price of Business: R 5,000,000
Net Profit: Approximately R 120,000 per month
Stock: R 1,200,000
Working Capital: R 500,000
Other Costs: E.g., training, license application, etc. R 100,000
Oil Company Fuel Guarantee: R 800,000
Total Funding Requirement: R 7,600,000
To proceed with the purchase, you would need to provide a cash contribution of R 3,800,000. Therefore, the loan amount should not exceed R 3,800,000. It’s important to note that if you opt for 100% funding, the loan payback would be approximately R 145,000 per month for a duration of five years. However, it’s crucial to consider that the business’s net profit is only around R 120,000 per month. This means you would not receive a monthly salary for five years, and you would need to cover an additional R 25,000 per month from your own pocket to fulfill the loan obligations.
If you plan on borrowing funds from institutions such as the National Empowerment Fund (N.E.F), Ithala, DTI, or similar financial entities, it is vital to obtain a “Prior Approval in Principle” for your intended loan amount before proceeding. Our communication with you will be contingent on your ability to obtain and provide this approval.
Operational and Geographic Requirements
When purchasing a petrol station, it is essential that you personally operate the business full-time. You should not be engaged in any other business or employment activities simultaneously. Additionally, you must reside within a 20-minute radius of the business location to ensure prompt response during emergencies.
Training and Experience
All parties involved in the sale agreement must attend the oil company’s training courses before taking occupation of the premises or conducting business. While previous experience in the petrol station or general dealer shop industry is advantageous, it is not a specific requirement. However, any prior business, management, supervisory, or general retail experience will be viewed favorably.
Oil companies generally prefer that potential purchasers do not already own or have a direct association with a different brand of fuel. For instance, if you are already directly associated with or own a Shell service station business, you may not purchase an Engen service station business. This policy aims to avoid conflicts of interest or brand loyalty issues.
In cases where a company, trust, or close corporation intends to purchase the business with multiple owners, the entity must appoint a representative who will act on behalf of the entity. This representative will be responsible for signing all documents, making decisions, and acting in the best interest of the entity as per the resolution passed by the entity.
Documentary Proof and Interview Process
You will be required to provide documentary proof of your finances to us and the seller when submitting an offer. The oil company will also request the same documentary proof before conducting an interview for the petrol station you intend to purchase.
Black Economic Empowerment (B.E.E.) Applicants
In some instances, oil companies may give preference to B.E.E. applicants or require a minimum 51% ownership by a black individual for a specific petrol station.
Lease Duration and Buyer Selection Process
Typically, oil company leases span five years, although some may have a duration of three years with an option to renew for an additional two years. Additionally, the oil company may choose to interview three to four buyers before finalizing an appointment for one of their own or controlled sites.
Purchasing a petrol station in South Africa requires careful consideration and adherence to the requirements set by oil companies. This guide has provided you with valuable information on how to buy a petrol station, ensuring you are well-prepared for the process. Should you have any further queries or wish to explore available petrol stations for sale, please feel free to contact us. We are here to assist you in finding the perfect opportunity to fulfill your entrepreneurial aspirations.