ONLINE RETAIL: Chirin Gill

Chirin Gill and his business partner were at university together and it was during this time, that the two young men decided they would buy a business together.

Chirin showed early signs of entrepreneurship.

“I’ve always been interested in business,” Chirin tells BusinessesForSale.com.

“When I was at school I bought bags of sweets and then sold them off individually to my friends. When I was 13 or 14, I found a supplier of Sony walkmans and sold them too.”

CHIRIN GILL

Passion for business

Chirin's passion for business, is mirrored by that of his business partner.

“My business partner has always been big into reading about business people. He reads biographies all the time, from Richard Branson of the Virgin Group to Philip Green of BHS.

“In terms of business management and leadership, reading those kinds of things has really taught him how to run a business.”

Once the duo left university they embarked on their careers. A couple of years later they began their search for a business to buy.

He says: “We spent a few years browsing BusinessesForSale.com – it’s so simple and there are so many businesses on there. When we got a bit more serious I signed up with a few agents.”

Love at first sight?

They came across a website selling mobile phones and accessories called time2talk.co.uk towards the end of 2004. They were really keen and sat down with the owners but couldn’t agree on a suitable price. In the end they decided it was too expensive, despite it being a really great business with lots of potential.

In the time following that, the website remained in their minds. Chirin’s business partner often found it in Google when he was looking for various mobile phone accessories.

It became apparent that the business had a high Google ranking, which was a really positive thing.

“I decided to speak to the guys again and about six months ago, we reopened negotiations,” he explains.

“It seemed the two people who were running it, who had been running it for ten years, had had enough and wanted to get out.

“One of them had other businesses and time2talk.co.uk was becoming more hassle than it was worth – he wanted to focus on his other business.

“The other was going to university as a mature student and the last thing he wanted was to carry on messing around with this site now that he had other things on his plate.

The perfect option

So Chirin and his partner decided to proceed.

“This business was a perfect option for us,” says Chirin. “Not only could we carry on with our day jobs, but the product is so simple.”

“Essentially we know all about mobiles because we’ve all got one.

“The profit margins are great - margins are higher on a £2 or £3 mobile accessories, rather than the actual phones.

“Not only this, but the business proved it was making a profit, and we could see the expansion potential – we knew we would be able to start selling other products, adding new accessories, changing the contracts etc. For example, when we took over, we had 100 mobile accessories, now there are over 700.”

The pair renegotiated the price and eventually paid less than half of what they had been asked to pay first time around.

Before they’d even finalised the deal, they looked closely at the business’s potential, analysing what they could earn with the existing stock, and also what they were likely to earn if they went ahead with their expansion plans.

With a background in finance, Chirin was able to look closely at the business’s performance over the previous ten years.

Price to earnings ratio

“We looked at the price to earnings ratio – it is vital in these situations. We also used it to value the company the first time. Back then, it was ridiculously high; we thought it was over valued and consequently, didn’t go ahead with the purchase.

“The second time around, the key reason we thought it was worth buying is that we could tell the guys’ will to run the business after ten years was gone. As a result of that, the earnings had slipped quite a lot.

“Simple things like keeping old unfashionable phones and uncompetitive contracts rather than offering brand new ones which people wanted, were letting the company and the profits down. We could see these things could be rectified straight away.

“We argued that they couldn’t ask for as much money, that the bottom line is you aren’t making much money now and that needs to be reflected in the price. For us, their dropped earnings were a great bargaining tool.

“We worked out what we thought we could get the earnings to within 12 months. It was a very conservative estimate – and didn’t include new products. It was based on what we could do with the stock that was there.

“Then from that, we worked out what we could earn if we updated the products. It became too good an opportunity to walk away from a second time.”

Reason for sale

Chirin says finding out the reason behind the vendors’ decision to sell is crucial.

“In this case, the vendor knew it was a good company. But, they had just had enough of running it and wanted to get rid of it. I believe this is a good reason to sell.

“You really have to question why someone is selling a business, especially if it comes across as a good business to buy. You should always be wary of the hidden extras.”

Research and planning wasn’t at the forefront of the two investors’ minds – a potential mistake.

“We didn’t do as much research as we could have. Ultimately, you can never have too much advice.

“We definitely got caught up in just getting the deal done because we wanted it so badly. That’s not to say we didn’t think long and hard about what we were doing, but it wouldn’t have done us any harm to get as much information as possible.

“Anyone who thinks they know it all is being unrealistic.”

Good terms

Chirin also tips business buyers to try and stay on good terms with the vendors, because, you never know if you are going to need them in the future.

For Chirin and his business partner, there was an issue with domain names in the contract, after everything was signed and sealed. But, a phone call to the previous owners smoothed things out quickly.

“You should always be a wary and on the ball when it comes to contracts,” he adds. “Are people really saying what you think they are? If it wasn’t for the fact that the previous owners were honest and nice we could have been really conned.”

Since taking over in March 2006, business has been going well. Not only are profits up but they have already started introducing the new and updated products and services.

Final tips

“We knew it would be hard, but it’s just even harder, especially because we both have full time jobs as well. All work has to be done during our evenings and weekends.

“Even things like sorting out suppliers are difficult. Answering customer queries takes two hours a night. When buying a business you have to make sure that you have a lot of time to deal with it.”

Chirin’s final piece of advice for those considering buying a business is this:

“Do your research. There are a lot of people out there who just want your money. We came across a lot of companies that had low profits at the present time but presented ambitious profit projections for future years and wanted very high selling prices for their businesses.

“You have to make sure that the company you are buying is good value. Do the correct due diligence to make sure all figures are right.

“Be sure there is something you can add to the company that should mean that there is a way for you to make more money.”

Finally, he adds: “All in all, we spent over two years trying to find a business. We made contact with 50 businesses and then probably went to go and meet 15 and from there decided time2talk.co.uk was the one.”