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Question about the partnership

Business Partners

Lyuba Soul kitchen started this discussion 15 years 9 months ago

Hello!
We are planning to open the hostel this spring, were were looking for investorsnvetors for long time and now we've finally found the businessmen, which would like to work with us. The thing is - he knows nothing about hostel business, he just heard that it is profitable now, he has enough money to invest and owns the place in the center of the city that suits for being the hostel. he just interested about earning money but not about operating this business.

So my question is - operating the hostel by our own with no intervention of our investor, but using his property and capital,
What percent form the profit we can appy for? (with no any other payment, and investing nothing by ourselves)

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santa klaus

15 years

It is good news that he has no clue about hostel business - if he knows at least that much. It´ll keep him from telling you what to do all the time.

Figure out what sort of deal you want before looking at it from his perspective. Do you just want his money and building and be responsible for the entire risk yourself? In this case, try to get a deal where you only rent the building and pay interest for his investment.

Or do you want to split the risk between yourself and him? In this case, make a joint venture. You would both posess 50% of the company. The company would still pay rent and interest to him and whatever is left is profit. Split that 50/50 or 30/70 or whatever.

Or do you want no risk at all? It´ll be entirely his costel and he employs you as manager, maybe with a deal in which you would still get a part of the profit (as a yearly bonus).

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Lyuba

15 years

Thank you for your answer!
The first one will be the perfect one, but he doesn't want to invest that way, he wants as mutch income as it possible. Then I need to calculate, what could be the most profitable way for us, because the rent is really expencive. In case we will work as the managers with no risk, what percent of the profit can we claim for?

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santa klaus

15 years

Think less about money.

I don´t know how well you know the guy. Maybe he´s a decent person and I´m just paranoid. What I have in mind is this: when it turns out that the shop is running well he might think you make too much money and you can be replaced with one of your well-trained staffers. He will want to get rid of you.

Option 1 is the best way to avoid that.

Option 2 is the second best solution because he would have to buy up your share. You would see each other in court though to determine how much it´s worth. You shouldn´t rely on justice in Colombia too much, so you can just as well forget that option.
The best solution to avoid this is to have a shoot-out-buy-out clause in your agreement. It works like this: if he offers to buy your share for amount X you have the right to buy his share for the same amount, and vice versa. Basic game theory works always better than the Colombian legal system! :)

Honestly, I would go for option 3. You won´t make a fortune, but then there is also no risk for you. Let one of his people do the accounting so there is no doubt you´re honest with him. Bargain hard for the biggest possible share of the yearly profit for you. If he really decides to get rid of you eventually, you can start over again with your own place.

Option 4: marry his daughter! :D
No further bargaining necessary.

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Alexski

15 years

Very good question SORs. I was just having the same dilhemma.

Honestly, I would go for option 3. You won´t make a fortune, but then there is also no risk for you. Let one of his people do the accounting so there is no doubt you´re honest with him. Bargain hard for the biggest possible share of the yearly profit for you. If he really decides to get rid of you eventually, you can start over again with your own place.
No further bargaining necessary.

Personally, I don't like this option because there is always the possibility that the hostel doesn't do too well and then you are REALLY not making anything. The other possibility is that the hostel IS doing great but the investors would be able to kick you out. Though, I am sure that you could still negotiate something...

It's all very sound advice from Santa. Those are basically your options.

I would go with option 1 (or 4....:p). Simply because as Santa said you have to be slightly paranoid when you are dealing with a partnership. Option 1 gives you full liberty but it still can't guarantee you success.
You really have to spend a long time calculating all the costs. Only that way will you be able to find out what option you can "afford".:cool:

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allthis4adream

14 years

Just curious. What kind of experience/ back ground did you have when you approached the owner. I am interested in doing something similar but am weighing my options/ plans to see what is best. I would love to here how this has worked out for you. Let me know.

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Lyuba

14 years

Just curious. What kind of experience/ back ground did you have when you approached the owner. I am interested in doing something similar but am weighing my options/ plans to see what is best. I would love to here how this has worked out for you. Let me know.

Experence of working in few other hostles helps alot!

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