Cash Hoard

Seen the show Hoarders? People just hang onto the most random stuff. In this case, it’s a business holding onto something we can all agree is worth keeping: cash.

It’s considered a “hoard” because it’s a great deal more than necessary to have on hand. In other words, it’s more than the company needs to cover bills due in the immediate future (short-term obligations).

Conservative companies keep cash hoards in order to buffer them against product shocks. Apple has some $200 billion in cash just lying around for a rainy day (think: Noah). That sounds all well and good, but sometimes the reluctance to take on loans holds the business back from expanding as fast as they would have, had they taken the loan. This slow expansion, unfortunately, also slows down hiring.

Say you own a small factory that produces pinatas, and to keep it running for the next six months, you need a total of $12,000. Most would say that $12,000, or thereabouts, would be a good amount to keep on hand.

But if you’re keeping 75,000 on hand, and holding off on expanding to avoid loans, you’re cash hoarding.

Time to bring out the baseball bat and start swinging away.