Lesson #319: How to Pitch a Business Investment Case to Your CFO

Chief Financial Officers are often the “gatekeepers” to the company’s cash coffers.  And, as you can imagine, the have a lot of people tugging on their sleeves looking for investments into various projects within the company.  But, CFO’s need to prioritize their spend, based on what is in the best interests of the company.  This post will help you learn to think like a CFO and how best to pitch your business investment case with the highest odds of success.

First of all, there are many different scenarios in which the business may require capital.  Perhaps the CEO wants to make a big strategic acquisition.  Or, the CMO needs to scale up the company’s sales and marketing efforts.  Or, the head of product wants to launch a new business line.  Or, the CTO needs to develop new technologies for the business.  Or, the head of HR needs to make a few new hires.  The ways capital can be invested in the business are limitless, and the asks from the team are endless.  So, you better make sure your pitch resonates to break through the clutter.

Here are examples of the best ways to pitch for internal funds, for each of the scenarios above:

Pitching for Strategic Capital

Like in any investment, your CFO is going to be most focused on the potential return on investment (ROI).  It is no different than pitching a venture capitalist for outside funds; now you are pitching your inside team for internal funds with an “ROI First” mindset.  Let’s say the CEO wants to invest $5MM into an acquisition of a competitor.  The business case he would want to make is: (i) it adds $10MM of revenues and $1MM in annual cash flow to the business; (ii) it removes a big competitor, making it easy to price our products and grow our margins; (iii) it grows our market share in the space; (iv) it will help us accelerate revenue growth by cross-selling our respective products into non-overlapping industries; and (v) it will help us to achieve a 10x return on the invested capital within the next five years, based on these reasonable financial assumptions.

Pitching for Marketing Growth Capital

Your CMO may be looking for capital to spend on $1MM on additional marketing activities or to expand the sales team.  So, she is going to have to communicate things like: (i) I am expecting a 5x return on my advertising spend, adding $5MM in revenues; (ii) the investment should realize a return of funds invested within 6 months of the spend; (iii) my expected cost of customer acquisition is $250, well below our expected gross profit of $1,000 per transaction; or (iv) we will be able to sell into twice as many regions or sectors than we are today, increasing our potential reach and ability to scale the business.

Pitching for Product R&D Capital

Your head of product research and development may want to invest $1MM into launching a new product line.  So, she is going to have emphasize points like: (i) by doubling our product line, we should be able to double our sales, by increasing our average order size; (ii) the new product line will be a “first mover” in the space, with limited competition; (iii) it will make us less dependent on our original product suppliers, better diversifying our vendor concentration risk; (iv) we have researched our customers, and 75% of them said they would buy this new product if it was available for sale; and (v) I expect the investment to allow to build $10MM in additional revenues, a 10x ROI, within the first three years.

Pitching for Technology Capital

The process is exactly the same for your CTO, when asking for $1MM to develop and upgrade the companies systems in the next year.  He is going to have to impress your CFO with information like: (i) our old technology can crash at any time and is putting our current $10MM in revenues at risk if the site goes down (saving a -10x loss); (ii) by improving our user experience on the website, I expect to reduce our abandoned cart percentage by 25%, theoretically adding $2.5MM in new revenues  (a 2.5x ROI); and (iii) if we don’t make this investment, hackers will be able to get into our systems and get access to all of our customer data, which we don’t want to happen to our customers or ourselves for competitive reasons.

Pitching for Human Capital

Adding $1MM of payroll happens throughout the organization, by department, but adding human resources to the organization requires the same ROI-driven financial disciplines: (i) we need that new salesperson because we are under capacity, with more leads than we can reasonably handle today, and we expect to close $1MM of new sales from that $250K investment in a new salesperson (4x ROI); (ii) our employees are on the “hamster wheel”, getting burned out working at 110% capacity; if we don’t add additional staff members, 25% of our current team is going to quit, taking those relationships and institutional knowledge with them; and (iii) to improve our recruiting, retention and morale, we are going to have to upgrade our employee benefits offering, which should improve our hiring time by 25% (helping us drive efficiencies and revenues faster) and reduce our employee turnover rate by 30% (which stops the revolving door we have with talent, and the inefficiencies and lost revenues that come with that—aggregating around a 5x ROI).

Rinse and Repeat This Process Within Departments

And, this logic needs to flow all the way down to the department level, as well.  Your CMO needs to have their heads of search engine marketing, social media marketing and display advertising each make their ROI case to her, so she can prioritize her overall marketing spend. And, your CTO needs to prioritize the 100 technology improvement requests from the technology team, based on the expected ROI of each one, so he knows which projects to tackle first.  You get the point.

Concluding Thoughts

So, as you can see, if you know how to ask for capital from your CFO, in the language that he is used thinking about it (with an ROI mindset), you should materially improve your odds of securing it.  Your company should develop a template business investment case form that everyone asking for capital should fill in.  First, that will require everyone to “think” before they ask; and second, that will help your CFO to better prioritize the investments based on the expected ROIs from each one. 

But, just because you ask, and have a well-thought plan, does not necessarily mean you will get the capital.  You never know what other competing forces are out there, tugging on the company’s purse strings.  Your CFO’s job is to keep the company liquid and out of trouble, and their job is to make sure all investments are made within the overall budget of the company.  You can count on the CFO to prioritize his spend based on the amount of the ask, the expected timeframe to return the funds and the expected ROI from that investment.

So, based on the above examples: (i) the CEO asked for $5MM to return 10x in five years; (ii) the CMO asked for $1MM to return 5x in six months; (iii) the head of product asked for $1MM to return 10x in three years; (iv) the CTO asked for $1MM to protect 10x and add 2.5x in one year; and (v) the head of HR asked for $1MM to add 4x ROI on the new hire and 5x ROI by making the current hires happier and more efficient.  So, you decide; put on your CFO hat and tell me how you would prioritize the spend?  I have a hint for you:  the CEO’s acquisition would not be my first choice.  (Gulp!)  I’ll let you tell him that!

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