Episode 320:

As part of our succession planning work, we have seen and worked with owners going through every stage of agency life. We’ve seen agencies evolve and dissolve and there are complexities along the way regardless of the journey. One of the most complicated relationships can be between partners, whether that be partners who own and run an agency together, or an agency owner who is transitioning to selling his agency to one or more employees.

In this solocast, we’re going to look at the important elements that make a strong partnership agreement. These documents can be created internally or developed with outside guidance but regardless of how it comes together, it must clearly define how all opportunities and challenges will be met as the agency moves forward. Think of it as a prenuptial agreement. You want to write it when things are good and the future is bright so you have a rulebook to turn to when things get difficult.

Agency partnership is a thrilling but complicated relationship. If you take the time to clearly define the rules of the game, you set a solid foundation on which the agency can grow. AMI is here to help you make the most of this adventure.

A big thank you to our podcast’s presenting sponsor, White Label IQ. They’re an amazing resource for agencies who want to outsource their design, dev, or PPC work at wholesale prices. Check out their special offer (10 free hours!) for podcast listeners here.

Partnership Agreements

What You Will Learn in This Episode:

  • Who benefits from a Partnership Agreement
  • The need to outline out the company is established and divided
  • If and how ownership percentages can change
  • The importance of spelling out each partner’s contributions and responsibilities
  • Why you need to specify how money is handled
  • What it means to have partnership authority
  • Outlining conflict resolution
  • The important clauses of partnership agreements
  • The need to include incapacitation, divorce, and death language in these agreements
  • Explaining the methodology by which you will define valuation
  • Defining how the business can be dissolved
“One of the most important pieces of the partnership agreement is really clear definitions of each partners’ contributions and responsibilities. So, think of them as ‘SMART goals,' only they’re ‘SMART roles.’” @DrewMcLellan Click To Tweet “Think of partnership agreements as prenuptial agreements in a marriage.” @DrewMcLellan Click To Tweet “In the partnership agreement, you need to be really clear about the partnership authority. Who has the power to bind the agency in a contract?” @DrewMcLellan Click To Tweet “You need to be very specific about how ties are broken and you need to have it in writing. It will save you so much headache and such heartache if it is predetermined when you do not have conflict.” @DrewMcLellan Click To Tweet “In this partnership agreement we are going to define how we are going to evaluate the agency.” @DrewMcLellan Click To Tweet “You’re going to want to think about. under what circumstances would we be dissolving the business and what are the rules for each of those circumstances?” @DrewMcLellan Click To Tweet “Sooner or later, you’re not going to agree on everything. Sooner or later you are going to want to be able to turn to this document as the rulebook and you can’t do that if you don’t have it written.” @DrewMcLellan Click To Tweet

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About the Author: Drew McLellan

For 30+ years, Drew McLellan has been in the advertising industry. He started his career at Y&R, worked in boutique-sized agencies, and then started his own (which he still owns and runs) agency in 1995. Additionally, Drew owns and leads the Agency Management Institute, which advises hundreds of small to mid-sized agencies on how to grow their agency and its profitability through agency owner peer groups, consulting, coaching, workshops, and more.

  • Leading agency owner peer groups
  • Offering workshops for agency 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 over 250+ agencies every year, Drew 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 several books, including Sell With Authority (2020) and been featured in The New York Times, Forbes, Entrepreneur Magazine, and Fortune Small Business. The Wall Street Journal called his blog “One of 10 blogs every entrepreneur should read.”