> ## Documentation Index
> Fetch the complete documentation index at: https://course.pokesignal.io/llms.txt
> Use this file to discover all available pages before exploring further.

# 5.2 · Set the Capital Boundary

> Protect household money and operating cash, cap one purchase, stress the downside, and require cleared cash behind any credit purchase.

An account may show \$3,000 while far less is available for the next buy. Bills, open purchases,
customer recovery, protected operating cash, and the [Chapter 3.2](/chapters/3-2-matching-class-to-capital) lane cap all constrain it. This
chapter turns the latest monthly close into a boundary that exists before the next opportunity.

## Start with cash that is actually available

Keep household money outside the calculation. Start with reconciled, cleared business cash from the
latest close; exclude pending payouts, unsold inventory value, a card limit, and expected sales.
Resolve any material cash difference before sizing a purchase.

Define four buckets:

| Bucket                   | Meaning                                                                                     | Can fund a new buy?                | Reader records                                               |
| ------------------------ | ------------------------------------------------------------------------------------------- | ---------------------------------- | ------------------------------------------------------------ |
| Household money          | Personal cash and reserves outside the business                                             | No                                 | Accounts or amounts excluded from every business formula     |
| Near-term commitments    | Business cash already promised to bills, open purchases, remedies, or other due obligations | No                                 | Amount, due date, and record                                 |
| Protected operating cash | Reader-chosen minimum kept for normal operation and recovery                                | No                                 | Amount, included needs, basis period, owner, and review date |
| Deployable business cash | Cleared cash left after commitments and protected cash                                      | Yes, within the remaining controls | Calculation date and amount                                  |

Use the same included business accounts as the latest close. Let `B` be their reconciled cleared
cash. Let `K` be outstanding named near-term commitments whose cash remains in `B`, and `R` be
additional protected operating cash not assigned to `K`.

All three use the same date and currency and must be nonnegative. Count each amount once: do not
subtract cash already outside `B`, and do not put the same bill, open purchase, authorized remedy,
or other obligation in both `K` and `R`.

**Deployable business cash = max(0, B − K − R)**

If commitments plus protected cash exceed the cleared balance, deployable cash is zero. New
inventory buying pauses; a pending payout or unused credit limit does not repair the deficit.

## Set the single-buy ceiling

The lane cap in [Chapter 3.2](/chapters/3-2-matching-class-to-capital) limits total capital assigned to one lane. A single-buy cap limits one
transaction. A proposal must pass both.

Choose a maximum single-buy share `p` between 0 and 1. If useful, add a fixed-dollar cap `F`.
Remaining lane capacity is the lane's total cap minus current allocation, floored at zero.

Without a fixed cap, the ceiling is:

**Maximum permitted purchase = min(p × deployable cash, remaining lane capacity)**

If the policy also uses fixed cap `F`, add it as a third limit:

**Maximum permitted purchase = min(p × deployable cash, F, remaining lane capacity)**

A proposed purchase `P` includes every known amount required to acquire the inventory and passes
this first gate only when `P` is no greater than the result. Choosing `p = 1` permits the full
deployable amount unless the fixed or lane cap is lower.

Here is an invented illustration. Suppose `B = \$3,000`, `K = \$600`, and `R = \$900`. Deployable
cash is `\$1,500`. The reader chooses a 40% single-buy share, a `\$750` fixed cap, and has `\$900` of
lane capacity remaining:

**min(40% × \$1,500, \$750, \$900) = \$600**

An `\$800` proposal fails even though the account holds `\$3,000`. None of those amounts or the 40%
share is a recommendation; they exist only to show how the controls interact.

## Stress the delay and downside

Before testing a proposal, set the maximum cumulative loss the operation can absorb during one
policy period while commitments remain payable, protected cash and customer promises remain intact,
and no household transfer or new borrowing is needed. If no positive amount passes, the limit is
zero. Record the period, included exposures, owner, and review date. This is a reader-chosen
control, not an industry percentage.

Passing the allocation ceiling is not enough. Choose a review date, assume no proceeds clear before
then, and require every commitment and the protected operating amount to remain intact without a
household transfer or new borrowing.

Then model a conservative exit using the cost worksheet from [Chapter 2.2](/chapters/2-2-the-real-cost-stack):

**Loss exposure = max(0, purchase outlay + modeled exit costs − conservative sale revenue)**

Use one scenario date, currency, and inventory scope. Purchase outlay is the proposal's acquisition
amount. Modeled exit costs come from [Chapter 2.2](/chapters/2-2-the-real-cost-stack) and exclude that outlay. Conservative sale revenue
is a reader-supplied scenario, not a market prediction.

Use [Chapter 3.2](/chapters/3-2-matching-class-to-capital)'s lane-loss limit as the current open-exposure boundary for that lane. Before adding
the proposal, total the modeled loss exposure still open in this lane and across the whole
operation. Also total losses already realized during the whole-operation policy period. Use
the same scenario date, currency, policy period, and loss method. Count each position once: the lane
total is already part of the operation total, and the proposal remains outside both totals until it
passes. When an open position closes, remove its modeled exposure and record the realized loss; do
not keep both.

**Remaining lane-loss headroom = max(0, lane-loss limit − open modeled loss exposure in the
lane)**

**Remaining operation-loss headroom = max(0, whole-operation loss limit − realized losses in the
policy period − open modeled loss exposure across the operation)**

The proposal passes the loss gate only when its modeled loss exposure is no greater than both
remaining headrooms. If it is accepted, add its exposure to the lane and operation totals. If the
delay or loss breaks either boundary, reduce or reject the buy. Any later pricing or markdown
response remains a separate decision.

## If credit is used, reserve the cash first

This course does not recommend opening or using credit. If the business independently pays with a
card or another credit instrument, test the purchase before buying.

Let `T` be the full amount that will be due and `H` cleared business cash reserved only for that
obligation. The purchase counts as cash-backed under this policy only when all four conditions are
true:

* `H` is at least `T` before the purchase;
* reserving `H` does not invade commitments or protected operating cash;
* `H` is removed from deployable cash until the obligation is settled;
* repayment requires no inventory sale, pending payout, household money, or new borrowing.

If any condition fails, the purchase relies on financing and does not proceed. Expected
contribution, a high limit, or confidence in fast sell-through cannot replace the backing cash.
This boundary does not address existing personal debt or compare financial products.

## Write the capital policy

Finish with a rule that can be checked before every buy:

**Cash boundary:** As of ***, reconciled cleared business cash is \$***. Household money excluded
from every calculation is ***. Near-term commitments are \$***, protected operating cash is \$\_\_\_
based on ***, and deployable business cash is \$***.

**Purchase rule:** Maximum single-buy share ***. Fixed cap \_\_\_ / not used. Remaining lane capacity
\$***. Maximum permitted proposal \$\_\_\_.

**Downside:** Lane-loss limit \$***; open lane exposure \$***; remaining lane headroom \$***.
Whole-operation loss limit \$*** for policy period ***, based on ***; realized period losses \$***;
open operation exposure \$***; remaining operation headroom \$***. Scenario date/method ***. Proposal
loss exposure \$***. It must fit both headrooms and pass a no-proceeds-through-*** stress without
using protected cash.

**Payment:** If credit is used, full amount due \$\_\_\_ is backed by reserved cleared cash \$\_\_\_ and
passes all four tests.

**Governance:** Purchases pause when \_\_\_. Policy owner \_\_\_. Next review \_\_\_.