Financial Planning for Business Owners in Japan

Owning a business in Japan is highly rewarding. However, being your own boss can also be highly challenging. Business owners in Japan face challenges traditionally employed workers do not. In fact, business owners face so many unique day-to-day challenges, that it would be impossible to create a comprehensive list. Fortunately, the rewards of being your own boss outweigh the struggles.

One of the most common and time-consuming challenges business owners face is financial planning. The typical business owner works twice as many hours as traditionally employed workers. With all this time going into the operation of their business, owners sometimes neglect financial planning. Unfortunately, neglecting financial planning can have devastating consequences. 

International small business consultant in English in Japan.

Financial Planning for Business Owners in Japan

Most people have a vague idea of what personal finance is. However, business finance is different and more complex. In this article, we will outline the most important aspects of financial planning for business owners in Japan.


Long-term and Short-term Business Goals

The first step in creating a financial plan for a business is to have clearly defined goals. Without clearly defined goals, it is impossible to create a plan that you will stick to. Business goals should be short-term and long-term. These goals are the backbone of your business. Ultimately, these goals will help guide business owners in the creation of a financial plan.

Long-term Goals

Long-term business goals are broad in scope and are not specific. Typically, these goals are set out over a period of at least five years. In general, long-term business goals are closely related to profitability.

When thinking about long-term business goals, it is important to think broadly. That is, long-term goals should be broad enough so that the short-term turbulence that business owners face does not affect them.

For example, long-term goals could be revenue targets, profit targets, cash flow targets, or valuation targets.

Not all long-term goals should be financial. Business owners often make goals related to the product or service they offer. Some set a target for the number of clients they want. Some target how many products they want to offer. 

At the end of the day, these long-term goals can be anything. All goals should be realistic, but optimistic.

Short-term Goals

With long-term business goals defined, short-term goals come next. Short-term goals should be achievable in a year or less. They keep your business on track, and they keep you motivated. Short-term goals reward and guide us in our journey to broad, long-term goals.

Consider an analogy of a cross-country road trip. Imagine there is nothing but barren desert between your starting point, and your destination. Without any landmarks, the journey would feel very long. You could even become lost.

Fortunately, most trips have landmarks. These landmarks guide you and remind you where your journey will lead you. In essence, short-term business goals function like guiding landmarks.

What Do Short-term Business Goals Look Like?

Short-term business goals should be a combination of both easily-achievable and challenging goals. For example, consider a small-business owner in Japan. Their short-term goals could look like the following:

– Find 5 new clients this month

– Pay off 25% of credit card debt by the second quarter

– Reduces expenses by 5% this year

– Network with a potential strategic partner this week

As mentioned previously, short-term goals should ultimately help you achieve your long-term goals. Because short-term goals are narrowly focused, and shouldn’t take long, they are much more flexible than long-term goals. Long-term goals require more planning.

Managing Cash Flows

The cliché, “cash is king” is very important. Cash is essential to supporting day-to-day operations. Even if business is booming, your company could fail if you don’t manage cash well.

Managing cash flows is a strategic and dynamic process. Business owners want to maintain a “sweet spot”, where they have enough cash for operations plus a safety net. However, it usually isn’t optimal to hoard cash. Below we will briefly discuss several common tactics in the game of cash management for business owners.

Investment strategies for business owners in Japan

Have Reliable Credit Available

Having good credit is an essential tool for business owners. If a business owner has good credit, they can easily get small loans to smooth fluctuations in their business cycle. However, business owners with bad credit have a harder time getting loans. Most business owners have credit lines or business credit cards as a quick source of cash. Of course, business owners should use these credit lines or credit cards responsibly.

Pay Bills Strategically

Business owners need to pay bills strategically. Typically, it’s best to stratify bill payment. That is, don’t pay everything off all at once. Spread your payments out over the life of your payables. Spreading payments out keeps your cash balance steady and maintains business liquidity.

Avoid Receivable Leniency

Some business owners are too lenient about when customers pay them. This is understandable. Customer relationships are important, particularly for business owners.

Unfortunately, payment leniency creates problems. As mentioned previously, cash flows are crucial. Allowing customers to pay you at random limits your ability to manage cash properly. Even if your customers eventually pay you, you will run into problems when cash flows become inconsistent.

Find an Experienced Japanese Accountant

Some business owners do everything themselves. Doing everything yourself can save money in the short-term but often ends up a false economy in the long run as there are lots of things you are likely to miss or be unaware of. If your goal is to scale your business, being the jack of all trades will limit you.

Financial planning for business owners in Japan

Finding an experienced accountant is usually one of the first ways business owners outsource work. Unfortunately, many business owners in Japan see the rates accountants charge and decide they’d be better off doing the bookkeeping themselves. Here we will discuss the main reasons hiring an account is a good idea.

Save Time and Reduce Stress

Time is money. The typical business owner works twice as much as employed workers do. Any time saved is time that you can put back into your business. Ultimately, the time savings of hiring a public accountant can pay off immensely. Hiring an accountant gives business owners more time to focus on achieving short-term and long-term goals.

Hiring an accountant does more than free up your schedule. Experienced accountants can greatly reduce the stress of owning a business. There is a reason why accountants must be certified—it isn’t an easy qualification to attain.

Preparing financial statements, filing taxes, and bookkeeping can be a severe headache- especially in a foreign language. Headaches create stress, and stress is detrimental to the quality of your work. business owners need to operate at maximum efficiency. Reducing stress is essential to a good workflow.

Accounts Provide Useful Tax Guidance

Part of being an accountant is being a tax expert. Tax laws in Japan are complicated. For business owners, understanding how to navigate tax laws is essential. Leveraging the experience of an accountant can save business owners in Japan thousands (and sometimes millions) on their tax bills.

Furthermore, filing taxes is a long, tedious process. You can save your valuable time by simply hiring an accountant to process your business tax paperwork for you.

Not to mention, it’s easy to make mistakes when processing your taxes. Nobody wants an unplanned visit from the tax man. Mistakes when filing taxes can be costly.

Retirement Planning for Japanese Business Owners

retirement investment for business owners in Tokyo Japan

Retirement planning for business owners in Japan is complicated. For example, business owners need to decide what their business’ ultimate fate will be. Will they sell it? Will their children take control? Will they liquidate and close the business? These are all important questions that business owners must factor into a comprehensive retirement plan.

For example, consider a business owner who plans to sell their business. The cash they receive from the sale of their business should be factored into their retirement plan. Understanding the size of the sales proceeds is essential to planning how much to save while working.

Separate from planning the fate of the business, business owners need to adequately plan their own retirement savings. Those previously employed by companies that automated retirement saving contributions may have difficulty finding the correct contribution methods and balances. Fortunately, the Japanese government offers tax-privileged retirement savings accounts that the self-employed can also open, such as iDeCo and NISA.

Planning for retirement is complicated. Both for business owners, and traditional workers, having a comprehensive plan is essential for a successful retirement. Financial advisers experienced in retirement and business planning can help business owners create comprehensive retirement plans, customized to their specific needs and unique businesses.

Sources and Further Reading

- Alhabeeb, Musaddak J. “Entrepreneurial finance: fundamentals of financial planning and management for small business.” John Wiley & Sons. 2014.

- Bradley, D. "Lack of financial and location planning causes small business bankruptcy." University of Central Arkansas, Conway, AR. 2000.

- David, Luther. “9 Financial Planning Tips for Small Business Owners.” OracleNetSuite. 2020.

- “Eight tips for small business cash flow management.” Wells Fargo