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This article is about succession planning. But it’s not the kind of succession planning you’ve ever seen discussed in Agency Sales magazine.

Let me explain. MANA gives lots of attention to succession planning that helps representative firm owners thinking about retirement to sell their firms and transition to new owners.

That’s the kind of succession planning that is done when a relationship is ending.

But there is another kind of succession planning that is done before a relationship even starts. And it is that beginning-of-the-relationship succession planning that I discuss in this article.

This beginning-of-the-relationship succession planning happens before a representative firm and a new principal launch a new relationship. That’s when the representative firm has to think not only about launching this relationship, but also about what will happen in the distant future when this new relationship eventually ends.

Succession planning, in this case, is this representative’s plan to protect his or her rights when there is a succession of this principal to a new path to market.

This aspect of succession planning asks the “what if” questions now about what that separation in the far future will look like if the principal switches to a successor: another representative firm, a direct salesperson, or even “we don’t need a salesperson, we can handle this from headquarters.” Those “what if” questions include:

• What if the representative is tremendously successful and commission payments spike beyond anything the principal expected to pay?
• What if the sales manager who gave me verbal promises not written into the agreement moves on to a new company?
• What if a venture capital firm buys the principal to quickly flip it?
• What if principal sells off all its assets, leaving only an empty shell with no resources to honor its commission obligations?

A representative-savvy attorney can craft agreement language that answers these “what if” questions so that years or decades later when the relationship eventually ends the representative and principal already know what that separation will look like.

The representative firm’s only chance to shape what that far-away separation will look like is usually before the agreement is signed. And when it comes to most of the signed agreements representatives have shared with me, that would be something completely different.

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“I am not taking on any new lines.”

Manufacturers sometimes tell me that’s what they hear when they call prospective representatives.

“Why do they even have a profile in MANA’s RepFinder database if they aren’t taking on any new lines?” ask those manufacturers.

When I get that call, asking the manufacturer some strategic questions usually reveals the truth.

• Does your line have existing business that will be turned over to the representative, or is your line a pioneering line?
• If it is a pioneering line, did you offer to share the costs of launching your product with some sort of shared market development fee?
• If you have existing business, will that be turned over to the representative, or will you only pay commission on new customers?
• Does your representative agreement allow you to terminate all commission payments on 30 days’ notice, or does it include a post-termination commission and/or life-of-part/life of program clause to let the representative recoup the start-up expenses that came from launching your product?
• Have you worked with representatives before, or will this be the first time?

Honest answers to those questions often lead the manufacturer to an unflattering truth: “The representative hasn’t really decided not to take on any new lines. He or she just decided my offer was not appealing and said what was necessary to end the call quickly.”

There is no such thing as a representative who is not taking on any new lines:

• If a manufacturer needs a representative to take over a $10,000,000 territory and receive 10 percent commission on all existing business calls, what is the representative’s likely response?
• If a manufacturer needs a representative to take over a pioneering territory and bear all the expense of launching the product calls, what is the representative’s likely response?

For manufacturers who fall between those extremes, the difference between getting a “yes” or a “no” from a representative is usually whether or not the representative feels the manufacturer is looking for a mutually-profitable long‑term partnership.

To succeed recruiting representatives, craft an attractive package that emphasizes the opportunity to build that mutually-profitable long-term partnership. And then you won’t hear any more little white lies.

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Part one of “The Blank Check” appeared in our last issue. Just to recap:

The early morning caller was a manufacturers’ representative. He sounded panicky, and I quickly discovered that his panic was justified.

“About 15 years ago I signed a rep agreement with 30-day cancellation terms. And for 15 years I kept growing that principal’s sales, and never gave it another thought.

“Yesterday I found out that I’d been terminated and that all the commissions I would have received for customers I’d closed over the past 15 years will end in 30 days. This is my #1 line and it’s 50 percent of my income. What can I do?”

In our last issue we discussed a manufacturers’ representative’s options for that principal. We also promised to suggest ways to try to negotiate extended post-termination commission into contracts that have already been signed but have not yet been terminated.

Is that really possible?

Yes, there are occasionally brief windows of opportunity when you can get improved terms written into existing representative agreements. But they generally occur only after a manufacturer has given you other bad news, and that window may be open only for a few days.

What kind of bad news? Most often it’s a phone call or e-mail that does not announce a termination, but does cut the manufacturers’ representative’s income. For example, it could be a commission percentage reduction, a reduction in the manufacturers’ representative’s assigned territory, or taking one or more of the manufacturers’ representative’s accounts as house accounts. (In every instance where manufacturers’ representatives have reported these situations to me, by the way, the manufacturer was not a MANA member!)

If an attorney’s review of your agreement doesn’t reveal any ways to get that unwelcome change reversed, don’t give up. Instead, negotiate for something else to make up for what you’ve lost.

• Commission rate reduced? Negotiate for extended post-termination commissions, life-of-part/life-of-program commissions, additional sales territory, or to convert a current house account into a commissionable account.
• Lost part of your territory? Negotiate for extended post-termination commissions, life-of-part/life-of-program commissions, or to convert a current house account into a commissionable account.
• One of your accounts is now a house account? Negotiate for extended post-termination commissions, life-of-part/life-of-program commissions, or additional sales territory.

Remember, if you have to give something, try to get something. A manufacturer who originally hired you for your negotiating skills shouldn’t expect anything less!

* Your legal recourse for a signed blank check may be better than your recourse for a badly written contract. This column is not legal advice; for definitive information, consult your attorney.

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The call came in early in the morning, long before normal business hours, but I picked up anyway. The caller sounded panicky, and I quickly discovered that his panic was justified.

“About 15 years ago I signed a blank check. No date. No ‘Pay to the Order of.’ No amount. Just my signature. I gave it to someone I’d just recently met, but he seemed so trustworthy. And for 15 years I kept making deposits into that account and never gave it another thought.

“Yesterday I found out that the check I signed 15 years ago was presented to my bank and the account has been cleared out. What can I do?”

OK, that is not exactly what the caller said. But it was close. Here is what the caller actually had to say.

“About 15 years ago I signed a rep agreement with 30-day cancelation terms. No extended post-termination commission. No ‘life-of-part, life-of-program’ clause. I’d only recently met the sales manager, but he seemed so trustworthy. And for 15 years I kept growing that principal’s sales, and never gave it another thought.

“Yesterday I found out that I’d been terminated and that all the commissions I would have received for customers I’d closed over the past 15 years will end in 30 days. This is my number one line and it’s 50 percent of my income. What can I do?”

For this contract and this principal, the only thing you can do is have a rep-savvy attorney read that contract line by line and review the laws of your state and the laws of the places where the principal does business to be sure you know this principal’s obligations to you.

For future contracts with new principals, learn from this experience and negotiate extended post-termination commission and/or “life-of-part, life-of-program” clauses before you sign any new agreements.

For other principals already on your line card, review your contracts to see how many other 30-day “blank check” agreements you’ve signed and watch for opportunities to get those agreements amended to improve your post-termination commission payments.

Pause.

At the end of the last paragraph you probably shook your head in disbelief. “Really? You expect my current principals to renegotiate my post-termination commissions?”

Not often, but occasionally there will be times when asking to add extended post-termination commissions to an existing contract can be put back on the table. Which is the topic for “The Blank Check Part Two” on this page in the next issue of Agency Sales.

* Your legal recourse for a signed blank check may be better than your recourse for a badly written contract. This column is not legal advice; for definitive information, consult your attorney.