Running a privately owned business, especially in a foreign country, can be one of the most demanding and unforgiving tasks upon which to embark. However, as to be expected, these challenges also are the reason that owning a business can be among one of the most rewarding experiences, both personally and financially. Starting a business is also a way for someone living in Japan to transition away from the monotony of being a salaried employee, and build their own financial independence and freedom.
To this end, many have found themselves asking “How do I start a business in Japan?” However, this is only half of the equation, as it is good practice to keep the end in mind as well. Accordingly, one should also be prepared to ask the question, “How do I finish a business in Japan?”.
People sell their business in Japan for any multitude of reasons. In the unfortunate cases, maybe the business has started to become unprofitable, but the brand and existing operations are still worth something, and a new owner could turn things around. Or, perhaps a proprietor has been operating and growing the business with reasonable success for a number of decades, and is ready to step down or divest their interest in the company. It could also be one of the more fashionable scenarios which makes for interesting dinner party conversation or news headlines, whereby a small enterprise has proven to be a rather successful business model, and requires an enormous financial input to “take it to the next level”.
That said, most business sales, especially in Japan among foreigners, are for positive reasons. Retirement is often among the top reasons that people decide to sell their businesses. It is important to remember that “retirement” does not necessarily require you being 70 years of age and going off to live some place warm. For some business owners, perhaps they have just spent the last 10 or 15 years pouring their heart into growing their enterprise. They have sacrificed nights and weekends, missed weddings and birthday parties. In this case, retirement could simply mean moving on to the next phase in life, usually one less demanding. Though, for some workaholics, they may be selling their business just for the chance to move on and start an even more demanding business. Whatever it might be, this next phase of life is often fueled by the proceeds of selling his or her business.
When considering to sell a business for the purposes of retirement, it is important to consider the primary topics associated with this kind of major life decision. So before getting to “How do I sell my business”, you may need to ask yourself “How do I know when it’s time to retire?” Here are some points to consider:
-Family: How are the kids? Are they still at home, away at college, or on their own? Are you still supporting them or are they financially independent?
-Lifestyle: How do you envision your life after selling the business? What sort of things do you want to do? Charities, golf, travel? For example, if you are already spending a large amount of time away from the business, and your lieutenants are running things quite smoothly without you at the helm, it might not be a bad time to step down anyway.
-Finances: How much do you already have towards retirement in savings? Will you be able to support yourself, even if you do not receive your expected sale price? Have you sat down with a financial professional to work out exactly how much you would require in the first place?
-Personal drive: Are you as driven and committed to this company as you were in the beginning? Depending on the person and the type of business, it could be 10 years or 30 years before a recognizable level of business fatigue really starts to set in. That said, you could find yourself in a scenario whereby it is in fact best to recognize that you may no longer have the same drive or any-means-necessary attitude for growing and supporting the business. Stepping aside to let someone else take over that role and responsibility is by no means a cause for shame, especially if it is in fact what is best for your employees.
How do I sell my business?
This is the million-dollar-question, if not multi-million-dollar-question. Without diving into the voluminous subject of how to value a business; you must first tackle the objective of retaining a financial advisor for the transaction. With whom to work depends almost entirely on how large your business is. The standard measure of business size is by annual revenues, which breaks most enterprises up into the following categories:
|Company Type||Annual Revenue||M&A Advisor|
|Sole Proprietorship||Less than $1 Million||Financial advisor / Business broker|
|Small Business||$1 to $10 Million||Financial advisor / Business broker|
|Lower middle market company||$10 to $250 Million||Investment banker|
|Middle market company||$250 to $500 Million||Investment banker|
|Large company||$500 Million +||“Bulge bracket” investment banker|
Attempting to sell your business on your own comes highly un-recommended. The entire M&A process is a ritualized and formal procedure, and a business owner trying to navigate this by his or herself on their own could trigger any number problems. Firstly, a serious buyer with the necessary capital available to purchase your business may be reluctant to engage with a seller not serious enough to retain professional services. Doing it themselves, the deal itself could drag on for an unnecessarily long period of time while the buyer continues to pay their advisors and draw resources from their staff. They would also have a credible fear of the deal never getting done at all. The optics are bad.
Also, attempting to navigate the process of selling your business by yourself could open you up to becoming prey for the M&A industry veterans. Alone in a new environment, the business owner could end up capitulating on any number of unforeseeable points of disagreement at any stage of the sales process, ultimately being forced to accept a far lower sales price than anticipated. Conversely, not only would the existence of a professional with experience in selling businesses sitting next to you at the negotiating table prevent predatory negotiating tactics being used on you; a skilled negotiator on your side could even get you a better price than you had anticipated in the first place.
As indicated in the table above, most small businesses looking to sell themselves would not be large enough for consideration by the major investment banks. Unless your annual revenues are well in excess of over $10 million, access to the large granite offices and the armies of advisors and lawyers may be out of reach. On the plus side, you would also be spared the enormous fees that investment banks famously charge. Even a non brand-name investment bank would typically charge a sizeable up-front retainer fee, then an ongoing monthly fee, will bill you for their travel, lodging, and food while visiting prospects, and then levy a success fee as a percent of the final sales price. For very large transactions the businesses certainly get what they pay for, but for smaller businesses all that service may not be necessary.
Financial advisors tend to have ample experience in working with small business owners and people who have already sold their business. They are also well versed in accounting principles and investment valuation, as well as sales and negotiation. This is why for the smaller end of the spectrum, business owners will often engage their financial advisor to assist in selling their business. The same firm would also be well positioned to advise on whether the sale of the business is a good idea in the first place, if post-sale they are in a position to maintain their desired quality of life, and how to manage their wealth throughout their next phase of life; whether that be full retirement or the next challenge.
[ Sources ]
– Private Firm Valuation and M&A – Kerstin Dodel, 2014, Wiley Finance, UK
– Reassessing M&A Valuation Assumptions – Pete Woodlock, Journal of Corporate Accounting & Finance, Vol 24 Issue 2
– Valuation for M&A: building value in private companies – FC Evans, DM Bishop – 2002, Wiley Finance, UK