RetireJapan

Hi,
Two Japanese partners and I opened up a successful Italian restaurant 9 years ago.
We equally own 33.3% of the business.

I am planning on leaving Japan in the next 2-3 years.
My question is how do I evaluate my share of the company?

Is it just as simple as taking a 1/3 of the savings?
Or does reputation, name value, brand come into it? Is there a company that does this kind of work?

I have an extremely good relationship with both partners and do not want to get lawyers involved.

Thanks in advance.

The short answer is that a business is worth what someone is willing to pay for it.

So the best option might be to sit down with your partners and figure out how much you think the business is worth, and then have them pay you that amount, either as a lump sum or in installments after you leave. They could make you a board member or something and pay you a salary for x years if they don't have the cash on hand.

It's not an exact science, but businesses are usually valued as a multiple of some metric (most commonly revenue or EBITDA), based on what comparable businesses (i.e.other restaurants of similar scale/success) have been valued at/sold for in the recent past. Publicy traded restaurant chains might give you some ballpark figures on these multiples, but I'm guessing the business model is probably quite different. As individual restaurants of this scale are pretty much all privately owned, accurate information can be hard to come by, and determining a reasonable valuation is usually where the investment banker types come into the picture. You might consider consulting with a small-business M&A firm to see if they can assist with a valuation. There are lots of players in this field in Japan, but two of the bigger ones might be:
https://masouken.com/
https://www.tranbi.com/

mighty58 wrote: ↑Tue Jun 27, 2023 5:13 amYou might consider consulting with a small-business M&A firm to see if they can assist with a valuation. There are lots of players in this field in Japan, but two of the bigger ones might be:
https://masouken.com/
https://www.tranbi.com/

Might I also suggest that all three of you engage the firm so that the resulting valuation is not (perceived as) partial to one party or another?

There are several ways you might consider valuing a business.
The value of the business will be the value of the future cashflows from the capital engaged in the operations of the business discounted to today's value (Net Present Value) plus the value of Short-Term Assets (Cash and similar) minus Short-Term Liabilities (Credit, loans, and similar).

The simplest method would be to assign a simple multiple to last period's Annual Earnings (Price/Earnings Ratio) or to last period's Free Cashflow (Price/Cashflow Ratio). You might be able to get an indication of similar ratios of similar businesses.

A little more complicated would be to calculate the Net Present Value of Future Cashflows projected out for 7 to 10 years with an expected growth rate, discounted back at say the rate of inflation, sum years 1 to 9, and then add an estimate for the ongoing concern using a Price to Free Cashflow Ratio for the Year 10 number to value the ongoing value from year 10 onwards, discounted back at say the rate of inflation.

This would give an Intrinsic Value or Neutral Value. Any potential investor would require a greater return than the rate of inflation, so instead of the rate of inflation in the above calculations, the buyer would discount the future cashflows back at a higher discount rate (desired hurdle rate, internal rate of return), leading to a lower selling price. On the other hand, an increased expected growth rate might lead to a higher selling price.

It then becomes a negotiation between the value projected by the seller and the value expected by the buyer, and the actual price may be somewhere in between, taking into account other transaction costs.

RetireJapan wrote: ↑Tue Jun 27, 2023 2:54 am The short answer is that a business is worth what someone is willing to pay for it.

So the best option might be to sit down with your partners and figure out how much you think the business is worth, and then have them pay you that amount, either as a lump sum or in installments after you leave. They could make you a board member or something and pay you a salary for x years if they don't have the cash on hand.

Thanks.

This is my optimum option.

Thanks everyone for your advice.

I will carefully consider my options before taking the next step.

Cheers

Tomthumb16 wrote: ↑Tue Jun 27, 2023 2:20 am Hi,
Two Japanese partners and I opened up a successful Italian restaurant 9 years ago.
We equally own 33.3% of the business.

I am planning on leaving Japan in the next 2-3 years.
My question is how do I evaluate my share of the company?

Is it just as simple as taking a 1/3 of the savings?
Or does reputation, name value, brand come into it? Is there a company that does this kind of work?

I have an extremely good relationship with both partners and do not want to get lawyers involved.

Thanks in advance.

Did you receive any return/benefit over the last 9 years?
I own 3% of restaurant business (now with 4 locations) but haven't gotten any return except some discounts. There was talk of further expansion preCovid.

Like most businesses, they tried to keep taxes to a minimum and invested in expansion. The founders have paid themselves salaries, and at times put in plenty of hours behind the counter.

They have discussed ways to do share buybacks over the past 5 years, as they have overseas family members who invested, but nothing concrete has been decided yet. Ideally I would like to see a return that exceeds the S&P500 over the same time frame, but I am not confident that will happen.