Recently, I heard some deluded clown say his eikaiwa school has a value of 30 to 50 million yen. Conversely, a successful local eikaiwa closed its without the owners even bothering to try to sell the business.
Has anyone ever taken over such a business? What is a reasonable ballpark figure one might expect to pay?
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There are too many factors to give a basic range. You have to look at the current books: How many students, expenses, rent contracts, what materials and assets are coming with the school, the kind of school it is (one man school where the owner does all the teaching? You can count on losing at minimum 50% of the students within the first 3 months of take-over).
Their are finance calculations for deciding the value of a business. You need to look at discretionary earnings, assets, and liabilities. I would recommend that someone without a business background and doesn’t understand these points not to buy an existing business. They would be much better off starting their own business and building it from the ground up – at least then they’d understand the business and the books.
Most of the time you are buying goodwill. If the school has a good reputation then of course it is worth more than a school that has a very poor reputation, or no reputation at all. However, there is nothing to stop all of the students leaving as soon as the school changes hands. I have seen this exact thing happen a number of times. A popular school is sold for a pretty hefty figure, 12 months down the line half the students have left. In an eikaiwa the owner/main teacher is the product you are selling. If that person leaves, you can guarantee that many of the students will leave too.
30-50 million is a joke number. Thats 10 years average salary in Japan.
If a particular area has a successful eikaiwa eventually the big boys will move in and scoop most of the the students. The Japanese do tend to focus on ‘name value’ above all else.
Clearly, the person expecting 50 mil, has zero business acumen. Huge red flag!
School owner here
Anybody can put a number on something but the actual value comes down to how much revenue they make yearly and what the accountant (third-party person not related to the school) says.
The buying and selling of English schools (from small couple runned size to large corporations have been ongoing. There’s even a couple websites you can find that can tell you the approximate value of a school based on a created formula.
(based on an article in 2012, value is based on 3 to 12 months of the owner’s income and company profit).
Both parties need to do their due diligence. I emphasize due diligence as the owner may have a wild number in how much they think their company is worth versus what it actually is. And the buyer needs to look at the company records for the past five years. If the owner is unwilling to provide anything beyond the last year or so then it’s a red flag.
Buying someone else’s school is a big commitment but it will enrich your life much better than working for someone else. If you see such an opportunity, please take advantage of it if you want to be your own boss.
Maybe 25 years ago.
Do they own the building the school is in? Cuz then yeah. It would be expensive. I rent a building and run a bar that fits standing about 10 people and I can sell it for 4 million yen right now…
I have an Eikawa with over fifty students in a beautiful mountain area of Japan. I’ll sell it to you for that price right now.
Totally depends. A friend of mine from the UK opened his Eikawa almost 20 years ago, when there were almost no others like it in the (fairly major) city he’s in. He even got a commendation letter from the mayor.
Because he’s so established, his school is really popular and has an excellent reputation. When they started he did a ton of advertising on trains, etc, but now all his students are word of mouth, and there’s a wait list. He doesn’t hire teachers–he does all the lessons himself, which I think adds to the value, at least in potential students’ eyes.
But now there’s also 100 other Eikawas in the city, and I’d say 90% of them aren’t nearly as valuable (whether they are good or not), because they lack the reputation.
He’s also a fairly well known member of the community, so if he sold it, there is a very big possibility it would stop being so successful.
Sigh. Every time I mention this, someone has to wade in and be rude about it.
As the deluded clown in question, that number is based on the multiple an Eikawa style service business might sell for (3-5x net annual profit), as long as it is a reasonably turnkey business (ie the owner is not the only teacher or whatever).
If the school is a one man operation, or does not have the systems in place to be truly turnkey, it might be worth less.
And the IP in question is not a booking system (we lease that, I don’t think it adds value) but in house materials that we sell to other schools and curriculum.
For an eikaiwa to be worth 1 million yen, you would need to get it all furnished, all paperwork done and 20 “stable” students who pay around Y10 000 a month each.
It’s like buying a lawnmower business.
People like to think their company is worth $Xx because they have this much income and want to get something but the reality is those clients can come and go quickly.
Many many businesses simply shut when the person running them no longer needs or wants to run them. I don’t think there is anything wrong with that either.
A private Eikaiwa is such a cheap business to start, that it’s probably better to just wait for the place to close (I mean, if you already have the knowledge that it will close) and then swoop in and take the students that suddenly have no school to go to.
I feel that my Eikaiwa, despite providing a decent income for me, doesn’t really have any intrinsic financial value, and I would be doing a disservice to students to “sell them off” to whomever is willing to pay the asking price.
A private Eikaiwa is such a cheap business to start, that it’s probably better to just wait for the place to close (I mean, if you already have the knowledge that it will close) and then swoop in and take the students that suddenly have no school to go to.
I feel that my Eikaiwa, despite providing a decent income for me, doesn’t really have any intrinsic financial value, and I would be doing a disservice to students to “sell them off” to whomever is willing to pay the asking price.