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If an English school makes 7 million yen a year what would the resale value be?

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  • If an English school makes 7 million yen a year what would the resale value be?

    If an English school makes 7 million a year, would 7 million yen be a realistic asking price for a school?
    I think this is too much!!!

    What do you think??

  • #2
    need to know the sales income, the yearly operating costs, the assets, the good will, net profit, likelihood that the students will continue, competition in the area, etc....

    and after all that... the answer is still NO, 7 million is way to much for a nickel and dime operation when any chump who can hang out a shingle across the street and bleed your students away from you with cheaper prices, newer facilities, and better looking staff...

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    • #3
      Originally posted by jimbeam View Post
      If an English school makes 7 million a year, would 7 million yen be a realistic asking price for a school?
      I think this is too much!!!

      What do you think??
      With a language school you are essentially buying goodwill because once a new owner takes over some (but not all) students can just drop out or disappear and you dont really have income or any guarantee the students will stay with you. All you are left with is some second-hand furniture and a dwindling customer base.

      How do you actually measure what the school is worth when you take away the goodwill aspect?

      I think you are basically asking if you can make your money back in a year and then the rest from Year 2 onwards is pure 'profit'. There must be a formula for deciding what to pay initially, something like the IRR (Internal Rate of Return) when buying investment property.

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      • #4
        Originally posted by jimbeam View Post
        If an English school makes 7 million a year, would 7 million yen be a realistic asking price for a school?
        I think this is too much!!!

        What do you think??
        A school is not a commodity item. You will have to give more details than that. If you get 7mill in profit from it though its a nice little Bunsen burner! Goood job!

        Comment


        • #5
          As stated – if it is 7m profit in a year, then yes it is worth that – becausec

          The owner pays himself a salary – say 5m/year, and pays all other expenses – say 20m/year – and after all of that he has 7m profit (started with income of 32m). As the new owner – you pay yourself the same 5m salary, and still pocket the 7m profit at the end of the year. Good deal.

          But if the 7m is pre-expense income (instead of the 32m) – than after paying expenses – you are probably in the red and have no money to pay yourself.

          Comment


          • #6
            Originally posted by TJrandom View Post
            As stated – if it is 7m profit in a year, then yes it is worth that – becausec

            The owner pays himself a salary – say 5m/year, and pays all other expenses – say 20m/year – and after all of that he has 7m profit (started with income of 32m). As the new owner – you pay yourself the same 5m salary, and still pocket the 7m profit at the end of the year. Good deal.

            But if the 7m is pre-expense income (instead of the 32m) – than after paying expenses – you are probably in the red and have no money to pay yourself.
            You will also have to really identify the contracts you have you students on and value of your schools brand. If your students are on 'ticket systems' or something although you have collected the cash for the complete course you cannot recognize it as revenue until the the services are complete. So if you got plenty of cash for your school if you are not recognizing it properly the value could be a lot less... theres more but you can see where the grey areas will be.

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            • #7
              English schools really don't have a lot of value overall. The students are only there of their own free will and all could leave when the school is sold. So when selling a school, the only value is in the brand name, which if a small school isn't worth a lot, and the assets of the school - textbooks, desks, copiers etc. If the building is rented, that means that even the location is not an asset, as the landlord may not decide to rent to the new tenant.

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              • #8
                It makes 7 million a year,before tax and deductions and rent.

                Comment


                • #9
                  It really depends on overhead, the number of students, the average lifespan of students, the teacher (if the person selling the school is the teacher, many students will leave at the same time as the teacher), the school assets etc.

                  But at a ballpark figure, I would say maybe 1 million yen. If that.

                  Comment


                  • #10
                    Originally posted by jimbeam View Post
                    It makes 7 million a year,before tax and deductions and rent.
                    what is the AVERAGE monthly revenue? schools typically slow down during winter and summer months and you wont get the same amount every month.

                    Can you cover your operating costs during the slow periods? You need a "rainy day" cash fund to cover shortfalls in revenue. If you pay too much for a school and dont have enough to cover your running costs you will come unstuck.

                    There are fixed expenses e.g rent, overheads and salary. what are these as a percentage of revenue?

                    What are the variable expenses (advertising, flyers, phone, postage)? What are the monthly percentages?

                    Do you have to pay key money? (there are real estate agents fees and contract renewal fees to worry about too.

                    Don't forget you may have to pay health insurance and pension on full time employees. Ditto resident taxes on employees (some employers take it out of their employees salary)

                    What is left after all your expenses are taken out? This may be your profit margin (or loss as the case may be) dont just look at revenue as its onloy one side of the ledger and not the same as your personal income.

                    PS second hand furniture is usually of negligible value and will be sold as junk if you have to sell it to a second hand dealer.

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                    • #11
                      Originally posted by jimbeam View Post
                      It makes 7 million a year,before tax and deductions and rent.

                      I would not trade you magic beans for it....

                      Comment


                      • #12
                        why does anyone think they can sell their little English school? it's likely that the students are there because of 'you', you got and kept students based on them liking your teaching style, personality, looks, whatever. Why would they stay if you sold it to someone? They don't know,like or care about this new person. If you think you can sell it- because what are you selling really?, you're dreaming.

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                        • #13
                          While I`m sure the school is fine it`s isn`t worth much because there`s little control over the student enrollment. However, if you include a nice rental lease, school materials/furniture and a decent number of students I think you could get maybe 1 million yen tops given that it`s setup and ready to go.

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                          • #14
                            Originally posted by jimbeam View Post
                            If an English school makes 7 million a year, would 7 million yen be a realistic asking price for a school?
                            I think this is too much!!!

                            What do you think??
                            Dentists sometimes give away their practices for free. I don't see you being able to command much for the school if you cant prove a consistent cash flow. And the assets probably don't add up to much. The assets would be your sum total of your schools worth

                            Comment


                            • #15
                              Originally posted by Jakebullet View Post
                              Dentists sometimes give away their practices for free. I don't see you being able to command much for the school if you cant prove a consistent cash flow. And the assets probably don't add up to much. The assets would be your sum total of your schools worth

                              Yeah, so many factors to consider, aren't there?
                              -- Do you have a particularly good location/access and can you pass on a good lease?
                              -- Do you have some special operational procedures that make your school superior to others or that somehow would allow you to keep more?
                              --Do you have special marketing that attracts students to your school (better than anyone else could produce on their own)?
                              -- Do you have some kind of methodology, equipment, learning methods or other things that are superior or even proprietary?
                              -- How much of the school revenues are from you -- your charisma, manners, diligence, etc.?

                              I imagine that many people would just up and quit unless there is something special keeping them, so what is making 7 million (in profit??) might not a few months later. If it were me buying into your place, I would have to of course see all the figures, but I would want to have you stay on for some time to ensure a smooth transition. The school is worth something because of the base you've built (that takes time), but I am not sure how much since there is no kind of franchise guarantee such as a buyback.

                              Declining numbers of children, people with less money and more people able to stay at home and use the www, guys who will "teach" in Starbucks or wherever for 3,000 max, Chinese students like mine who can easily teach beginners (using Japanese) for 1500-2000 suggests to me at least that eikaiwa is not for the faint of heart.

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