Succession Planning for Business Owners in Japan

If you’re a business owner in Japan, you know that it can be a highly rewarding experience. You also know that it can be highly challenging. Business owners in any country face difficult choices and overcome great obstacles. For those who start businesses in foreign countries, however, the struggles only increase. From the day-to-day running of the business to planning for the succession of the business in the future, there is a lot to consider.

For many, these struggles are also why owning a business can be incredibly rewarding. Starting a business in Japan can be an avenue toward personal and professional freedom, a transition out of the monotony of traditional employment and the “salaryman” life. 

Perhaps you’ve already overcome the initial challenges. Not only have you gotten your business off the ground, pushed through the survival stage, and entered a period of growth and maturity. Maybe you’ve already established a solid financial plan. 

There is, however, a critical factor missing. Many business owners in the beginning or middle stages of their business’s lifespan fail to consider the final stage of business ownership: business succession.

What Is a Business Succession Plan and Why Is It Important?

A business succession plan is a preconceived plan for transferring the ownership, management, and interest of a business from one party (or parties) to another party (or parties). Having a clear succession plan for your business will help your business survive the departure of senior staff members without disruptions or losing value. 

When a critical staff member such as the owner or CEO leaves a business, his or her absence can leave a kind of unsettling vacuum for those remaining behind. Without a clear plan for this person’s replacement or the transfer of his or her responsibilities, the business could lose the confidence of investors and customers. Share values could fail and other valued members could also leave, creating even more instability. 

This could happen even if the staff member’s departure is planned – much more so if his or her departure is unplanned. Consider, for instance, what might happen in the event of an untimely death. Who would take over the business? Who could ensure that the core values are protected or the business finances are properly managed?

These potentialities are not comfortable to consider, but it is important for any business owner to acknowledge them. Doing so will help you recognize the importance of establishing a robust business succession plan and take the necessary steps to do so.

Succession Planning for Best-Case and Worst-Case Scenarios In Japan

Your Best-Case Scenario Plan:

Ideally, you have a long-term plan for your business and its development. If you have a vision for how your business may grow and expand, you can use this vision to help inform the part of your succession plan. This part of the plan is for your ideal future or best-case scenario. It should include elements of identifying your business’s goals and values, aligning your strategy accordingly, and anticipating the personnel and positions that you’ll need to implement this strategy and fulfill your goals. 

  • -Establishing your company goals. You’ve likely already determined goals for your company around sales and performance. However, the goals that will impact your succession plan may be a little bit different. What is the legacy you want your company to leave? Do you want it to remain a small, intimate business? Should ownership remain private, within the family, or should it pass into public ownership? Do you want to retire on your company’s income? Or perhaps you’d prefer to sell the business and pass on the proceeds as an inheritance to your children? Answering these questions will help you with the next step of your succession plan.
  • -Identifying your potential successors and additional positions. Now that you know how you want your company to evolve, you’ll need to consider what skills and experience your successor will need to see this plan through. Is there someone within the company whom you can groom and develop toward this goal? Will you need to hire additional positions to keep things running smoothly as the company grows without you? At this point, it’s important to be candid with any current employees and partners about your long-term intentions. Having honest conversations with everyone involved will help you identify potential successors and future top-level executives of your company.
  • -Developing your succession strategy. As with any aspect of running a business, there are risks to consider when preparing for succession.
    Understanding the potential difficulties will help you create a strategy to avoid or minimize their impact.
    To this end, there are many points to consider, such as:
    • -When do you want to retire and what will you need from your business at this time?
    • -What are the legal implications for your desired succession plan? 
    • -What financial and tax implications do you need to be aware of for the proposed scenario(s)?
    • -How can you take care of your employees and keep them happy and committed to the company after your departure?
    • -How can you account for employee retirement?
    • -How might your company’s organizational structure need to change in the future?
    • -What new training and development plans may need to be implemented for the business’s greatest chance of success?

Considering these questions will help you analyze the potential factors that could impact the future of your business. You may find you need to consider a different succession scenario than originally planned for the greatest benefit to you and your business. Consulting a financial advisor or a trusted business mentor may help you navigate the risks and benefits of your potential options.

financial planning for expats in Japan

Your Worst-Case Scenario Plan:

Preparing for a worst-case scenario may be less enjoyable than preparing for your optimal future, but it is no less important. As a business owner, any number of unexpected life events could have sudden and significant ramifications for your business. Making a plan ahead of time can help you mitigate any potential negative impact and give you peace of mind should something happen. Some potential events to consider include:

  • -Divorce. The divorce process can be emotionally and financially challenging for anyone. Are you familiar with divorce laws in Japan? Is your business a shared asset between you and your spouse? If so, what percentage of your business could your spouse possess in the event of divorce? Do you know how splitting ownership could affect your business’s value?
  • -Illness or disability. Sudden illness or injury could prevent you from working for an indefinite period of time. Could your business survive this? Will it be able to provide for your needs and support your family? Do you know what insurance programs there are in Japan that could help you sustain your business in such an event? 
  • -Death. If something were to happen to you, what would happen to your business? Would it be able to provide for your family in your absence? Do you know who would be able to run the business? Would it be sold or liquidated instead? Is your family ready to handle the legal processes and the necessary decisions without your guidance?

There are many more potential events to consider, as well. The death or illness of a loved one or your business partner could suddenly and significantly impact your ability to run your business. The more you can plan for each of these eventualities, the more secure your business will be.

If you haven’t established a succession plan for your business already, it may be time to do so. Take the time to talk to your family, friends, business partners, employees, and financial advisors. Anyone with a vested interest in your business should be included in the planning process. If you’re not sure where to start, consider talking to an experienced financial or business advisor to help you get on the right track.

Sources and Further Reading

-Succession Planning for Small and Family Businesses: Navigating Successful Transitions (2022), Ed. Robert K. Prescott, William J. Rothwell.

-The One Page Exit Plan: The Step-By-step Guide to Create an Exit and Succession Plan (2017), Peter Hickley.

-The Business Reinvention of Japan: How to Make Sense of the New Japan and Why It Matters (2020), Ulrike Schaede.

-Routledge Handbook of Japanese Business and Management (2016), Ed. Parissa Haghirian.