Selling a Language School in Japan

But what’s it worth?

house for sale

Many people in Japan think about opening their own English school. Some people actually do so. But what is the end game? What happens when you no longer want to operate your school?

One option is to sell it.

There are many things to consider when selling a school. I’ve been doing a bit of research on this recently, and it’s been interesting and a bit discouraging 🙂

Valuation

This is probably the hardest aspect of the whole thing. There is no easy way to decide how much a business is worth. Ultimately it comes down to how much someone is willing to pay for it, and whether the owner decides to accept that price.

Some metrics I have heard about are a price per current student, or a multiple of net annual profit (2-5 times seems possible).

Whether the school is a company or just privately run by an individual would appear to make a difference (it’s more valuable as a stand-along company).

Having the owners involved in teaching or admin roles makes the school less attractive, as the students may be there because of the personal connection and may leave when the owners do.

Any assets held by the school may be added to the purchase price, but most teaching materials or furniture probably aren’t worth very much second-hand.

Taxation

Now even if you manage to sell your school for an acceptable price, the government is going to want its share of the proceeds.

There appear to be two possibilities here. If the school is incorporated and was bought then capital gains tax might be payable.

If the school was privately held then income tax would be payable. Looking at national income tax, the brackets seem to be:
-under 1,950,000 yen 5%
1,950,000-3,300,000 yen 10%
3,300,000-6,950,000 yen 20%
6,950,000-9,000,000 yen 23%
9,000,000-18,000,000 yen 33%
18,000,000-40,000,000 yen 40%
Over 40,000,000 yen 45%

You would also have to add inhabitants tax of around 10%.

What this means for us

Well, my wife runs a small English school. We are considering a number of options for when we are no longer willing or able to run it, including selling or giving it to a family or staff member, selling it to a third party, or closing it down (and donating resources to local schools or organizations).

My research indicates that most schools seem to be bought and sold as fire, or forced, sales, when an owner needs to sell quickly as they are leaving the country. This results in low prices paid for schools.

For us, selling for three times net annual income doesn’t sound like a great deal, particularly if we do the work to make the school run without our day-to-day input. Once you consider the impact of taxes on the sale price, we’d be better off running it for another couple of years and would be able to save more than we would get in a sale price.

It’s not even much of a jump from a hands-off business to one that you could monitor remotely.

I guess if we ever reached the point where we didn’t want anything to do with the school I guess we could sell, but even in that situation I think I would rather sell to an owner operator and amortize the purchase price over a number of years, possibly by securing an advisory role. This would probably reduce taxes and increase the eventual gain from the sale.

Anyone have any advice/experience on this topic? Am I completely wrong on anything?

Edit: Steven N. posted this great article by Dean Rogers (who is a really approachable and helpful person) on the Facebook page. Well worth a look.

25 Jul 2015, 1:26pm
eikaiwa kids teaching
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Freestyle warmups for children’s classes

warmup

Recently I have been doing these kinds of freestyle warmups with children’s classes. They are easy, fun, interactive, and break up a regular class well.

Start by introducing the language on the board. Then practice orally. Finally have students write their personalized version in their notebooks. The whole thing takes about ten minutes.

Sponsoring a Teacher Visa in Japan Part 2

Wait, that was it?

approved stamp

As Trevor rightly pointed out in Part 1, applying for a visa as an English teacher doesn’t really involve sponsorship, but I wanted to keep the title the same for the second post. More accurately we could describe the process as ‘supplying the necessary documents to prove a viable job offer to a teacher applying for a Specialist in Humanities visa’.

Anyway, a few weeks ago I went to the immigration office with our prospective new teacher (not necessary, we just wanted someone there from the school in case there were any problems with the paperwork). We took the following paperwork with us:

From the school:

  1. copy of the school’s tax return (as it is a personal business)
  2. copy of the pamphlet
  3. explanation of the school
  4. copy of the teacher’s contract
  5. <we missed something>

From the teacher:

  1. passport
  2. zairyu card
  3. photos
  4. revenue stamps
  5. application form
  6. resume

We went straight to reception and talked to a very pleasant lady who checked our documents and gave us a number. After about half an hour a case officer called us up. She was unsmiling and serious until she looked at our application, then she relaxed and started smiling. I took that as a good sign.

First of all she said we were applying very early (six weeks before our new teacher’s current visa runs out) to which we replied of course that we wanted to make sure we could deal with any problems in good time.

It turns out we had forgotten to fill in the 3rd-4th pages of the application form (the school has to fill this in and stamp it), and the case officer also wanted a copy of our teacher’s current employment certificate (jirei). We could send both documents by post within the following couple of weeks. Then she said we could go.

And that was it. Very painless, even with us having messed up the paperwork.

Last week our teacher emailed me saying the notification postcard had arrived, and the visa could be collected on the first working day of August. A huge relief and a big milestone for our school: first teacher visa enabled!

Please post any questions or anecdotes in the comments below.

Sponsoring a Teacher Visa in Japan Part 1

stamping passport

This year the language school I help out at is sponsoring a teacher for a visa for the first time. So far we have always managed to hire people who already had a visa, but we found a great teacher who’s a JET until August and would like to work for us after that.

Unsure of the process, I reached out to school owners on the ETJ Owners List (the best resource for advice on running a language school in Japan).

Many people replied. This seems to be a popular topic, or one that people feel strongly about. The main takeaway was that there does not seem to be a standard application or guidelines: the process appears to be at the discretion of the immigration officer that deals with your case. I received the following advice:

  • Hire an immigration lawyer, or
  • Have a Japanese native speaker call to inquire (otherwise you may be accused of misunderstanding the officer’s Japanese and sent home to get more documents)
  • Don’t ask questions or argue; just do whatever they say
  • Call back another day to try to speak to another person if you run into a difficult officer
  • Go to another immigration office if necessary(!)

Pretty grim stuff, but more or less what I was expecting. The lack of consensus on required documents, etc. was a bit worrying. I also had a look at some immigration lawyer websites (easy to find in English through a quick web search) and found that the following would probably be necessary:

  • Company documents, including tax statements (this might be a problem as the school is not a company but held by private individual)
  • Documents relating to the position (salary, duties)
  • University diploma

We then contacted our local immigration office to start the process (a Japanese staff member made the call).

We were told that the school would have to prepare various documents, and the applicant would also have to prepare various documents. The applicant would then bring everything to the immigration office and make the application.

School documents:

  • Copy of school financial information
  • Proof of school activities (like a pamphlet)
  • Teacher contract

Teacher documents:

  • Photograph
  • University diploma
  • Resume/CV
  • Passport
  • Residence card

We also found some information on the Ministry of Justice’s website, including the application forms (the one to change to Specialist in Humanities is number 8), and the requirements.

The next step is to put the documents together and brave the dragon’s den along with our new teacher. I’ll write it up in Part 2 later this month. Is it just me, or does this all seem too easy?

Extensive Reading for Secondary Students

I’ve been wanting to write this post for a long time.

150427 Cambridge Academy

On April 1st this year the language school I help out at started a new section called Cambridge Academy. Getting ready for this and implementing it over the last four weeks has been a really fun challenge, and now that we are taking a little break for the Golden Week holidays I feel like I have some lessons to share.

In this post I will talk about what we are doing, why we decided to start a new sections, and a few problems and successes we have had.

Why start a new school?

Several reasons. The main one is that we weren’t happy with our existing junior and senior high school classes. It seemed that while the most able and motivated students could do very well, others did not. We gave students many chances to do work outside of class, and the ones that did got better and the ones that didn’t, didn’t. We were looking for a way to improve that.

I was also able to visit SEG in Tokyo, and see their incredible resources and program. This inspired me to start something similar in Sendai, and we have benefited hugely from using Akio Furukawa’s experiences and advice in setting up the program.

Finally, the academy format and the results we are hoping for seem to be quite commercially viable. While my main motivation with the school is to provide students with excellent education, it’s nice if the school pays for itself too.

How does the Academy work?

There are two main concepts behind the Cambridge Academy. The first is to provide students with the chance to receive large amounts of comprehensible input through graded and leveled readers, alongside speaking and writing activities. Initially the input was based mainly on books but we quickly realised the power of reading with CDs so we have since changed this to books with CDs.

The second concept is to do 55 minutes of reading/listening in the school each week. This ensures that all students will receive at least 40 hours of reading/listening per year, or 200 hours over the course of the five years we envision the ideal program lasting (JHS 1st grade to SHS 2nd grade). Of course, motivated and ambitious students will do much more at home, but with the in-class reading system ensures that all students will make some progress.

The students will also have a speaking class with a focus on production, a writing assignment each week, and the chance to do online vocabulary study with Word Engine.

What have you done so far?

At first the main stumbling block was space: we needed an extra classroom that could house the books and other resources as well as accommodate twelve students. Luckily the apartment above the school became available in March, so we quickly rented it and set it up for school use. As the Academy classes are pretty much silent, we shouldn’t have any problems with the neighbours or the landlord.

Next was gathering resources. We already had a large graded and leveled reader collection built up over the last twelve years or so, but it wasn’t enough to serve the fifty or so students who started in April, let alone the numbers we would like to see eventually. After several large orders to englishbooks.jp and Amazon, we are still playing catchup and will probably continue buying books throughout the year (this matches my experience at Tohoku University, where book resources never quite seem to meet student demand).

150426 Cambridge Academy prep 1

Main bookshelves at the Academy.

The next step was to develop a system to determine what students would do, how we would track it, and how to organise resources. Here we benefited immensely by being able to copy a lot of what SEG does. The interesting thing is that we found ourselves adopting elements of the SEG system that didn’t make sense to me at first (like having books organised in sets with CDs, and having students read while listening).

150426 Cambridge Academy prep 2

Book sets organised using ziplock freezer bags.

We had a couple of CD players when we started classes, but after I saw how much the students enjoyed listening as they read I quickly bought ten more so that we could offer a player to each student. Personal CD players can be found on Amazon.jp for between 1500 and about 5000 yen. There seem to be limited numbers as these products are no longer popular. We have also failed to find CD players that can play MP3 CDs for a reasonable price (there is a Sony model that costs about 25,000 yen, but this seems a bit too high to me). An ongoing project.

We have also noticed the need to keep track of what each student has read so that we can give them new books in a timely way. Right now the best solution appears to be a checksheet that we will put in each students file so that we have a record of that they have read. This is also a work in progress but it is going quite well.

150426 Cambridge Academy prep 4

Checksheet to track student reading.

Results so far

The first four weeks have been great. Students seem to enjoy the format and even the students who don’t seem to enjoy English classes do the reading activities willingly. About half of the students do homework, the others do not. My policy here is to encourage and support, but leave it up to each student as to how much they want to do.

For the school, the format means that we can serve up to 24 students each weekday evening (four six-student speaking classes and two twelve-student reading classes that alternate). In practice this means that three teachers can take four classes, which increases the profitability quite a bit. The schedule looks like this:

19:20-20:15 

Class A speaking with Teacher 1
Class B speaking with Teacher 2
Classes C and D reading with Teacher 3

20:25-21:20

Class C speaking with Teacher 1
Class D speaking with Teacher 2
Classes A and B reading with Teacher 3

From a business perspective the profit per student in the Academy system is higher than other classes. We charge 15,000 yen a month plus tax for 44 two-hour classes a year, so I think this is a good value for students too (they would have to pay more than that each month just to buy the books they end up reading).

The specialized knowledge required to set up the system, and the cost of books and other equipment (we’ve spent over a million yen setting up the Academy, and we already had thousands of books) means that it would be difficult for other schools to copy our classes if we are successful.

Most of all, it is wonderful to see the students enjoying their studies, and achieving success each week. The Academy style classes also work very well with students who have social issues. For a teacher, it’s a very fun class to run and I hope our students will find themselves doing better at school.

What’s next?

Well, we’ll continue developing the system and trying to improve it. I suspect motivation may become a problem for some students once the novelty wears off, but I haven’t seen this so far. Hopefully the combination of success and the contrast between an hour of reading/listening and the rest of their busy day will help stave this off.

Business-wise I would like to see the Academy grow in size, and if it gets big enough I would like to move it to a new location in the city centre to increase our catchment area. Ideally this would happen in the next year or two.

So far I am very pleased with how things are going. I’ll post an update in September or so and let you know how we are doing. Please feel free to ask any questions in the comments.

 

 
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