The bank balance was larger than the capital commitment we could responsibly make

The capital proposal was ₹1.2 crore and the bank balance was ₹3.6 crore. On the opening slide, the decision looked comfortable. The same treasury account also carried ₹1.8 crore of refundable customer-deposit exposure and ₹1.4 crore of known supplier payments. Once those obligations were placed beside the balance, the useful discussion changed. The question was not whether the bank statement was accurate. It was how much additional commitment we were prepared to make while retaining a credible account of the money that might have to leave.

Money held and spending headroom answer different questions

The figures formed a defined planning illustration. Actual refund timing and conditions required their own review; we did not assume every customer would request repayment on the same day. I nevertheless recommended an internal reserve equal to the stated ₹1.8 crore exposure for this particular capital decision. Together with the known supplier payments, that left ₹40 lakh before further commitments. The reserve expressed a management choice about liquidity. It did not claim that the reserved amount was no longer cash or that a legal restriction had appeared simply because finance wanted a more cautious approval.

That distinction was important in the conversation with the expansion sponsor. The sponsor expected deposits to be replaced as new customers joined and wanted the full purchase authorised. The expectation was commercially plausible, but it depended on timing that had not yet been supported. Approving the capital on that basis would make the business rely on continuing inflows to cover an exposure that already existed. I wanted the board to understand that dependency explicitly rather than infer available funding from the gross balance alone. The disagreement concerned the commitment we should make, not whether growth was desirable.

There is a temptation to use a large cash figure as the opening proof that an investment can be afforded. Once that expectation is established, every qualification sounds like a reason finance has invented to slow the business. I now prefer the proposed commitment, known payments and refundable exposure to appear together from the start. The arrangement does not prejudge the decision. It gives the board a clearer view of the resources and assumptions it is being asked to rely on. A strong growth case can still justify a different financing plan, but it should be argued as such.

The simple calculation was ₹3.6 crore less ₹1.8 crore and ₹1.4 crore, leaving ₹40 lakh. The ₹1.2 crore capital proposal therefore exceeded that stated headroom by ₹80 lakh. This was not a complete forecast of every future receipt, tax payment or operating demand. It was a bounded comparison intended to expose the immediate approval question. Treasury still needed the fuller calendar and the relevant contract conditions. The illustration was useful precisely because its limited purpose could be explained without pretending that three figures predicted the entire bank account.

A staged purchase buys time at a cost

Asha approved an initial ₹40 lakh stage and left the remaining ₹80 lakh for a later decision on cash and demand. That choice reduced the immediate commitment but did not create an ₹80 lakh saving. The later work might still be approved, perhaps at a higher price or a less convenient time. The opening stage also supported less expansion than the original proposal. I wanted those disadvantages visible because otherwise the phased option would appear financially superior simply because it bought less at the first decision.

The commercial team had to revise its expectations about capacity and timing. That was not a trivial inconvenience to be dismissed under the phrase prudent finance. Colleagues had worked on the opportunity and wanted to serve it. The board chose a smaller initial commitment because the funding account did not yet support the whole proposal on the preferred basis, not because the opportunity lacked value. A useful review should preserve that distinction. It allows a later decision to respond to stronger evidence without requiring anyone to pretend the original ambition was foolish.

I also did not treat the staged approval as a universal rule that capital spending must always fit a particular cash reserve. An enterprise may choose borrowing, equity, different commercial terms or another supported funding arrangement. Each has costs and conditions. The case records the choice made in this defined situation. The wider lesson is to make the relationship between the proposed asset and its funding assumptions visible, rather than let expected replacement deposits function as an unnamed source of finance. A decision can accept a risk more responsibly when it first describes the risk accurately.

The later ₹80 lakh remained unapproved at the point described. We did not count it as completed capacity, cash saved or a permanent cancellation. Keeping that state clear matters to both operating plans and financial reports. A phased programme can drift into a full commitment if colleagues treat the later stage as inevitable while the board believes it is still conditional. I wanted the conditions for reconsideration understood by the people planning the service, so that the first approval did not silently make the second decision on everybody's behalf.

Keep the reserve's purpose separate from accounting treatment

An internal liquidity reserve is not automatically a statutory ring-fence, a restricted bank account or a new accounting classification. I kept those questions with the appropriate treasury, legal and accounting owners. The management paper needed to say what the reserve meant for this approval and why it was being retained. It did not need to borrow the authority of a legal requirement that had not been asserted. Precision about that limit made the financial recommendation easier to examine, because the board could see which judgement was mine to defend.

Refundable exposure also needs an account of its actual conditions. Some amounts may become payable after an agreed event, while others may remain in place as the relationship continues. A gross number can be useful for the initial illustration without replacing that analysis. I would ask for the relevant terms, customer concentration and plausible timing before establishing a continuing policy. The case does not provide a reserve percentage for other businesses. It shows why a bank balance and a spending decision should be connected through the obligations and assumptions that sit between them.

For directors, the practical question is whether management has made that connection intelligible. What can be committed now, what depends on a future inflow and what consequence follows if the inflow arrives later? In our example, a ₹40 lakh first stage left the remaining ₹80 lakh conditional and preserved the stated deposit reserve. The choice was narrower than the commercial team wanted and more cautious than the gross balance suggested. I regard it as a useful finance case because it names the commitment actually made, the opportunity deferred and the uncertainty that still needed attention.