War Chest

Written By
Paul Tracy
Updated June 20, 2021

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.   

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