This question frequently arises in conversations I have. The biggest aspect however, is to thoroughly conduct your RTO due diligence.
While there are many factors to consider, I want to offer a guide that might simplify your decision. The best approach is to weigh all the potential advantages and disadvantages of buying an RTO before making a decision.
When contemplating purchasing a Registered Training Organisation (RTO), it’s important to weigh the pros and cons thoroughly. On one hand, acquiring an RTO can open doors to numerous opportunities in the education and training sector. You gain immediate access to a pre-existing infrastructure, curriculum, and potentially a student base.
This can save you time and resources that would otherwise be spent on developing these aspects from scratch. Additionally, an established RTO may already have a reputable brand name, which can provide a head start in attracting students and building trust within the industry. With existing students and contracts, an established RTO can generate immediate revenue, providing a quicker return on investment compared to a startup.
The current team will have valuable insights into the market, including trends, customer preferences, and competitive dynamics. This knowledge can be an asset, or distraction, for strategic planning and decision-making.
An established RTO with a proven business model can be easier to scale. You can expand its operations, introduce new courses, and explore new markets with a lower risk profile.
What are the advantages of buying an RTO?
- You could find a well-run established business with a solid client base, meaning you have a known number of students that will sign up for your courses
- The RTO has scope you wish to use
- Experienced employees, trainers, assessors are in place (if they plan on staying), providing valuable experience to draw upon.
- The RTO has an existing premises and a good lease.
- There may be existing customers, a reliable income, a reputation to capitalise and build on, and a useful network of contacts.
- The company brand already has a presence in the marketplace.
- You have immediate cash flow—a known return on your investment.
- The RTO comes with existing equipment, ready for running the courses
- A market for the courses on scope has already been demonstrated and a marketing plan maybe in place.
- The initial establishment and ground work has been done.
- Operating systems are in place.
- The business will have a proven financial track record which could make getting a loan easier for you.
- Existing database with client records
Other possible benefits:
- RTOs come in all shapes and sizes and there might be one out there that is perfect for your courses and client’s needs.
- An existing owner or employees remaining could train you in the systems.
- Existing customers are cheaper than getting new ones.
- Often existing employees become energised by change and new opportunities.
By leveraging these advantages, purchasing an RTO can be a strategic move that accelerates your entry into the education and training market, providing a solid foundation for future growth and success.
What are the disadvantages of buying an existing RTO?
Some of the possible issues with buying an existing RTO include:
- Basically everything I listed above could also be a negative.
- Your due diligence didn’t uncover problems; problems that could impact on your RTO status.
- There are non-compliances that you didn’t see
- The business has been run at a loss to increase student numbers and make it appear to be a good business to purchase
- You paid too much, and the financial strain is impacting on your financial return, and your chances of insolvency are higher.
- Systems are not meeting the needs of the regulatory authority and need a total overhaul prior to audit.
- There are complaints outstanding, that need to be addressed
- Training and assessment material is not meeting the needs of the training package; therefore requiring additional work prior to audit.
- Loss of clients or customers loyal to the previous owner.
- Resistance to change by employees and customers.
- Older or outdated equipment.
- You’ve acquired employees that don’t meet your own aspirations
- The scope is not one you experience with, so you MUST rely on the trainers and assessors knowledge.
- Operating systems may be outdated, incorrect or inadequate because the previous owner didn’t “change with the new VET requirements.”
- Historical events not identified prior to the purchase, which could impact the regulatory body.
When buying an RTO keep in mind that not all businesses for sale are good businesses. The current owners are wanting to get out for a reason, and it could be a reason that is not totally disclosed. Some are run down, some are badly managed, others poorly located or perhaps suffering from recently introduced competition, or legislation changes. Any past or ongoing compliance issues can lead to legal problems, fines, or even the loss of accreditation.
There may be undisclosed debts, pending lawsuits, or financial obligations that can become your responsibility after the purchase.
Any of these characteristics could offer an opportunity to develop the business or it could be a big risk. Thorough due diligence is necessary to uncover any hidden liabilities.
Other aspects which could be a disadvantage are:
- You often need to invest a large amount up front, and will also have to budget for professional fees for solicitors, RTO consultant, surveyors and accountants.
- You didn’t invest in a RTO consultant to review the business, and therefore you didn’t know what to look for. Now it is non-complaint, and there are conditions placed on the RTO by the regulator.
- Your trainers and assessors left and you no longer have any to assess the intended scope.
- If the business is not running at an optimum level you may need to invest quite a bit more on top of the purchase price to give it the best chance of success.
- You will need to honour or renegotiate any outstanding contracts the previous owner leaves in place.
- You may inherit negativity from existing staff.
In Conclusion don’t buy an RTO until you talk to an RTO Consultant
If you do your homework you will have significantly reduced risk when you purchase an existing RTO versus starting one from scratch. The due diligence phase is critical; be thorough, and objective and rely on your partners in the process like an RTO consultant, your CPA, and attorney.
Don’t skimp on due diligence. Identifying areas that need improvement allows you to factor them into the purchase price and plan accordingly, significantly lowering the risk of failure. Remember, the National VET Regulator has the authority to impose sanctions, close providers, or apply civil penalties.
I cannot stress enough that you go through the business with a fine-tooth comb. I’ve seen many people suffer financial losses by purchasing businesses they could have built themselves. And let me tell you another thing I’ve witnessed numerous instances where people overpaid for what they received.
Call us today to see how we can assist you in making an informed decision.
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Also, many thanks for permitting me to comment!