How do you split profit between hostel owners?

What a great question! Surely other hostels have faced similar challenges. I don’t have a specific answer for you, but I’m happy to talk through it to see if you or anyone else comes up with a perfect solution.

In a recent discussion with Yaron Burgin from Abraham Hostels, we talked about partnership roles. He suggested that the amount of work that one partner does vs another partner doesn’t matter so much. What matters more is how much risk each partner assumes in the business. That made a lot of sense. If the risk is equal, then the shares can be equal. If someone puts in a lot of effort, but has nothing to lose if the business doesn’t succeed, then he has very little at stake. He could walk away at any time and work hard for/with someone else without incurring any of the consequences of the failed business that his partners will have to deal with. Do each of your partners assume equal risk?

Your situation throws an interesting twist into the mix, because the partners who aren’t working in the hostel are still essentially working for the hostel. The money each one earns outside of the business will be invested into it. The one who stays to run the hostel invests his time and effort in the operation to create the income from within the business itself, and therefore doesn’t need to earn money on the side to reinvest. If he’s doing it without a salary, that certainly constitutes a significant risk because his personal income stream is very limited. If the business tanks, then he’ll be broke. Will the partners working other jobs be able to put away money for themselves in addition to their investment, or are they in the same situation?

As I understand it, your arrangement is essentially a way to provide diverse streams of income for the hostel business, right? Regardless of whether the money is made in the hostel or outside of it, the money still goes into the business. Imagine that instead of working unrelated jobs, one of the partners had been solely responsible for running a restaurant and another was solely responsible for running a bar as part of the total hostel enterprise. Those revenue streams would both feed into the hostel business. Instead, the partners are working totally unrelated jobs, but the income is still getting invested in the hostel. It’s essentially the same working relationship, right? Would looking at it that way make it seem like a more balanced partnership?

I’m really curious how other hostel owners would approach this.