Why a good year is the dangerous one

The year Kalabsha nearly closed

Kalabsha Sportswear shipped about USD 3,600,000.00 in 2025, and its cash worked. Tight in March, comfortable in September, and never a missed wage run. In 2026 it won a Vindelund repeat, a second Elverdinge programme and a first order from a Dutch mail-order house. The order book for 2026 came to USD 4,800,000.00. That is a rise of 33.3%, at better prices than 2025.

By the end of May the factory could not pay for fabric it had already ordered.

Nobody made a mistake. Every order was profitable. Every price had been checked. The line was full and the quality was good. The factory did the one thing everybody had been telling it to do for three years, and doing it is what nearly finished it.

The rule hiding inside one calendar

Lesson 1 produced two numbers for PO VLD-2209. They look like accounting exhaust. They are in fact the whole story:

• 39,429,684 dollar-days of funding
• on an order worth USD 331,800.00

Divide the first by the second and you get 118.84 dollar-days of funding for every dollar of shipped value. Divide that by 365 and you get the version that matters:

39,429,684 / (331,800.00 × 365) = 0.3256

Read it in words. A factory shipping on this calendar needs 32.56 cents of cash permanently on the table for every dollar it ships in a year. Not once. Permanently, for as long as it keeps shipping at that rate. The moment one order's money comes back, the next order's money has already gone out.

That single ratio is the cash intensity of the business. It is what turns a growth plan into a funding requirement.

What growth actually asks for

Kalabsha's order book grew by USD 1,200,000.00. Two things follow, and they arrive in the wrong order.

The cash the growth needs, immediately:

1,200,000.00 × 0.3256 = USD 390,692.70

The profit the growth produces, over the year:

1,200,000.00 × 9.82% = USD 117,876.37

So the growth needs 3.31 times its own first-year profit in cash before it produces any of it. And the cash goes out first. Fabric deposits are paid in January and February for shipments that will be paid for in August and September. The profit turns up at the far end of a 193-day queue, and the cash has to stand in that queue first.

The growth rate a factory can fund from its own profit

Growth needs 32.56 cents for every dollar of new annual shipping. Each dollar of shipping generates 9.82 cents of margin after finance. So the growth a factory can pay for out of its own retained profit is simply one divided by the other:

9.82% / 32.56% = 30.2% a year

Above roughly 30% growth a year, Kalabsha cannot fund itself, however well it is run. Below it, it can. That number is not a rule of thumb, and it is not borrowed from a textbook. It is these two ratios, from this factory's own calendar and cost sheet, divided.

Three honest limits on it, because a number like that invites being quoted where it does not belong:

1. It assumes every cent of profit is retained. Tax, the owner's drawings and any machine bought during the year all come off the top. Each of them lowers the sustainable rate directly.
2. It assumes the calendar does not change. Winning bigger buyers usually means longer terms. That raises cash intensity and lowers the sustainable rate at exactly the moment the growth arrives.
3. It assumes the margin after finance holds. Growth bought with a price concession lowers the top of the sum while the bottom moves against you at the same time.

Kalabsha grew at 33.3% with a self-funding limit near 30.2%, on terms that were getting longer rather than shorter. The gap was small enough that nobody saw it as a category of problem at all. It was large enough to empty the account in May.

Where the money went, line by line

The row that hurts is the fourth. The facility was not partly free. It was already doing its job, funding the shipping the factory was already doing. A working-capital line is not a reserve. It is the float the existing business runs on. Growth cannot be funded out of it, any more than a bus can be funded out of the fuel already in the tank.

The three ways out, and what each one really is

1. More facility. Correct if the business is sound and the bank agrees. It turns a cash problem into an interest cost. On this profile that is roughly USD 0.039 of interest a year for every dollar of extra shipping at 12.0%, which the margin can carry.
2. Less cash intensity. Change the calendar: deposits, shorter buyer terms, supplier credit, a faster cycle. Lesson 5 prices each of these on PO VLD-2209, and finds that the two biggest belong to the buyer.
3. Less growth. The one nobody lists, and the only one that is always available. Choosing which order to decline is a treasury decision as much as a commercial one. Lesson 2 gives the test: keep the order with the higher return on cash a year, not the one with the higher margin.

Selling the receivable is a fourth route. A receivable is money a customer owes you but has not paid yet. That route belongs to course 13.5, which prices discounting, factoring and credit insurance properly. Do not reach for it before you have done the arithmetic above. It is the most expensive of the four and the easiest to arrange.

What to take away

1. Cash intensity is dollar-days divided by order value divided by 365. It turns one order's calendar into a factory-wide rule.
2. Growth needs cash before it produces profit. On this profile it needs a multiple of the first year's profit up front.
3. The self-funded growth ceiling is margin after finance divided by cash intensity. Work yours out. It is two numbers you already have.
4. A committed facility is not spare cash. The float the existing book runs on cannot also fund the new book.