Best Practices for Breaking Down Your Sources and Uses of Funds: A Guide for CPG Founders
When you meet with lenders or prospective investors, you have little time to get your point across. It's critical to have a well-organized pitch deck that lays out your sources and expected uses of funding. A detailed breakdown builds investor confidence by showing where funds will come from, how they'll be allocated, and how you'll use them to drive business growth.
As the CEO of Balanced Business Group, I've had the pleasure of working with multiple CPG brands. I always tell founders to tie their funding asks to measurable business milestones. Breaking down your sources and uses of funds for CPG operation helps you do that. Below, I'll walk you through several best practices for financial planning and effectively presenting your funding strategy.
1. Secure a Line of Credit Alongside Your Equity Raise
Raising equity capital has many benefits for CPG brands, such as:
You gain access to investors with significant industry experience, ensuring your team has a reliable source of advice.
Equity deals don't require interest payments.
Raising equity capital is less risky than taking on debt, making it a good way to ensure stability.
You play an active role in determining your company's valuation.
Despite these benefits, raising equity capital is just one piece of the puzzle. It's also important to secure a line of credit for your business. Opening a line of credit makes it easier to manage your cash flow effectively, and it's a critical component of your finance strategy. A new LOC also helps your company build credit and save money on interest.
The best time to apply for an LOC is right after closing an equity raise. Lenders typically want to see at least 12 months' worth of cash reserves before approving a loan, so your cash balances are likely to be strongest right after you close out an equity deal.
Securing debt when cash flow is stable allows you to negotiate better terms and maintain leverage with lenders. The paperwork required for a line of credit requires similar information to an equity funding request, so it's also easier to open an LOC after negotiating an equity deal.
If you're approved for the LOC, update your equity vs. debt funding ratios accordingly. A company's debt-to-equity ratio shows the proportion of equity financing to debt financing, making it an important measure of overall stability.
2. Tie Funding Needs to Measurable Milestones
Investors want to know your company will use their money wisely, ensuring an acceptable return on their investment. To build confidence, one of the top sources and uses of funds best practices is to tie your request to clear, tangible milestones.
It's not enough to say you plan to use the funds to cover operating expenses. You need to show investors exactly how the money may drive growth. Here are some examples of milestone-driven funding asks:
Scale digital marketing efforts to achieve a 3x ROAS (return on ad spend) — a key performance indicator for CPG marketing teams
Expand into 500 retail doors
Launch a new product line
Milestone-based asks show investors you have a solid plan for using capital to drive business success. In contrast, weak asks don't inspire confidence. Instead, they make investors wonder whether your leadership team has the knowledge and skills needed to grow a CPG brand effectively.
These are examples of weak asks that aren't linked to tangible milestones:
Cover operational expenses
Pay for equipment
Increase market share
Calculating ROI
To make your funding ask even stronger, take time to calculate the potential ROI of each milestone. This aspect of financial planning for CPG brands requires the following steps:
Determine the initial cost of the investment.
Estimate the final value of the investment.
Divide the estimated final value by the initial value.
Multiply by 100.
Here's an example. Assume you're asking for $10,000 to scale your digital marketing efforts to achieve a 3x ROAS. If the estimated value of reaching this milestone is $40,000, you can divide $40,000 by $10,000. Multiplying the result by 100 would give you a final ROI of 400%.
Before presenting your projected ROI to investors, make sure it's based on realistic numbers. Just like you can't run a business without a budget, you can't ask for an investment without demonstrating you have a plan for the funds.
3. Break Down Uses of Funds by Category
When documenting the sources and uses of funds for CPG brands, it's important to use the right categories. Here are a few examples:
Inventory: Many companies raise equity capital to finance inventory purchases. This reduces inventory carrying costs and ensures you have enough product on hand to meet consumer demand.
Marketing: Word-of-mouth marketing only goes so far. As an emerging CPG brand, you may need investor funds to cover the cost of launching a comprehensive marketing strategy. Potential marketing expenses include website development, content writing, graphic design, search engine optimization, and digital advertising.
Research and development: R&D helps CPG brands develop innovative products, making it easier to grow market share and ensure high levels of customer satisfaction. These can improve financial performance.
Capital expenditures: As your business grows, you may need additional land, buildings, or equipment to support your operations. Investor funds might cover these capital expenditures.
It's also important to prioritize essential expenses and show how they drive growth. This information should be on the same pitch deck slide as your desired raise amount, along with a rough breakdown of how your founder intends to spend the money.
It's up to you whether you want to use amounts or percentages. For example, if you're asking for $5 million, you can indicate your founder wants to spend $3 million on R&D and $2 million on capital expenditures. Alternatively, you could ask for $5 million and show you want to spend 40% on capital expenditures and 60% on R&D.
Building Investor Confidence
One of the best ways to build investor confidence is to know your numbers. You should explain why you're asking for a specific amount, describe how you plan to use the money, and detail how you'll track financial performance. An example of the latter may be how you calculate the breakeven point for your CPG brand. Investors often worry about capital allocation for emerging brands, so you need to address their concerns and make them feel comfortable with your decisions.
You can build confidence by prioritizing expenses to demonstrate efficient capital use. Distinguish between essential and nonessential costs, align your proposed spending with business goals, and focus on revenue-generating activities. Investors need to know you understand the importance of maximizing revenue and minimizing expenses.
At the end of your pitch, prospective investors should have plenty of insight into how you plan to use their funds. Don't leave them hanging. Instead, anticipate questions and build detailed answers into your pitch deck.
Build a Strong Funding Strategy to Support Growth
When presenting the sources and uses of funds for CPG businesses, you should engage in strategic planning well before your investor meeting. You can use the best practices in this guide to build confidence and ensure capital is allocated effectively.
At BBG, we have extensive experience helping CPG brands create well-structured financial plans to drive business growth. Reach out for personalized assistance crafting a successful funding strategy.
Author: Pedro Noyola
Pedro Noyola is the CEO of Balanced Business Group (BBG), a company dedicated to helping Founders in the CPG food and beverage industry gain financial confidence. At BBG, Pedro combines traditional accounting with tailored financial guidance, providing industry-specific insights to ensure sustainable growth for passionate food entrepreneurs. He is also an angel investor and a mentor to emerging CPG brands via SKU and TIG Collective. Pedro’s career spans leadership roles at FluentStream, where he helped the company achieve recognition as one of the Fastest Growing Companies in America by Inc., and Telogis, where he was part of a team that grew the company’s recurring revenue from $50 million to $1.2 billion in under five years.
Pedro holds a BA and MPA from The University of Texas at Austin and an MBA from Harvard Business School. He is an active member of the Young Presidents Organization, continually seeking growth in both leadership and learning. Outside of work, Pedro enjoys family time and outdoor activities, drawing personal fulfillment from his roles as a husband and father.
