I believe I first heard Mark Cuban mention the idea of a war chest for small business on an episode of Shark Tank. Since that mention, I’ve been contemplating the idea – I like to say “I’m letting my great brain work on it.” – a tongue in cheek nod to my favorite childhood book series, The Great Brain by John Dennis Fitzgerald.
The idea of a war chest is not new to big business. Here’s how it’s defined on that level:
A stockpile of money that a company will use for a future capital-intensive event. A war chest might be used to take over a competitor, aggressively market a new product, protect against a hostile takeover or to fund an expected expensive legal battle.
War chest = big pile of money (wooden chest sporting brass decoration optional)
Since roaming marauders are not generally attempting a hostile takeover of small business, you can see why the idea of a war chest might not be as prominent in the small business arena, but what a powerful idea it is.
If you kept a stockpile of super liquid money, what options open up to you?
- Screaming deal on a used piece of equipment
- Buying out a painful partner
- Buying a competitor
- Snapping up a valuable new staff member
- Attending an intriguing conference
- Executing a beautiful marketing campaign
Some people, I’m not naming names, get a bit squeamish about stagnant money. It doesn’t feel wise to them to have a stockpile of cash when that cash should be “doing something”. In actuality a war chest is “doing something”. It’s standing at the ready.
Think of fighting troops. You don’t want to be flopping around trying to get an army together to send to a hot spot. You want them ready. An army’s being ready is “doing something”. Their job is to be ready when needed. So it goes with a war chest.
Adding to Mark Cuban’s voice in my “great brain” was an Eventual Millionaire interview of James Altucher. James said:
“A million dollars is a great thing. Then you can just put it in the bank, and relax. Sometimes people tell me “I have a million dollars. What should I invest in?” I say don’t invest in anything. That is great, man. Put it in the bank. Just have the cash for awhile. Cash is cool.” – James Altucher
Cash is cool. Amen brother.
I’m convinced that our desire to always have every dollar “working for us”, comes from the financial services sector who relies on us buying their products to have the dollars “work”. The last thing people who sell investments want is us to keep our money in cash.
A caveat: Be wise. Cash in a mattress is not what we’re talking about there. We’re talking about strategically gathering a war chest over time so you can take advantage of opportunities as they arise. I know you knew that, but it had to be said.
Also, depending on your business tax structure, check with your CPA regarding the best way to hold your war chest to minimize tax consequences. Uncle Sam hates money unspent.
Let me ask you:
What types of opportunities could you take advantage of in your business if you had a war chest?