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Updated 15 Oct 2019


Where are you keeping your business slush fund?

You don’t need to invest your business slush fund in a fixed deposit or money market account. 


Almo Lubowski, 30 November 2015  Share  0 comments  Print


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The festive season is upon us and many businesses slow down during this time. Cash flow is likely to be an issue. For this purpose many businesses make provision for this eventuality by putting some income from better months away, out of the operational bank account of the business.

This is generally known as a business slush fund or a reserve fund. If you do not have a business reserve fund you may want to consider it as a strategy. 

If you have done so, or are planning to in future, the question is where have you placed this money? Most businesses would approach their bank and in all likelihood open a fixed deposit or a flexible money market account (or fund), depending on their bank.

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This may not necessarily the best option, at least not for the bulk of the money, and businesses should really consider seeing a financial advisor in respect of identifying appropriate investment options for the money. 

What to consider when making the decision?

Firstly, this is not a very long-term investment and the likelihood of needing the money during the year is high, at least some of it. However, you may want to keep a portion of the money aside for a longer period. The idea is to plan and project here. 

Money that is going to be used in the shorter term can be placed in a money market fund, but strongly consider going to an asset manager for this, rather than your bank’s money-market account option.

This can be done through your financial planner or advisor, although certain asset managers can be approached directly. The main difference is an asset manager, unlike the banks money-market account, invests in a variety of money market instruments in order to achieve a slightly higher interest return. 

Money that you will not need in the near future, in the next 6 month’s or longer, could fetch better than money market returns by investing it in an income unit trust fund instead.

Income funds also invest in government and/or corporate bonds, as well as some property shares, and therefore get a slightly higher return than money market funds. So the longer the period that the specific portion of money won’t be required, the more aggressive the investment can be, and therefore should be.

An income fund with a higher allocation or proportion into property shares or a medium risk fund with very low equity exposure would probably be the most aggressive to use for this money.

If you are able to plan ahead you could possibly divide the money you wish to invest between a money market, a conservative income fund and a slightly more aggressive income fund or a medium risk fund, with little to no equity exposure. 

What else to consider? 

Business -investment -advice

The biggest drawback to retaining such income is the tax. It will eventually be paid on income retained, and then there will be further tax on the interest earned. However, there will be time between provisional tax submissions to use certain of the funds, and by then the funds would have fetched some interest growth.

The tax that will eventually be paid on the income retained for longer term and invested for longer periods, is another reason to attempt to get better returns for that money. A drawback is that of only having it invested in a money market fund.

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Planning cash flow for your business is similar to planning your own finances in respect of short, medium and long-term investment goals. You will need to budget, forecast and run cash flow projections.

The same as using a financial planner for your personal investment and retirement planning, you should appoint someone other than your accountant to assist you in planning and carefully choosing appropriate investment options for your reserve fund. 

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About the author


Almo Lubowski

Almo Lubowski, CFP read for his law degree (LLB) at the University of Pretoria. He subsequently qualified as an attorney and started practising law in Cape Town in 2003. In 2007 he read for his Postgraduate Diploma in Financial Planning at the University of Stellenbosch Business School and subsequently became a CFP® professional. Almo has practised as an attorney, financial planner and fiduciary specialist in his career, mostly working for his own account. He is CEO of The Fortune Group that specializes in financial and legal advice for business owners.

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