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For The Manager: Working Capital Keeps Your Agency's Engine Humming

My June column addressed many of the causes of poor agency valuations--and apparently struck a chord with readers. Most of the e-mails I received asked for more information regarding why working capital is so important to an agency's

By Chris Burand | Updated on December 31, 2006

My June column addressed many of the causes of poor agency valuations–and apparently struck a chord with readers. Most of the e-mails I received asked for more information regarding why working capital is so important to an agency’s value. This month, I will explain why.

Think of an agency’s value in terms of “what is being bought.” At a minimum, the buyer purchases the seller’s customer files (or expirations). Depending on what is bought, other assets may include employees and company contracts. The value of every business purchased is the sum of its parts, and the more effectively the parts work together, the more valuable the business. Working capital plays an important role in this process.

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