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Do not buy a RTOs legal entity until you talk to us
The RTO you buy today might be your financial demise of tomorrow. This is a true hard cold fact; more than 80% of people that buy businesses pay too much. It’s also a fact that people who have paid
too much for that same business have a better chance of insolvency (GOING BROKE) or exiting with a very Low Return.
Another fact is that a lot of RTOs have hidden problems that the buyer will not see until it is TOO LATE. This is why you need to go through the business with a fine
tooth comb.
Don't rely on the business broker to provide you all the details (the positives are all you will find) remember, they work for the vendor (the seller) and they want the sale, what more can I say? If
they don't sell the business they do not get paid.
What happens when a purchaser buys a 'Dog' RTO?
The buyer then has to spend $$$ retaining professional staff or an Education Consultant to clean up the mess. If there are sanctions placed on the RTO then the new owner will have another burden to
deal with. In some cases it may be too late. As you are well aware, the National VET Regulator has powers to apply sanctions against the provider and even close the provider. Not to mention the Civil
Penalty provisions and Criminal provisions (see the NVETR Act 2011) that may be applicable in worst case scenarios.
My Recommendation
If you are in the market to buy a RTO, don’t go cheap on Due Diligence. Here is an example of the wrong way to buy the legal entity of a RTO:
I received a call from someone that I will call Jim. Jim was new to the education industry, he had been a salesperson his entire life, he had some mates that worked at
RTOs in BD (Business Development), his 'mates' would say: "It's a great industry, lots of commission, but the owner of the RTO is the one who makes the real money." And so Jim was hell-bent on owing
a RTO. He stated to me that he had all the documentation to make a qualified decision; and wanted me to take a ‘brief’ look.
The RTO
The RTO was up for re-registration and the vendor wanted about $750,000, the business had an Ebit of $200,000. Jim met with me for about one hour. I told him that I would need at least a day to go
over all the documentation; however, he was adamant that he only wanted to spend 1 hour with me - I still agreed to meet. At the meeting, he produced a College Brochure and a MYOB profit and loss
statement – yes thats all he had or so he told me.
I ended up providing him a brief introduction to the industry with the pros and cons. I gave him a list of questions to ask the broker and vendor and sent him on his
way.
The moral of the story is, if you are going to buy a legal entity of a RTO, get some expert advice. Don’t take for granted what the broker or the RTO owner tells you, as they want to sell the
business and will be your best friend, that is, until they get the money... The Due Diligence should be completed with ice in your veins, do not fall in love with the business. Jim had fallen in love
with the RTO.
If you are in the market for a RTO and need advice, speak with your accountant and lawyer first, then source the services of a qualified education consultant. My recommendation is not to go cheap on
any of the above services. Best of luck.
Please Note: We no longer provide one hour consultations regarding purchasing RTOs. Our minimum retainer is four hours paid in advance.
The Reason: One hour does not allow us to make any qualified recommendations based on evidence and research to the level of risk on any business. It would not be fair on the client for
us not to complete a proper investigation of the business. The small RTO may take 4 to 8 hours, whereas the larger RTO may take several days or weeks. We may also provide a written report if
required.
Kindly Note: We do not consult over the phone (unless we have been booked for a paid consultation), the initial chat will only discuss our services.
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