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RTO Business Growth,  RTO Compliance,  RTO Set up

Should I start an RTO business from scratch, or buy an existing one?

This question comes up time and time again with people I speak to.

There are so many considerations, however I would like to provide you with a guide that may make the decision easier. The best way to do this is to consider all of the possible advantages and disadvantages of buying an RTO before making a decision.

What are the advantages of buying an RTO?

  1. 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
  2. The RTO has scope you wish to use
  3. Experienced employees, trainers, assessors are in place (if they plan on staying), providing valuable experience to draw upon.
  4. The RTO has an existing premises and a good lease.
  5. There may be existing customers, a reliable income, a reputation to capitalise and build on, and a useful network of contacts.
  6. The company brand already has a presence in the marketplace.
  7. You have immediate cash flow—a known return on your investment.
  8. The RTO comes with existing equipment, ready for running the courses
  9. A market for the courses on scope has already been demonstrated and a marketing plan maybe in place.
  10. The initial establishment and ground work has been done.
  11. Operating systems are in place.
  12. The business will have a proven financial track record which could make getting a loan easier for you.
  13. 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.

What are the disadvantages of buying an existing RTO?

Some of the possible issues with buying an existing RTO include:

  1. Basically everything I listed above could also be a negative.
  2. Your due diligence didn’t uncover problems; problems that could impact on your RTO status.
  3. There are non-compliances that you didn’t see
  4. The business has been run at a loss to increase student numbers and make it appear to be a good business to purchase
  5. You paid too much, and the financial strain is impacting on your financial return, and your chances of insolvency are higher.
  6. Systems are not meeting the needs of the regulatory authority and need a total overhaul prior to audit.
  7. There are complaints outstanding, that need to be addressed
  8. Training and assessment material is not meeting the needs of the training package; therefore requiring additional work prior to audit.
  9. Loss of clients or customers loyal to the previous owner.
  10. Resistance to change by employees and customers.
  11. Older or outdated equipment.
  12. You’ve acquired employees that don’t meet your own aspirations
  13. The scope is not one you experience with, so you MUST rely on the trainers and assessors knowledge.   
  14. Operating systems may be outdated, incorrect or inadequate because the previous owner didn’t “change with the new VET requirements.”
  15. 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 of these characteristics could offer an opportunity to develop the business or it could be a big risk.

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.

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Don’t go cheap on Due Diligence. Even if you identify areas that need improvement, you can factor them into the purchase and plan accordingly, that way you have a much lower probability of failure. The National VET Regulator has powers to apply sanctions against the provider, close the provider or at worst apply Civil Penalties. 

I cannot stress enough that you go through the business with a fine tooth comb. I have seen many people get burnt and waste money on the purchase of something they could have done themselves. And let me tell you another thing I have seen; many people pay way TOO MUCH for what they get.

Call us today to see how we can assist you in the decision making process.

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