How to Pitch Your Business-Investment Case
Use this process to persuade your CFO.
Chief Financial Officers are often the gatekeepers to a company’s cash coffers. And, as you can imagine, they have a lot of people tugging on their sleeves looking for investments into various projects. Perhaps the CEO wants to make a big strategic acquisition, the CMO needs to scale up sales and marketing efforts or the head of product wants to launch a new business line. The ways capital can be invested are limitless, and the asks are endless, so you better make sure your pitch breaks through the clutter.
Below are examples of the best ways to pitch for internal funds in several common scenarios.
Pitching for Strategic Capital
As with any investment, your CFO is going to be most focused on the potential return on investment (ROI). It's no different than pitching a venture capitalist for outside funds, only now you're pitching your inside team for internal funds with an ROI-first mindset. Let’s say the CEO wants to invest $5 million into an acquisition of a competitor. The business case he would want to make is: 1. It adds $10 million of revenues and $1 million in annual cash flow to the business; 2. It removes a big competitor, making it easy to price products and grow margins; 3. It grows market share in the space; 4. It will help accelerate revenue growth by cross-selling respective products into non-overlapping industries; and 5. It will help 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 $1 million on additional marketing activities or to expand the sales team. So, she is going to have to communicate things like: 1. I am expecting a 5x return on my advertising spend, adding $5 million in revenues; 2. The investment should realize a return of funds invested within six months of the spend; 3. My expected cost of customer acquisition is $250, well below our expected gross profit of $1,000 per transaction; or 4. 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 $1 million into launching a new product line. So, she is going to have emphasize points like: 1. By doubling our product line, we should be able to double our sales by increasing our average order size; 2 The new product line will be a “first mover” in the space, with limited competition; 3. It will make us less dependent on our original product suppliers, better diversifying our vendor concentration risk; 4. We have researched our customers, and 75 percent of them said they would buy this new product if it was available for sale; and 5. I expect the investment to allow to build $10 million 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 he asks for $1 million to develop and upgrade company systems in the next year. He is going to have to impress your CFO with information like: 1. Our old technology can crash at any time and is putting our current $10 million in revenues at risk if the site goes down (saving a -10x loss); 2. By improving our user experience on the website, I expect to reduce our abandoned cart percentage by 25 percent, theoretically adding $2.5 million in new revenues (a 2.5x ROI); and 3. 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 $1 million of payroll happens throughout the organization by department, but adding human resources to the organization requires the same ROI-driven financial disciplines: 1. We need that new salesperson because we are under capacity, with more leads than we can reasonably handle today, and we expect to close $1 million of new sales from that $250K investment in a new salesperson (4x ROI); 2. Our employees are on the “hamster wheel,” getting burned out working at 110 percent capacity; if we don’t add additional staff members, 25 percent of our current team is going to quit, taking those relationships and institutional knowledge with them; and 3. 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 percent (helping us drive efficiencies and revenues faster) and reduce our employee turnover rate by 30 percent (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
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.
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 better prioritize investments based on expected ROIs from each one.
But just because you ask and have a well-thought plan, that does not necessarily mean you'll 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 make sure all investments are made within the overall budget. 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, 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.
Entrepreneur Leadership Network Writer