How to Buy a Petrol Station in South Africa: Secure Your Purchase
February 17, 2025
Introduction
Starting a new career adventure, like buying a franchise business, can be exciting. It offers the chance to take control of your financial future, enjoy independence, and escape toxic workplaces.
But not all stories have happy endings. Many new business owners have been duped into buying failing ventures or businesses that collapse within five years. The petrol station industry in South Africa is no exception. Challenges like conflicted brokers and industry transformation issues often lead to financial and mental stress.
So, how can you buy a petrol station in South Africa successfully?
We spoke with Lebogang Morule of Ketsia Capital Partners, an experienced venture capitalist with expertise in financing lifestyle businesses like petrol stations. Lebogang, who managed portfolios for one of South Africa’s second largest Development Finance Institutions, shares valuable insights to help you avoid costly mistakes.
Note: This guide is for informational purposes only and not financial advice. Always consult a qualified financial advisor before making any investment. Neither the author nor BAMML Inc. is responsible for any losses incurred.
What is A Safe and Secure Process of Purchasing a Petrol Station in South Africa?
Step 1: Find the Opportunity
Start by identifying petrol stations available for sale. When a current owner decides to sell, they typically notify the Franchisor (often an oil company). The Franchisor lists the station as a franchise opportunity on their website. Oil companies aim to select capable Entrepreneurs to manage these stations, ensuring long-term success.
To apply, you must meet their criteria, which might include:
- Providing initial capital.
- Demonstrating business management experience.
- Passing psychometric tests.
- Creating a solid business plan.
If approved, the Franchisor matches you with suitable opportunities.
Step 2: Negotiate and Finalize the Purchase
Once approved, negotiate terms with the Seller and finalize the purchase agreement.
Step 3: Secure Financing
Arrange the required financing to buy and run the petrol station.
Step 4: Take Control of the Business
After completing the purchase, take ownership and begin operations under the franchise agreement.
Where do I Start When Purchasing a Petrol Station in South Africa?
There are mainly three parties involved in the buying and selling of petrol station franchises in South Africa, namely Oil Companies, Franchisees, and Brokers. When looking to buy a petrol station, there are three possible approaches. The oil and gas companies include (in alphabetical order) the following: Altron (formerly Caltex); BP South Africa; Engen; Shell; Puma Energy; Sasol; TotalEnergies. These oil and gas companies also advertise the sites that are available for sale. For example, BP South Africa maintains their list of Franchise opportunities for sale on their site.
When purchasing a petrol station franchise, it’s essential to understand the roles of the oil companies, franchisees, and brokers to make an informed decision.
Understanding the Franchise Model
Petrol station businesses are owned by oil companies that appoint franchisees to operate them. Franchisees run the business, buy products from the oil company, and pay monthly rent for the premises.
The Role of Brokers
Brokers, much like real estate agents, are often hired by franchisees to find buyers. However, their focus is primarily on identifying individuals with the financial means to purchase the business rather than evaluating the buyer’s suitability for long-term success.
This approach contrasts with oil companies, which prioritize selecting the most qualified individuals for franchise opportunities. Some brokers advertise petrol stations for sale without notifying the respective oil companies, which can lead to complications.
Finding Opportunities the Right Way
- Directly Through the Oil Company: Always begin your search by contacting the oil company associated with the petrol station. They have a structured process to vet and approve potential franchisees, ensuring transparency and avoiding scams.
- Through Local Franchise Owners: You can also inquire with current franchise owners if they know of anyone selling a petrol station. However, follow up with the oil company to ensure the sale is legitimate.
- Using Reputable Brokers: If you choose to work with a broker, verify that the oil company is aware of the sale. This step protects you from fraudulent listings.
Always prioritize engaging directly with the oil company for any petrol station purchase. This ensures you follow the correct process and minimizes risks, setting you up for a successful business venture.
How to Buy a Petrol Station in South Africa: What Value Should I Pay
Using the industrial method and the DCF valuation method, you can value a petrol station for sale. Brokers usually advertise inflated amounts. Petrol stations are usually valued industrially by the franchisor. For example, the Oil and Gas Company, Shell, uses average monthly petrol liter sales for the past 3 years, a GP% and a profit factor to indicate what the petrol station should be netting. When buying a petrol station, understanding valuation methods is critical to avoid overpaying or being misled.
Oil companies often use an Industrial Valuation Method to set a selling price. This method is based on “ideal conditions” rather than the actual cash flows managed by the seller. In contrast, the Discounted Cash Flow (DCF) Method evaluates the station’s value based on its historical and projected cash flows.
While the Industrial Valuation Method has limitations, it remains widely accepted in the industry. As the saying goes, “He who has the gold makes the rules.”
Role of a Financial Advisor
Before finalizing any purchase, consult a financial advisor. They can:
- Compare the broker’s valuation to the oil company’s method.
- Assess whether the proposed price aligns with market realities.
- Provide recommendations to ensure you make a sound investment.
Why Following the Right Process Matters?
In South Africa, adhering to the proper steps when buying a petrol station is crucial. It helps you:
- Avoid scams.
- Ensure the valuation is fair and accurate.
- Prevent overpaying for the business.
Creating the Right Structure or Support When Purchasing a Fuel Station
Purchasing a petrol station requires careful planning and the right professional support to ensure a smooth and secure transaction.
Work with a Business Advisor or Consultant
Start by consulting a business advisor or consultant to determine an acceptable purchase price. Their expertise will help you evaluate the station’s true value and avoid overpaying.
Engage the Right Legal Support
Hire experienced lawyers who specialize in petrol station purchases. They will draft an Offer to Purchase (OTP) contract that includes critical protection clauses to safeguard your interests. Many oil companies also provide standard OTP templates, which your lawyers can customize for your needs. Also, if you don’t want to apply for the fuel retail license, then the right legal support can assist.
Conduct a Thorough Due Diligence
With the help of your business advisor or accounting firm, perform a due diligence exercise. This investigation ensures:
- All claims made by the seller in the OTP are accurate.
- The business delivers everything promised during the sale.
Secure Your Financial Future: Experience Expert Advice For Petrol Station Acquisition with BAMML Inc
At BAMML Inc, we understand the value of paying the right amount for your fuel station purchase, investigating all the hidden stories in the business you are about to buy, and making sure you receive everything you pay for. Additionally, if you ignore all these, you could lose your life savings, which would be even worse. Additionally, it will spare you the embarrassment of having to explain the aftereffects of buying a bad business. People tend to keep good businesses and sell those that are likely to cause them problems or do not generate adequate returns.
BAMML Inc. partners with you to put you in control of your fuel station purchase and beyond by providing business acquisition advice and post-acquisition services. These include the following: business analysis, business startup, accounting, taxation and any other legislative requirements, payroll services, training, and; HR Services. These will ensure that you are accountable to yourself, your team, and lifestyle business financiers.
Here are some of the most valuable advantages you’ll gain:
- Control Over Business Expenditure:
Effectively manage your expenses, enabling better planning for future projects and growth opportunities. - Stay Compliant with Taxes and Legislation:
Always remain up to date with your tax obligations and other regulatory requirements, ensuring peace of mind and legal compliance. - Comprehensive Monthly Support:
Our monthly management retainer includes project accounting and product analysis, helping you make informed business decisions. - Access to Essential Resources:
Gain access to indispensable resources that are often scarce but vital for growing businesses.
