What is a War Chest?
A war chest is the cash set aside to deal with unexpected changes in a business environment or to take advantage of a sudden opportunity.
How Does a War Chest Work?
Uncertainties, unexpected events and opportunities occur regularly in business environments. In most cases, these events cost money or jeopardize revenues. The ability of a business to handle these unexpected cash needs may mean the difference between success and failure, between new growth and missed opportunities. For example, a business may use a war chest to attempt a takeover of a competitor.
Companies may accumulate cash in a reserve account to handle such contingencies. This cash account, which may be invested in short term and liquid investments, is referred to as a "war chest."
Why Does a War Chest Matter?
A company may consider that its ability to quickly borrow cash to handle a contingency is a critical element of its cash management process. The events that cause the need for the cash unexpectedly may create a difficulty for the business in borrowing from a lender.
