Support business succession at small firms to protect jobs, key technologies

The shortage of successors to take over small and midsize companies is becoming more serious, forcing more and more to go out of business. The public and private sectors must work closely to enhance assistance measures to protect small and midsize firms that support technology and jobs.

In 2020, a record high of about 50,000 companies suspended operations, closed or were dissolved, according to a private credit research firm, an increase of more than 10% from the previous year. Among them, 60% were in the black.

The credit research firm said that there was a succession of closures of small and midsize companies that gave up on continuing, as the coronavirus pandemic dealt an additional blow to the situation in which they had difficulty finding successors.

It is estimated that about 2.45 million business proprietors will be over 70 years old by 2025, and about half of them have no successors.

Among the small and midsize companies are many small factories using advanced technologies, and service businesses that provide jobs and support local economies. If such healthy companies are forced to close down because they have no successors, the economic damage would be immeasurable.

Up to now, it was most common for a family member or employee to take over the business. However, acquisitions by other companies or people who want to start their own businesses are seen as promising solution when there is no successor.

According to the Economy, Trade and Industry Ministry, there are 3,000 to 4,000 mergers and acquisitions yearly involving small and midsize companies. Corporate succession is the purpose in some cases.

The number of companies that act as intermediaries between buyers and sellers is increasing, and the ministry has started a registration system for them. Giving it the government’s “seal of approval,” the aim is to make it easier for companies to take this route. It is hoped that the system will lead to smooth corporate succession while preventing trouble.

It is said that many business owners are reluctant to engage in mergers and acquisitions because it costs a lot of money to assess company assets and the procedures are difficult to understand.

The government has undertaken matchmaking projects at centers it established throughout Japan to provide consultation services to support business succession. It needs to strengthen its consultation system and consider measures such as expanding subsidies to cover expenses for promoting mergers and acquisitions.

The number of successful cases is growing. For example, the president of an industrial machinery firm with less than 20 employees in Ishikawa Prefecture suddenly died. Through consultations at a support center, the firm’s shares were sold to an Ishikawa native who had worked for a major Tokyo-based heavy industry manufacturer. That person became president and jobs at the firm were saved.

A machinery design firm in Nagasaki Prefecture, which had been struggling to find a successor despite its strong business performance, has come under the umbrella of a company in the same industry with different strengths. By complementing each other, it allowed them to expand their businesses.

The role of regional financial institutions is also important. Because they should be familiar with the business situation and growth potential of local companies, they need to focus efforts on providing advice and intermediary services related to business succession, not simply provide loans.

— The original Japanese article appeared in The Yomiuri Shimbun on Sept. 10, 2021.