Working Capital in Agency Deals: The Hidden Value Lever
If you're preparing to sell your agency, you’re probably (rightly) focused on buyer fit, EBITDA multiples, and earn-outs. But there’s another number that can quietly swing hundreds of thousands in or out of your deal:
Working Capital in Agency Deals: The Hidden Value Lever Most Founders Miss
If you're preparing to sell your agency, you’re probably (rightly) focused on buyer fit, EBITDA multiples, and earn-outs.
But there’s another number that can quietly swing hundreds of thousands in or out of your deal:
Net Working Capital (NWC).
And here’s the twist: in almost every agency deal we come across, the NWC peg is misunderstood, miscalculated, or left unchallenged - by buyers, sellers, and sometimes even their accountants.
So what is Net Working Capital?
At its simplest:
NWC = Current Operating Assets – Current Operating Liabilities
Emphasis on the CURRENT bit…That includes:
Accounts receivable
Prepaid expenses
Accrued costs
Deferred revenue
Payroll, taxes, and short-term liabilities
It typically excludes:
Cash and debt (handled separately under “cash-free, debt-free” terms)
Director/shareholder and intercompany loans
Fixed assets and long-term investments
Non-operating items (e.g. legal provisions, one-offs)
Unbilled, aged, or uncollectible WIP (if not consistently converted to revenue)
Net Working Capital reflects the financial “float” needed to keep the business operating post-close — no more, no less.
Interestingly, proportionally higher liabilities (like deferred revenue or payables) aren’t necessarily bad — they can mean others (clients, suppliers, tax authorities) are funding your operations.
Why it matters in a deal
Most deals are structured on a cash-free, debt-free, normalised working capital basis. That means:
You keep the cash
You clear the debt
You leave behind enough working capital — the peg — made up of the operational items above
If your actual NWC within your closing set of numbers is above that peg, you get paid the difference. If it’s below, the buyer reduces the price.
Why agencies are different — and often lose money quietly
Traditional NWC logic often comes from inventory-heavy industries like retail or manufacturing.
But agencies are different:
No stock or raw materials
Retainers or parts of projects are often paid upfront, creating short-term liabilities
Contractors and suppliers typically paid in arrears
High cash conversion cycles, low capital needs
In short: many agencies can run on very little - or even negative - working capital.
Yet many buyers still seek an uiltra-conservative peg - sometimes based on three months’ operating costs (actually an erroneous concept). This overstates what’s actually needed and leaves real money behind unnecessarily.
What to do:
Clean the balance sheet
Review and remove aged, unbilled, or uncollectible receivables, WIP, and one-offs. Keep only what’s valid and defensible.Calculate your average NWC
Use a rolling 6–12 month view to get a fair baseline — especially if there’s seasonality.Set a defendable peg
One that reflects how your agency truly operates — not one-size-fits-all benchmarks.Extract surplus cash
Use a dividend, director loan repayment, or price adjustment ahead of close to pull excess cash out.Support your case
Provide a short-term cashflow forecast to prove that the business remains liquid post-close — even with a lower peg.
Final thought:
If you’re heading into a deal, don’t let working capital become an afterthought. A strong peg position — grounded in how your agency really works — can mean six figures more in your pocket.
Because in the end, it’s not just what your agency is worth…
It’s what you keep.
Disclaimer: This is general guidance only. Make sure you get proper financial and legal advice when modelling Net Working Capital to your specific situation, but I hope this sparks some thoughts. And we’re always here to help…