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## Owners of Small Firms in Japan Facing Challenges in Succession Planning

Teamshares Inc.’s Employee Ownership Succession Model

(Bloomberg) — Owners of smaller firms in Japan have struggled for years to hand their businesses off to a buyer or successor. Teamshares Inc., an American startup with backing from Mitsubishi UFJ Financial Group Inc., is seeking to change that by offering financing for workers to become stakeholders.

Teamshares, based in Brooklyn, is bringing its employee ownership succession model to Japan in its first overseas foray. Typically, the startup will buy an entire enterprise from business owners so they can retire, then hire new management to bolster the company while giving workers an 80% stake over a timespan as long as 20 years.

Such proposals could help the 2.45 million small business owners in Japan who will be 70 or older by 2025, almost half of whom have yet to identify a successor. A cottage industry has emerged seeking to connect these founders with buyers, using technology as well as more traditional M&A services. Mitsubishi UFJ, JapanÔÇÖs biggest bank, has funded the startup via its corporate venture fund.

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ÔÇ£We genuinely believe that our business in Japan can grow to the same size as our US business,ÔÇØ Kevin Rikio Shiiba, co-founder of Teamshares and head of its Japan business, said in an interview. The Georgetown University graduateÔÇÖs family comes from Japan, giving the 35-year-old a close view of the challenges around succession in the country.

Teamshares, which has secured $245 million in funding to date, has acquired 90 companies in 31 states and 42 industries in the US. Target companies usually generate around $2 million to $10 million in revenue. While the US isnÔÇÖt aging as rapidly as Japan, some 70% of retiring owners fail to find a buyer, forcing them to shut down and employees to find new jobs.

Shiiba plans to cast a wide net, spanning different industries in Japan. Teamshares has already been talking with business brokers and owners, while seeking additional funding, he said.

The big bet is that JapanÔÇÖs aging demographics will work in TeamsharesÔÇÖ favor, as well as government efforts to support third-party succession of businesses.

Part of the challenge will be educating new employee owners, who will need to be more involved in the management of their company and understand its financial health. Ultimately, the goal is to boost the value of any enterprise by making its workers stakeholders in the business. The first step is to bring in new leadership after the founder or owner departs.

ÔÇ£If theyÔÇÖre a strong general manager in that business, we may look for a CFO type to help them take the business to the next level,ÔÇØ Shiiba said. ÔÇ£We will be looking for really talented people who want to run and ultimately sit across many different small businesses here in Japan.ÔÇØ

ThereÔÇÖs been a sharp decline in business succession among family members, with internal promotion taking up a 35.5% share of transitions, according to researcher Teikoku Databank. Other noticeable trends were third-party succession scenarios that fell into two camps; either the companyÔÇÖs own employees took over, or the company was bought through a merger or acquisition.

ÔÇ£The challenges that small business owners are facing is even potentially more dire, given the rising age of those businesses,ÔÇØ Shiiba said.

## AI legalese decoder: Assisting Small Business Owners in Navigating Complex legal and Financial Documentation

AI legalese decoder can assist small business owners in Japan in navigating the complex legal and financial documentation involved in succession planning, including employee ownership models and financing arrangements. This tool can provide clarity and understanding to business owners as they consider the transition of their businesses to their employees, enabling them to make informed decisions and plan for the long-term sustainability of their enterprises.

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