Episode 115

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Drew McLellan is the CEO at Agency Management Institute. For the past 23+ years, he has also owned and operated his own agency. Drew’s unique vantage point as being both an active agency owner and working with 250+ small- to mid-size agencies throughout the year gives him a unique perspective on running an agency today.

AMI works with agency owners by:

  • Leading agency owner peer groups
  • Offering workshops for owners and their leadership teams
  • Offering AE bootcamps
  • Conducting individual agency owner coaching
  • Doing on-site consulting
  • Offering online courses in agency new business and account service

Because he works with those 250+ agencies every year — he has the unique opportunity to see the patterns and the habits (both good and bad) that happen over and over again. He has also written two books and been featured in The New York Times, Entrepreneur Magazine, and Fortune Small Business. The Wall Street Journal called his blog “One of 10 blogs every entrepreneur should read.”



What you’ll learn about in this episode:

  • Agency ownership is challenging – be sure you maximize the benefits as well
  • Get real about your compensation – chart out all of the ways the agency compensates you with pre-tax dollars for things you’d spend post tax dollars on otherwise
  • All of our compensation isn’t monetary. You also have other amazing benefits and perks that come with owning the joint
  • Putting your agency at the core of your retirement plan — even if it doesn’t sell (most don’t)
  • Building your wealth outside your agency while you still own it
  • The danger of leaving too much of your own money inside the business
  • Ways to invest your agency profits


The Golden Nugget:

“As an agency owner, you need to build your wealth outside the agency while you still own the agency. Once you sell it, it is too late.” – @DrewMcLellan Share on X


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Ways to contact Drew McLellan:

We’re proud to announce that Hubspot is now the presenting sponsor of the Build A Better Agency podcast! Many thanks to them for their support!

Speaker 1: If you’re going to take the risk of running an agency, shouldn’t you get the benefits too? Welcome to Agency Management Institute’s Build a Better Agency podcast, presented by HubSpot. We’ll show you how to build an agency that can scale and grow with better clients, invested employees and best of all, more money to the bottom line. Bringing his 25 plus years of experience as both an agency, owner and agency consultant, please welcome your host, Drew McLellan.


Drew McLellan: Hey, everybody. Drew McLellan here with another episode of Build a Better agency. It’s late in the evening, it’s late in the year and I’m in a bit of a reflective mood. And honestly, I’m a little worried about you.


  So it’s the end of the year and everybody’s tired. And as an agency owner or a leader in an agency, the reality is whether you had a good year or not, you’re feeling it. I know, I’m hanging out with you and I’m hearing that you’re tired. Even if you’re excited about 2018, even if you’re wrapping up 2017 in a big way, the work we do is challenging and difficult. And by the end of the year, we’re a little bit drained. I was talking to an agency owner the other day and she said to me, “I’ve been doing this for 23 years now, and it should be a lot easier by now.”


  And I get it. I mean, I’ve owned my own agency for 24 years and it doesn’t get easier. That’s the reality of our business. Some years we have better years than others, no doubt about that. But even in the good years, the work we do is hard and you feel the pressure of making payroll. You wonder if the hours and the worries that you carry are worth the effort. And as I was thinking about what I wanted to talk to you about today, knowing that by the time you hear this you’re going to be hopefully in a reflective holiday-esque mood as the end of the year approaches if you listen to this in real time. I want you to stop and think because I think sometimes we focus on the hard parts and we forget how really blessed and fortunate we are, especially as agency owners.


  So I want you to do an exercise. I don’t care what kind of year you had. I don’t care if you had to skip paychecks so that your team did not. The reality is, even in years like that, which by the way we have all had, even in years when things have not gone according to plan, where every time it feels like we’re getting a step ahead we take a step backwards. Even in those years, the truth of the matter is we make a pretty good living.


  And here’s the exercise I want you to do to reinforce this for yourself. I want you to take a minute and I actually want you to do this. Don’t just listen to me and go, “Oh,” nod your head. I really want you to do this, I want you to add up your total compensation. So what I mean by that is I want you to think about all of the things … I want you to list them out, put them on an Excel spreadsheet if you are so inclined or write them in a journal, I don’t really care, but I want you to map out what your compensation actually looks like.


  So start with your salary, the gross amount of your actual paycheck. And then add in any dividends and bonuses that you take throughout the year or that you’re going to take at the end of the year. And then don’t forget about the quarterly tax payments that come from the business on your behalf. And of course I don’t care how conservative you are on your tax preparation or planning or strategies, the reality is that the business pays for some expenses, that if you were working for someone else you would have to pay for on your own.


  So that gets as simple as the internet at your house, your cell phone, some travel, maybe your vehicle. All of the meals that you eat and charge to the business. For many of you, you might spend money on tickets to a ball game or the theater or whatever your thing is. Don’t forget all your golf games because that counts. The gym membership or the country club membership, your health insurance. All the other insurances that you get for yourself and your family through the business. Really do the math.


  So just start making a list of all of the things that you would have to pay for with after tax dollars as an employee that you don’t have to because you own the business, don’t just nod, really write it down. And recognize when you get to that final number that even if you’ve had a tough year, it’s a pretty good living. As agency owners we’re incredibly fortunate. And quite honestly, it goes beyond the money.


  For me personally, one of the most valuable parts of my compensation is the freedom of being a business owner, of being an agency owner. That freedom for me means that I can go to South America with my daughter this summer, this past summer, for three weeks. I don’t get to do that if I’m somebody else’s employee. I also have the freedom to work with clients that I actually genuinely love and I am absolutely invested in. I get to decide as a business owner who we share our time and talents with in terms of helping them grow their business. I also have the freedom to do the kind of work that fires me up.


  Another kind of freedom that each and every one of us has is we have the freedom to plan well for our future, I saw a statistic the other day that was startling. It said that four out of 10 Americans, and I suspect wherever country you’re listening to this, and this may be true for you too, but four out of 10 Americans have not saved a dime for retirement. Now odds are as an agency owner, that’s probably not you. You probably have a simple IRA or a 401(k) or some sort of retirement vehicle baked into the business, and that’s great, but you know how much money you can legally put away in those vehicles and you know it’s not going to be enough. It’s not going to be enough for you to live the kind of life that you want to live in your retirement years.


  And the truth is that while we all do have the freedom to plan well for our future, most agency owners don’t do that. Your agency needs to be at the core of your retirement plans. And for most of us that does not mean selling the agency. Every agency owner believes that they can sell their business. And the truth is nine out of 10 agencies will not sell. That the way you will wind down your career is that you will decide what day you decide to close the agency. And on that day, you will lock the door on your way out and that’s the end of your agency. That’s true for most agency owners.


  Even if you’re the lucky one, the one out of 10 that sells your agency, understand that no matter how much you think it’s worth, the average agency sells for about one to one and a half times their AGI, unless you’re super specialized or super niche. But the way that works is they’re going to take that last five years of your AGI, they’re going to drop the high and the low, they’re going to average the three, and you’re going to get one to one and a half times that AGI.


  And by the way, in most cases, it’s an earn-out, which means that you don’t get the money upfront. And if the business, whoever you sell your agency to, if they don’t do well, you may never see the revenue that you expected out of selling the agency. Even if you do sell your agency for one to one and a half times AGI, let’s call it two times AGI, let’s be generous. The reality is for most of us, that’s not enough to retire on, especially if we want to retire when we’re in our sixties or early seventies.


  So the truth of the matter is as agency owners, we have this incredible privilege. We have this machine that we call our agency that generates revenue and assets every year. And we need to build our wealth outside of our agency while we still own the agency. Hear me say that again. We need to build our wealth outside of our agency while we still own the agency. By the time you sell it, it’s too late. Your agency needs to be kind of like your ATM machine, it needs to just spit money out that you can invest somewhere else. That’s the biggest compensation you can possibly help to get from your agency, your future.


  Here’s the deal. Many agency owners leave a lot of cash in the business. And while you certainly need to leave a couple of months of operating expenses in the business, you absolutely do not want to overfund your business by leaving money in. Most of you are an S Corp or an LLC, which means that whether you take the money out or not, if it sits down on the bottom line of your P&L, you’re going to pay tax on it. But many of us pay tax on that money and then we still leave it in the business, and that’s crazy.


  Here’s what happens when you leave a lot of money in your business. When things slow down, when difficult decisions need to be made, whether it’s about staffing or something else, when you have a bunch of money in the bank. And keep in mind these are really post-tax dollars, retained earnings that you’re leaving in the business. So this is your money. You’ve already paid tax on it, it is yours. It may be inside the business, but it is yours. When you’ve left a lot of your money in the business, it is very easy to avoid the difficult decision. It is very easy to keep someone on payroll longer than they should. It is very easy to not cut back on expenses, even though all the signs are there that you’re about to slow down. But when the money isn’t in the business checking account, all of a sudden now you are forced to make better business decisions.


  And with that it seems like a really great time to take a brief pause, and then we will get right back to the show.


  I get that sometimes you just can’t get on a plane and spend a couple of days in a live workshop. And so hopefully our online courses are a solution to that. Lots of video, hours and hours of video, a very dense, detailed participants guide. And all kinds of help along the way to make sure that you get the learning that you need and apply it immediately to your agency. Right now we’ve got two courses that are available. We have the Agency New Business Blueprint, and we have the AE a bootcamp. So feel free to check those out agencymanagementinstitute.com\ondemandcourses.


  Okay, let’s get back to the show. So let’s say you’ve agreed with me and you’re going to start pulling more money out of the business, so how do you build wealth outside of your business while you still own your agency? Quite honestly, it looks very different for everybody. It’s a very personal choice and there’s no one right answer. I can hear you now, “My agency isn’t kicking off enough profit for me to invest in anything.” I’m going to tell you that I disagree. You don’t have to start by taking a million dollars out of your business, but you do have to start. And I’m going to argue you need to start now.


  If your agency isn’t kicking off any profit, if there is no money to take out of the business, that basically whatever profit is there goes to your taxes, then odds are you’re overstaffed. And here’s the way I want you to think about that. What that means is you are taking money out of your retirement fund and you are giving it to your employees so that they can build their retirement fund. I am all for being good to our employees. I think it’s one of the coolest, best parts of being an agency owner is that we get to take very good care of the people who have been loyal to us and help us build our business. But we should not do that at our family’s expense.


  So again, let’s assume you can take a modest profit out of the business. And by the way, sometimes you’re not taking the money out of the business, you’re investing it from the business. So sometimes you’re taking pre-tax dollars and investing them in something else, other times you’re taking post-tax dollars and investing them in something else. But maybe you buy the building that your agency lives in. You put it in a separate LLC. And now all of a sudden you are your own landlord. Lots of agencies take the rent out of their agency pocket and they put it into their real estate pocket. That’s where many, many agency owners start.


  That’s hardly the only way though. I have agency owners who own residential rental properties. I have owners who own race horses or minor league baseball teams, or they invest in art that they know is going to appreciate over time. You can invest in the market or buy Bitcoin. I don’t care, the specifics are up to you. But the key is to build your wealth by creating passive income or an asset that’s going to appreciate in value outside of your agency. And that’s critical, that it’s outside of your agency.


  Some of the owners we work with on other businesses, and now some of those businesses are tangentially related to their agency like a print shop or a promotional items business. Others own a business that is completely distinct, like a bed and breakfast or a dry-cleaners. In some cases, they own it on their own. They’re the sole owner, and they’re either running it on the side or maybe a partner or spouse’s running it, or they’ve paid a general manager to run it. In other cases, they’re part of an investment group. Some buy established businesses and others invest in startups.


  My point is this. You are in a very unique and enviable position. You are enjoying a quality of life that most people will never enjoy or could never even imagine. You have walking around money, as my grandpa used to call it. You probably don’t need much, and most of what you want you either have or you could have. I’m not suggesting that you’re a billionaire or you own a private jet or you have your own island, but most established agency owners live a very comfortable upper middle income life at the very least.


  If you’ve just started your agency in the last five years, this might be a little aspirational still, but I’m telling you it’s in your future. And if it’s in the future, if you plan now for what you’re going to do when you start making money and you start putting that money aside and started investing it outside of the business, you’re going to be much further ahead than the owners that are listening to this and have owned their agency for 20 years and still haven’t quite pulled the trigger om this.


  Whether you live the life I’m talking about today or it’s around the corner, that’s awesome in the short term. But your real wealth is in the long-term possibilities. If you aren’t actively working a plan to get your money out of the agency and into something that will grow and kick off income to you in your later years, make 2018 the year that you create the plan. Explore what’s possible. Talk to other agency owners, reach out to me. Find out what other people are doing.


  But don’t count on the sale of your agency as your retirement plan. Don’t plan for that someday that may never come. Make your money now, you have so many more opportunities. You can leverage the business that you own right now to do other things outside of your business that will secure your future and the future of your family. If you happen to sell your agency, great. Think of it as a lucky strike extra, but don’t bank on it. Use your agency while you own it to leverage your way into other wealth building opportunities.


  That’s it. That’s what I’ve been thinking about. As this year winds down, please know that I am incredibly grateful that you keep listening. That you send emails and suggestions, that you reach out to me on all kinds of social media channels. I’m grateful for that, and I love hearing from you and I love your feedback. I’m also really grateful to our friends at HubSpot for their sponsorship and their commitment to our industry. And I’m always grateful for your feedback. I’m telling you, I read every single ratings and reviews that you leave. I am really, really humbled that I get to be of service to you. So thank you for that, and I’m looking forward to walking into 2018 with you.


  All right. That wraps up another episode of Build a Better Agency. Can’t tell you how much I love spending this time with you. Thanks so much for listening. Hey, speaking of thanks. Another way we want to give thanks is we’ve built a new tool that I would love you to check out. We’re calling it the Agency Health Assessment. And basically you’re going to answer a series of questions, and based on those answers the tool is going to tell you in which aspect of your business maybe you need to spend a little extra time and attention to take your agency to the next level. We’ve identified five key areas that really indicate an agency’s health, and we’re going to help you figure out where you need to spend a little more time.


  To get that free assessment all you have to do is text the word Assessment to three, eight, four, seven, zero. Again, text the word Assessment to three, eight, four, seven, zero, and we will send you a link so you can do that at your leisure. And hopefully that will give you some new insights and some direction in terms of your time and attention in the agency. In the meantime, as always, I’m around if I can be helpful, [email protected]. And I will be back next week with another great guest and more things for you to ponder. Talk to you soon.


Speaker 1: That’s all for this episode of AMI’s Built a Better Agency, brought to you by HubSpot. Be sure to visit agencymanagementinstitute.com to learn more about our workshops, online courses, and other ways we serve small to mid-sized agencies. Don’t miss an episode as we help you build the agency you’ve always dreamed of owning.