As a chief financial officer (CFO), I receive many requests for investment dollars. It’s not uncommon that I have to turn down a request, defer an investment, or offer fewer investment dollars than were requested. In this overview, I’m going to provide context for how a CFO evaluates potential investments, and five recommendations that should help you have successful discussions with your CFO so you can collaborate effectively to grow your business.

Understand My Capital Constraints

Quite simply, we don’t have all the money in the world at our disposal. We need to operate within a fixed cost structure, which is driven by money entrusted to us by investors (equity and debt), plus revenue from the sales of our products and services. We can’t spend more than we have.

The truth is, businesses are set up to drive profit (i.e. spend less than they make) in order to provide a return to investors. While this may sound obvious, it frequently comes as a surprise to budget owners when they are asking for funding. So it’s critical to understand this fundamental point.

Know Your Competition

Now that you know there’s a fixed amount of dollars to spend, let me explain how a CFO decides where those dollars go. First and foremost, dollars go to supporting the business operations and growth of the organization. That’s our reason for existence. If I can’t maintain my business operations, then I will need to pack it in and shut down. It’s as simple as that.

When funding business operations, a CFO takes into consideration the revenue growth that these budget dollars will deliver. If the business is projected to grow revenue by 10%, I’m generally not going to allow expenses to grow at a faster rate. In fact, I want to see costs growing more slowly so that I can grow margins.

After funding business operations, I normally look to the back office. These are important functions, for sure. Yet I want to keep any growth in back-office costs at a lower rate than business operations because the business should be able to get more scale out of these functions. In other words, 10% more revenue shouldn’t cost 10% more in the back office.

Once the alignment between business operations and the back office is complete, it is time to get more detailed by function.

If you are asking for investment dollars, understand that those dollars need to come from an investment that would have gone elsewhere. My question, therefore, is generally pretty simple: why would giving you a dollar yield a better return than giving that dollar to someone else or another initiative?

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Show Up With Quantitative Analyses

Like your CFO, I’m a finance person. I like numbers. All finance people do. That shouldn’t be a shock to you. Be prepared with numbers to show the makeup of the investments you’re asking for (components, phasing, and timing of spend) and the projected benefit in the form of a cost-benefit analysis. It’s also great to know at what stages logical checkpoints would take place to explore whether or not it makes sense to keep going.

Investments that result in risk mitigation or soft benefits are harder to quantify, but this fact won’t get you off the hook: you’ll still need to put reasonable parameters around what the benefits are. You’ll likely need to make assumptions for this, so please be clear on those assumptions and keep them grounded in reality.

Offer Options

Are there alternatives? Show me. I like to see the cost-benefit analysis of various scenarios. I may not have the money to fund everything you want, but I may have enough for a smaller investment that still delivers a benefit. These alternatives might also include a build-versus-buy analysis.

Simplify the Story

Keep the discussion and analyses as clear and simple as possible. If I don’t understand the investment or the benefits, I’ll keep asking questions until I do. This is frustrating to all parties and wastes time.

I need to explain to other executives and/or board members why I chose to allocate budget dollars to your investment. The clearer you are, the more confidence I have that I can communicate the rationale for the investment and that we will actually realize the benefits you are forecasting.

Final Thoughts

It’s never fun to hear no in response to budget requests. It’s no fun to say no, either, but I hope the explanations and strategies outlined above will demystify the process and help you prepare better to collaborate with your CFO to drive growth. The goal, in the end, is to save both of us time and frustration, and, most importantly, deliver results that positively impact the organization’s top and bottom lines.

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