As a vendor: Let me guess – you’re thinking your RTO is worth somewhere between 3 to 4 times your annual profit, you have built a quality RTO so you’ll find a buyer in a few weeks, hand over the keys, and walk away with a sizable pay day? Unfortunately, I’ve got some bad news for you.
Selling an RTO is one of the most complex business transactions in Australia, and most owners are completely unprepared for what’s coming.
This why we have created 6 problems that blindside RTO vendors during a sale.
From a buyer’s perspective, this is A1 intel – you will know the mistakes vendors make and you will be able to check BEFORE you buy.
This is based on over 25 years in the RTO world including the last 10 years being the leading RTO specialist and completing close to 200 RTO sales.
At the end of this, I will share a super-power that has saved vendors and purchasers 1000’s and 1000’s of dollars and hundred’s of hours.
Hi, I am Travis Latter, director and Senior Education valuer for Infinity Business Brokers, The RTO Specialists.
These 6 issues are the recurring reasons deals:
- Die during buyer due diligence
- Complete but at a heavily discounted price OR
- End up with heavy earn-outs or risk-shifting clauses
If you’re serious about selling, you need to know these problems exist before we put that ‘For Sale’ sign up. As a buyer, it allows you to ask the questions. To make certain of the future.
Each problem on the list either:
- Compresses the multiple or
- Forces structure changes (earn-outs, retentions, holdbacks), or
- Kills buyer confidence outright
Now, I deliberately excluded:
- Minor operational inefficiencies
- Marketing tactics
- Generic business-sale problems
Basically, if it doesn’t materially affect price, structure or certainty, it didn’t make the cut. To make sure we are being thorough, each vendor mistake had to survive all three of these tests:
- Would a buyer flag this in due diligence?
- Would it affect valuation or deal terms?
- Have I seen this exact issue cost a vendor money, time or a sale?
If the answer wasn’t yes to all three, it didn’t go in. If it did receive 3 Yes’s, it is included.
Bottom line
This is a field-tested framework, not a conceptual one.
It reflects:
- How RTOs are actually bought and sold in Australia. After all, we have been selling RTO for 10 years in Australia and as at the time of this video, we have had over 195 successful RTO transactions and unfortunately some failed sales as well.
- How value is defended or destroyed
If a buyer is comfortable with all six, the deal almost always completes.
Pillar 1: Financial integrity and earnings quality
This is the first gate in any RTO sale. Before a buyer cares about compliance, systems or growth, they need to believe the numbers. In the RTO sector, this is where most value is quietly lost.
The issue is rarely that an RTO isn’t profitable, unless it is a shell RTO. It’s that the financials don’t clearly explain why it is profitable, what part is repeatable and what part is accounting noise. Unearned income, WIP, accrual timing, completion costs, historical adjustments and director add-backs are all normal in RTOs — but only if they are clearly documented and defensible.
Buyers discount earnings when:
- Revenue recognition isn’t consistent year to year
- Student income sits on the balance sheet without a clear completion path
- Completion costs are understated or assumed
- Adjustments rely on “trust me” explanations
From a buyer’s perspective, unclear financials equal earnings risk, and earnings risk is always priced down or pushed into earn-outs.
For vendors, this pillar is not about having perfect accounts — it’s about having understandable, reconcilable and explainable earnings that a buyer’s accountant can validate without heroics.
Pillar 2: Valuation realism and price logic
Most RTO vendors don’t overprice deliberately. They simply anchor to the wrong reference point — revenue, historical peaks, effort invested or what someone else “got”.
Buyers, however, price RTOs based on:
- Maintainable earnings
- Risk profile (funding, compliance, people)
- Transferability
- Certainty
When a vendor’s price expectation doesn’t align with those inputs, negotiations don’t just stall — they become adversarial. Buyers assume the vendor either doesn’t understand the market or isn’t prepared to deal commercially.
This pillar matters because unrealistic pricing:
- Forces buyers to introduce earn-outs and holdbacks
- Increases due diligence aggression
- Erodes trust early
Vendors who understand why their RTO is priced a certain way are far more likely to defend value intelligently rather than emotionally.
Pillar 3: Operational independence from the vendor
If the RTO cannot function without the owner, buyers see personnel risk.
In many RTOs, the owner:
- Manages compliance informally
- Holds key regulator relationships
- Controls marketing and enrolments
- Resolves delivery issues personally
That might work operationally, but it is toxic in a sale.
Buyers assume the vendor will disappear overnight — and they price the risk accordingly. The more embedded the owner is, the longer the handover required and the more conditional the deal becomes OR price is factored in.
This pillar is not about removing the owner. It’s about proving the business has institutional memory, decision-making capability and operational resilience beyond one individual.
Pillar 4: Revenue and funding defensibility
Historic revenue impresses. Future certainty closes deals.
Buyers look hard at:
- Funding body concentration
- Contract duration and renewal risk
- State reliance
- Exposure to policy changes
- Visibility of future enrolments
An RTO with strong historical revenue but weak forward visibility will always attract conservative assumptions.
This is especially true in funded RTOs, where buyers are not just buying earnings — they are buying policy risk.
For vendors, this pillar is about demonstrating that revenue is not accidental or fragile. Even partial diversification or documented pipeline visibility materially improves buyer confidence.
Pillar 5: People, systems and transferability
Buyers don’t buy staff loyalty. They buy systems that survive staff change.
In RTOs, risk spikes when:
- Compliance knowledge lives with one person – outsourced is often best.
- Trainers are undocumented contractors
- Assessment practices are inconsistent
Strong systems don’t eliminate people risk, but they contain it. Documented processes, LMS workflows, assessment controls and compliance calendars tell buyers that the RTO is not held together by goodwill.
Pillar 6: Transaction readiness and risk transfer
Most RTO sales fail not because the business is weak, but because the vendor is underprepared for the mechanics of a share sale. The only way a RTO can transact is via a share sale so being prepared is key.
Share sales transfer:
- Historical compliance risk
- Financial liabilities
- Employment liabilities
Vendors who don’t understand this are often shocked by:
- The depth of buyer due diligence
- The warranties requested
- The buyer’s insistence on disclosures
This pillar is about understanding that certainty is currency. Prepared vendors close faster, defend value better and experience far less stress through the process.
Now the Super-power. Our superpower is knowing what may go wrong and working ahead of time to prevent it from occurring. That’s it. That only comes from experience and this experience is invaluable to all parties to the transaction.
This whole piece is not to scare vendors or give buyers an unfair advantage – it is to educate both parties to ensure a safe, seamless and expedient transaction that provides maximum value for both parties.
I am here to assist so if you require more information, or even if you wish to debate one of the points – I am here to help.
P.S. As a bonus, we have a list of questions a buyer will ask to ascertain the risks we have mentioned.
Send an email to travis@infinitybusinessbrokers.com.au and put “Risk Questions” as the subject and we will send these to you.
