We present the first VI CCD photometry for the Sculptor group galaxy ESO 540-032 obtained at the Very Large Telescope UT1+FORS1. The (I, V-I) colour-magnitude diagram indicates that this intermediate-type dwarf galaxy is dominated by old, metal-poor ([Fe/H]~-1.7 dex) stars, with a small population of slightly more metal-rich ([Fe/H]~-1.3 dex), young (age 150-500 Myr) stars. A discontinuity in the I-band luminosity function is detected at I_0 = 23.44 \pm 0.09 mag. Interpreting this feature as

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... tip of the red giant branch and adopting M_I=-4.20\pm 0.10 mag for its absolute magnitude, we have determined a Population II distance modulus of (m - M)_0=27.64 \pm 0.14 mag (3.4 \pm 0.2 Mpc). This distance confirms ESO 540-032 as a member of the nearby Sculptor group but is significantly larger than a previously reported value based on the Surface Brightness Fluctuation (SBF) method. The results from stellar population synthesis models suggest that the application of the SBF technique on dwarf galaxies with mixed morphology requires a detailed knowledge of the underlying stellar composition and thus offers no advantage over a direct distance measurement using the tip of the red giant branch as distance indicator. We produce the surface brightness profiles for ESO 540-032 and derive the photometric and structural parameters. The global properties follow closely the relations between metallicity and both absolute magnitude and central surface brightness defined by dwarf elliptical galaxies in the Local Group. Finally, we identify and discuss a non-stellar object near the galaxy center which may resemble a globular cluster.