The tuition business – to buy or not to buy

The tuition business – to buy or not to buy

What does it take to own and run a viable independent tuition business?

Teachers thinking of a career change, and asking themselves this question, may then have a further thought: would it be better to start up such a business, or take over one that is established? 

Starting up …
Starting can be attractive. You have a clean sheet. You have freedom to choose your location and your premises – and all that follows, decor, furnishings, mode of operation and so forth. The thrill of enrolling the first student and the sense of achievement at every subsequent milestone, ten students, twenty, thirty, is not to be under-estimated, so long as the targets are steadily achieved.

… or taking over?
But taking-over can be as attractive and involve less financial risk. If the business has been running soundly – ie. meeting its yearly costs with a little to spare – the new owner need not face that anxious period of unprofitability while the clientele and good-will are building up.  Investment may go into improvement or expansion rather than into basic setting up.

Starting out
The biggest difficulty with starting from scratch is probably going to be psychological: actually committing – taking the plunge. Because many steps, much thought and some cost are required before the business can even open for its first client, there are likely to be plenty of occasions for second thoughts to dampen the initial zeal.

Go for a  franchise?
Many new business owners will not want to feel all on their own, so it is natural that some will consider joining a franchise company. A franchise can provide a mould of ready-made materials and procedures – and will probably offer some encouraging examples of business success in the form of well-run centres, open to inspection, which the newcomer may hope in time to emulate and equal.  

A new franchise purchase however can be quite costly – both in the immediate and the long-term – and there is no guarantee that success will follow. The recurring franchise fees will sooner or later put the owner(s) under pressure – not necessarily a bad thing – but such pressure can equally (and not uncommonly does) lead to disillusionment and closure.

Taking over
The buying or taking-over of an established centre – is the other way into the tuition business. (Franchises sometimes have a system to help franchisees sell their businesses on; but there will be cost-saving advantages for the new owner who takes over a centre which has no franchise affiliation. For the remainder of this piece I am thinking of the independent or non-franchise business.)         

For the succession to go smoothly, it is vital that a good working relationship between outgoing and incoming owners  is established well in advance of a potential final transfer. A small tuition business is not a piece of property like a house or a car – not the sum of the parts of an inventory – it is an identity, a reputation, and a complex of other intangibles – practices, resources, knowledge, relationships with staff and customers.        

For the incoming party an early involvement in the business to be bought, and which can then develop over a period of months, is the ideal scenario, and should work for the benefit of the outgoing party too. Such an arrangement, however, has to be well-understood and carefully agreed – and at first sight terms may appear tricky to work out.       

Valuation
To begin with, what value in monetary terms is to be put on the intangible or goodwill part of the business that is to be transferred along with the tangible? Since in the tuition sector there is no broad market that can be tracked (comparable to a housing or commodity market), parties will have to go by ‘feel’.  The onus, of course, is on the would-be seller to state a price – and in my limited experience of investigating advertised asking prices for established tuition centres, I have often thought them to be high – e.g. £50 000 and above.

The vendor may arrive at a figure in that order by taking in some of the expense of the lean early years when establishing costs were high (think of the fortune spent on advertising!) and custom was relatively light. ‘Why not try and recover from the sale some of that sacrifice?’ the seller may ask as retirement nears.

But the buyer(s)  may ask in turn, ‘Why should that legacy be imposed on us? Won’t we in due course have our own improvements to finance and risks to take?’

If the seller is prepared to subtract a few thousand pounds of self-compensation, the chances are that both parties will gain – the vendor from a sale that goes through, the purchaser from a takeover that does not land them with a heavy debt. 

Shared success
For a year (or whatever transition period is agreeable) let the incoming party take on running costs and wages (including the services of the outgoing owner) and confidently plan to see the business return a profit in line with previous years. Let the outgoing party help to achieve that profit for the business through provision of their expertise and continuity of teaching.           

Something like this, anyway, is the proposal I would consider in the hope of passing on an independent tuition business as a going concern.