5 Steps to Build Investor Trust in CPG

Building investor trust in the Consumer Packaged Goods (CPG) industry requires transparency, financial clarity, and strategic planning. Here’s a quick summary of the 5 steps to gain investor confidence:

1. Provide Clear Financial Data
   • Use GAAP-compliant accounting for accurate financial reporting.
   • Implement real-time dashboards to monitor key metrics like revenue and cash flow.
   • Prepare for third-party audits to validate your financials.
2. Show Market and Consumer Knowledge
   • Back your strategy with market data and consumer insights.
   • Prove customer loyalty through metrics like repeat purchase rates and Net Promoter Score (NPS).
   • Share future product development plans based on market trends.
3. Communicate Regularly and Openly
   • Provide consistent updates on performance and challenges.
   • Address risks early and share plans to mitigate them.
   • Highlight ESG (Environmental, Social, and Governance) efforts to attract socially-conscious investors.
4. Prove You Can Scale Operations
   • Showcase scalable manufacturing processes with detailed SOPs.
   • Highlight direct-to-consumer (DTC) success through metrics like Customer Lifetime Value (LTV) and Average Order Value (AOV).
   • Optimize trade spend to improve cost efficiency.
5. Match Your Exit Plan with Investor Goals
   • Identify potential buyers early and align your growth strategy with their interests.
   • Benchmark your performance against industry standards.
   • Prepare leadership continuity plans for a smooth transition post-exit.

Step 1: Provide Clear Financial Data

Being transparent with your financials goes a long way in earning investor trust. It’s not just about showing where the money comes from and where it goes - it’s about presenting this information in a way that’s easy to understand and meets professional standards.

Keep Accurate, GAAP-Compliant Books

GAAP (Generally Accepted Accounting Principles) is the benchmark for accounting practices in the United States. Following GAAP ensures your financial reporting is consistent, clear, and trustworthy - qualities that are essential for building investor confidence. This is especially important for CPG companies, where things like inventory valuation and multi-channel sales can get tricky.

Under GAAP’s accrual method, revenue is recorded when earned, and expenses are recorded when incurred. This approach provides a more accurate, forward-looking picture of your financial health.

"GAAP accounting doesn't eliminate tax benefits - the deductions your business can take depend on its taxable income and not how it creates financial statements." - Eileen Vasko, Accountant Manager Team Lead at BBG

For example, let’s say you manufacture 10,000 units at $5 each but sell only 8,000 in January. To calculate your cost of goods sold (COGS), you base it on the 8,000 units sold, not the total produced. This level of precision is crucial for understanding profitability.

You’ll also need to choose an inventory valuation method, such as LIFO (last in, first out) or FIFO (first in, first out), and stick to it. GAAP’s Full Disclosure Principle requires you to clearly state which method you’re using.

To stay compliant with GAAP, it’s a good idea to ditch basic spreadsheets in favor of professional tools. Automating processes, integrating systems for real-time data updates, and conducting regular audits can make all the difference. For instance, Phoenix Strategy Group offers bookkeeping services that align with GAAP, providing weekly KPIs that investors depend on.

Once your books are in order, you can take things a step further with real-time dashboards to keep an eye on your financial health.

Use Real-Time Financial Dashboards

Static reports are becoming a thing of the past. Investors today want access to real-time data. Dashboards that update instantly allow them to analyze metrics like revenue, expenses, and cash flow in just a few clicks.

Real-time dashboards make it easier to spot trends, address potential problems, and act on opportunities before they slip away. Some even use AI to provide insights into critical metrics like runway and burn rate - key figures that CPG investors care about. Giving investors self-service access to these dashboards not only saves you from creating endless custom reports but also helps smooth out the fundraising process.

Secure investor portals can further enhance transparency by allowing stakeholders to view KPIs whenever they want. These tools also encourage collaboration across departments, as they make financial data accessible to team members who may not have a background in finance.

Get Ready for Third-Party Audits

Even with solid internal systems and real-time insights, nothing beats the credibility of a third-party audit. It’s a clear signal to investors that your financials are accurate and your internal controls are dependable.

Audits also play a key role in investment valuations. Accurate valuations, based on GAAP standards like ASC 820 – Fair Value Measurements and Disclosures, provide a reliable picture of your company’s performance. Whether you use an external appraiser or handle valuations internally, make sure your approach is well-documented and aligned with GAAP guidelines. Discussing this process with your auditors can further strengthen your standing with investors.

For CPG companies, audit preparation often extends beyond financials. It can include reviewing compliance with safety standards, packaging, and labeling requirements. Real-time tracking systems can simplify this process by keeping all necessary documentation organized and up to date, sparing you from a last-minute scramble when auditors come knocking.

To prepare for audits, put strong internal controls in place, train your team thoroughly, and establish clear expense policies that align with GAAP. Regularly review your records to ensure every expense is categorized correctly, documented properly, and recorded in the right period. By staying audit-ready, you demonstrate to investors that your business runs with the discipline needed for long-term success.

Step 2: Show Market and Consumer Knowledge

Once you've nailed down the financials, the next step is proving that you deeply understand your market and customers. Investors want more than just a great product - they want to see that you know where the CPG industry is heading, who your customers are, and how they behave. The U.S. CPG market hit over $1.7 trillion in sales in 2022, according to Nielsen. This figure underscores the importance of having a solid grasp of market dynamics to build consumer loyalty and shape future strategies.

Share Data-Based Market Analysis

Market data is your best friend when it comes to identifying trends and opportunities. Research from McKinsey shows that companies using big data analytics effectively can boost performance by as much as 30%. For CPG founders, this means using data to showcase your understanding of category growth, competitive positioning, and where the market is heading.

Take a close look at store-level data to uncover inventory gaps. This detailed approach can help you spot opportunities for innovation by analyzing category performance and trending attributes. For instance, Nestlé used market data to focus on plant-based food trends, which led to a 17% increase in sales for that category in 2021.

Your analysis should cover key areas like sales performance across different channels, including brick-and-mortar stores and e-commerce. With Forbes reporting that 44% of consumers now prefer buying CPG products online, showing you understand this shift can strengthen investor confidence.

Dive deeper into category growth rates, market share, and consumer spending habits. While the CPG industry in North America saw a 9.4% sales growth in 2022, investors want to know how your specific niche fits into this picture. Use trusted third-party data sources like Nielsen, IRI, or SPINS to back up your claims with credible insights.

"Given our consumer obsession, we're always evaluating insights around who our current and growth consumers are, and understanding the accuracy and value of different data sources to target them." - Amanda Zaky, Associate Media Director at Mars Wrigley

Prove Consumer Loyalty and Demand

Metrics like repeat purchase rates, Customer Lifetime Value, and Net Promoter Score (NPS) are key indicators of consumer loyalty. Investors want proof that people aren’t just trying your product once - they’re coming back for more.

Start with repeat purchase rates, which show the percentage of customers who make a second purchase within a set timeframe. Tracking this over time can highlight growing loyalty to your brand.

Net Promoter Score (NPS) is another powerful tool. It measures how likely your customers are to recommend your brand to others. Regularly track your NPS and compare it to industry standards, using data from customer surveys, online reviews, and service interactions to inform your score.

Showcase creative ways to drive engagement, like Oatly’s experiential pop-up stores. These combined product sampling with interactive digital installations that highlighted the environmental benefits of plant-based choices. Visitors could even use augmented reality to see their personal impact, which led to a 42% boost in brand advocacy among first-time visitors.

Subscription and loyalty programs can also demonstrate demand. Take PepsiCo, for example. They created a direct-to-consumer platform where customers could customize snacks and beverages based on their preferences. The result? A 78% subscription renewal rate in just one year, proving strong consumer commitment.

Present Product Development Plans

A forward-thinking product roadmap shows investors you’re planning for the future. It’s a way to demonstrate that you’re not just reacting to trends but anticipating them.

Use consumer insights and market data to guide your product plans. Clearly outline your timelines, investment needs, and expected revenue. Testing methods like A/B testing or social media analytics can help ensure your products resonate with your audience. For example, McKinsey notes that 70% of consumers value personalized experiences, so highlight how your future offerings align with this preference.

Don’t forget to address sustainability and regulatory factors. Today’s consumers care about things like organic options, personalized nutrition, and eco-friendly packaging. Incorporating these elements into your plans can make a big difference.

Finally, include cost analysis and profitability projections. Breaking down manufacturing costs, pricing strategies, and profit margins shows that your growth strategy is grounded in financial reality. After launch, explain how you’ll monitor sales, gather feedback, and adapt based on market response. This kind of structured, data-driven approach reassures investors that you’re committed to learning and adapting as you grow.

Step 3: Communicate Regularly and Openly

Building strong relationships with investors is about more than just showcasing impressive numbers. It’s about maintaining an open, ongoing dialogue that helps turn one-time investors into long-term partners who share your vision. Regular communication bridges the gap between your company’s day-to-day realities and investor expectations, complementing the solid financial foundation you’ve already established.

Set Up a Regular Update Schedule

A consistent update schedule keeps investors informed without overwhelming them. Many successful CPG founders find that monthly or quarterly updates work well for sharing both achievements and challenges.

Focus on key metrics like revenue, gross margins, and cash flow, as well as operational milestones such as new retail partnerships or product launches. Don’t just share the numbers - explain their strategic context and how they align with your company’s broader goals.

Tailor the format of your updates to suit your investors. This could mean written reports, visual dashboards, or even short video updates. Using a mix of formats - like presentations, graphics, or interactive content - can make your updates more engaging and easier to understand.

Consistency is key. When everyone in your organization, from sales to operations, communicates the same message about your progress and priorities, it reinforces confidence in your leadership and focus.

Address Risks and Challenges Early

Clear communication also means being upfront about risks. Proactively identifying and addressing challenges shows investors that you’re prepared and thinking ahead.

Start with regular risk assessments to pinpoint potential issues, whether they involve supply chain disruptions or regulatory changes. Evaluate the likelihood and impact of each risk, and outline clear strategies to address them. Sharing these insights with investors before problems escalate builds trust and demonstrates your strategic planning.

In the CPG industry, supply chain risks are especially critical. Implement systems to monitor all supplier tiers and establish policies to handle issues like quality control, delays, or cost changes. When challenges do arise, respond quickly and transparently. Acknowledge the problem, take responsibility if needed, and keep investors updated on your progress toward a solution. Tackling challenges head-on strengthens your credibility.

Share ESG and Sustainability Efforts

In today’s market, environmental, social, and governance (ESG) initiatives are increasingly important for securing investor support. With 85% of chief investment officers considering ESG a key factor in their decisions, your sustainability efforts can influence funding opportunities.

Start by conducting a materiality assessment to identify the ESG issues that matter most to your business and stakeholders. For CPG companies, this often includes areas like sustainable packaging, ethical ingredient sourcing, labor practices, and community impact. Focus on initiatives where you can make a measurable difference, and track your progress carefully.

Strong ESG practices aren’t just good for the planet - they can also lead to cost savings. Integrated ESG frameworks can cut costs by as much as 20% over five years. Share specific examples of how your efforts are driving efficiency, reducing expenses, or opening up new market opportunities. For instance, highlight the percentage of recyclable packaging you use, reductions in water consumption, or the number of local suppliers in your network. With over 70% of consumers willing to pay more for products from companies with strong ESG profiles, these initiatives also directly support your growth.

Consider getting your ESG data independently verified. Third-party audits or certifications can give investors added confidence in the accuracy and impact of your sustainability claims.

"It is our conviction that companies that perform well on ESG are generally less risky, better positioned for the long term and possibly better prepared for uncertainty." - Vincent Triesschijn, Institutional Investor from ABN AMRO

With 83% of global investors viewing ESG disclosures as critical, and over $35 trillion in assets now aligned with ESG principles, prioritizing sustainability isn’t just about doing the right thing - it’s about positioning your company for long-term success in a market that values responsible practices.

Phoenix Strategy Group offers services like tailored ESG reporting, financial dashboards, and fractional CFO support to help ensure your investor communications are clear, transparent, and aligned with your strategy.

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Step 4: Prove You Can Scale Operations

Once you've nailed down transparent financials and solid market insights, the next big step is showing investors that your business can scale efficiently. Investors want proof that your CPG company can handle growth without losing quality or cutting into margins. Essentially, they’re looking for operational readiness - the ability to meet rising demand while keeping standards high and costs in check. This is what separates a promising growth opportunity from a risky gamble.

Show Scalable Manufacturing Processes

Scaling manufacturing is about more than just increasing output; it’s about doing so while maintaining quality and controlling costs. Strategic partnerships with co-manufacturers play a key role here, but preparation is everything.

• Create detailed Standard Operating Procedures (SOPs): These documents should cover every step of your manufacturing process, from sanitation and recipes to equipment setup and packaging. As your business grows and founders step back from hands-on oversight, SOPs ensure consistency across teams and locations.

"When working with startup companies, I've learned that when the owners and principles are hands on, they can oversee the SOPs and ensure a consistent high-quality product. As more employees are hired and manufacturing may move to multiple shifts and/or multiple locations, SOPs become critical."

• Diane Wolf, Former Director and VP roles at Kraft Foods

• Vet your manufacturing partners thoroughly: Conduct site visits to assess their ability to source raw materials efficiently and scale operations without compromising quality. Look for partners who can help lower tolling costs as production ramps up.
• Protect your trade secrets: Secure legal safeguards for your proprietary processes, intellectual property, and specialized equipment. This protects your competitive edge while allowing you to grow partnerships.
• Be realistic about volume projections: Avoid approaching manufacturers with facilities designed for much larger outputs than you need, as this can lead to inefficiencies.

"Too often I was approached by Marketing/Sales/R&D looking to use existing process/packaging manufacturing capacity to launch a new product. But the capacity of the existing process/packaging systems was too large to economically handle the limited new product volume."

• Tony Vandenoever, Retired Director of Supply Chain Engineering, PepsiCo Beverages North America

• Adopt digital tools: Real-time dashboards and digitized operating standards can improve overall equipment effectiveness (OEE), reduce waste, increase throughput, and minimize downtime during production changes.

Prove Direct-to-Consumer Success

Direct-to-consumer (DTC) channels are a goldmine for data that investors love. They not only show your ability to connect directly with customers but also demonstrate predictable revenue streams beyond traditional retail.

• Highlight key metrics: Present data like Customer Lifetime Value (LTV), Customer Acquisition Cost (CAC), Average Order Value (AOV), conversion rates, churn rates, and Net Promoter Score (NPS). A healthy LTV-to-CAC ratio of 3:1 is a strong indicator of profitability.
• Maintain strong conversion rates: A DTC conversion rate between 2% and 5% suggests product-market fit. Use traffic-source analysis to identify the most effective channels.
• Show retention and repeat purchases: Use cohort analysis to demonstrate how customer behavior improves over time. Emphasize how repeat customers contribute to revenue growth, reducing your dependence on constantly acquiring new customers.
• Boost AOV: Share strategies for increasing basket size, such as bundling products, offering loyalty programs, or implementing subscription models. These tactics not only increase revenue but also improve your margins.

Improve Trade Spend and Cost Efficiency

Trade spend often accounts for about 20% of gross sales, with an enormous global spend of $500 billion to $1 trillion annually in CPG promotions. However, studies suggest that 35% to 40% of this spend could be wasted. Efficient management of trade spend is critical.

• Analyze past promotions: Use data to evaluate what worked and what didn’t. Avoid repeating ineffective strategies and focus on promotions that deliver the best ROI.
• Allocate budgets wisely: Tailor your spend to specific market segments and regional preferences. Work closely with retail partners to align goals and share insights.
• Refine your promotion mix: Combine price discounts, in-store displays, and loyalty programs to maximize impact. Track metrics like sales volume, market share, and profit margins in real time to adjust strategies as needed.
• Leverage TPM and TPO software: These tools offer better data accuracy, automation, and collaboration than spreadsheets, making trade investments more efficient and scalable.
• Balance short-term and long-term goals: While short-term sales boosts are important, don’t neglect brand-building activities. Invest in securing prime shelf space and creating activations that foster lasting customer loyalty.

Phoenix Strategy Group’s FP&A systems and financial dashboards can help you keep an eye on trade spend and operational metrics, ensuring you provide the transparency and scalability that investors expect.

Step 5: Match Your Exit Plan with Investor Goals

Once your operations are running smoothly, it’s time to ensure your exit strategy aligns with what your investors are looking for. Investors want to see that your plan fits their expectations and timelines. When your vision matches their goals, it builds trust, boosts valuations, and makes the process of exiting much smoother. Keep in mind that many successful CPG ventures take 15 to 20 years to truly flourish, so showing investors a clear and strategic path forward reassures them that their money is in good hands.

Find Potential Buyers

The process of finding potential buyers should start long before you plan to exit. The most successful CPG founders approach this as a long-term networking effort, positioning themselves as valuable partners rather than sellers in need of a deal.

Start by connecting with strategic buyers through industry events or by taking on advisory roles. These relationships provide insight into what buyers value most, allowing you to adjust your growth strategy accordingly.

"While there might not be some 'Tinder for Startup Acquisitions' that everyone else is using but us, it actually is all about building relationships."

Focus on showcasing scalable revenue potential. Buyers, especially major CPG players, are drawn to offerings that promise significant long-term growth. For example, Unilever’s acquisition of Dollar Shave Club highlighted the appeal of a strong direct-to-consumer (DTC) model.

Understanding what motivates different types of buyers is key to positioning your company effectively. Strategic acquirers, like Procter & Gamble, often pay more to access new consumer segments or outmaneuver competitors. Take P&G’s acquisition of Walker & Company, where P&G Beauty CEO Alex Keith explained:

"The combination of Walker & Company's deep consumer understanding, authentic connection to its community and unique, highly customized products and P&G's highly-skilled and experienced people, resources, technical capabilities, and global scale will allow us to further improve the lives of the world's multicultural consumers."

Meanwhile, private equity firms are more focused on operational efficiency and cost-saving opportunities. They aim to optimize businesses to maximize returns. Knowing these different buyer approaches allows you to tailor your pitch to each type.

Compare Your Performance to Industry Standards

Investors and buyers will want to see how your company measures up against others in your industry. Tracking deal multiples and market benchmarks in your specific CPG category not only backs up your valuation but also shows you’re well-informed about the market.

Make sure your competitive advantages are well-documented for due diligence. Buyers will examine everything from your supply chain relationships to intellectual property protections, so ensure these strengths are legally secure and hard for competitors to replicate.

Show clear paths to profitability with realistic timelines and milestones. High-growth CPG companies that can demonstrate sustainable unit economics - rather than just relying on heavy marketing spend - are often more appealing to buyers.

Also, present opportunities for expansion that align with what the acquirer can offer. Whether it’s entering international markets, launching new product lines, or exploring additional sales channels, show how your brand can grow even further within a larger organization.

This level of preparation helps set the stage for a smooth leadership transition.

Plan for Leadership Continuity

A lack of clarity around leadership after the exit can raise red flags for investors. Showing that your company has strong leadership depth reassures buyers about its ability to thrive in the future.

Develop a clear succession plan and knowledge transfer systems that capture your company’s core values, long-term strategy, and key operations. Transparent communication builds trust, and well-defined leadership continuity plans secure investor confidence.

"For businesses considering an exit, strong leadership depth reassures potential buyers and investors of the company's resilience and future performance potential."

Consider retention programs, such as equity incentives or performance bonuses, to keep key team members engaged during the transition.

"Effective leadership succession not only instills confidence in potential investors or buyers but also safeguards the company's legacy and reputation."

You can also establish mentorship and coaching frameworks to ease leadership transitions. This could include debriefs with outgoing leaders, assigning mentors to new executives, and maintaining open communication channels. These steps show that you’re thinking strategically about the company’s future, not just your own exit.

For expert guidance, Phoenix Strategy Group’s M&A advisory services can help you structure leadership transition plans and ensure your financial systems are ready for due diligence, making your business more appealing to potential buyers.

Conclusion: Building Long-Term Investor Trust in CPG

Earning and maintaining investor trust in the CPG industry hinges on three key elements: transparency, consistency, and clear communication. These pillars, combined with the five steps discussed earlier, address what investors prioritize most - accurate financial reporting, strong market knowledge, open communication, scalable growth, and a clear plan for future success.

Transparency, in particular, has a ripple effect. Studies show that 89% of consumers are willing to give transparent brands another chance after a negative experience, and 85% remain loyal during tough times. This kind of consumer loyalty sends a powerful message to investors, signaling that your brand can endure challenges while holding its ground in the market. Reliable financial data supports this narrative, while detailed market insights provide the context for growth, and consistent communication ensures investors stay informed and engaged as your company evolves.

The CPG industry comes with its own set of hurdles - managing complex inventories, balancing marketing expenses, and navigating a shifting distribution landscape. To gain investor confidence, you must show not just awareness of these challenges but also the ability to handle them effectively.

FAQs

How can CPG companies maintain GAAP compliance while providing real-time financial insights to investors?

To stay compliant with GAAP while offering real-time financial insights, accrual accounting is the way to go for CPG companies. This approach records revenue and expenses when they’re earned or incurred, giving a more accurate view of financial performance.

Using automated financial reporting tools can make life easier by simplifying the creation of precise, GAAP-compliant reports like balance sheets and income statements. These tools also provide real-time updates, boosting transparency and building trust with investors.

On top of that, focusing on consistent data collection and regular audits is essential. Reliable, up-to-date financial data not only ensures compliance but also improves decision-making and helps establish credibility with potential investors.

How can CPG companies showcase consumer loyalty and market expertise to attract investor confidence?

CPG companies can win over investors by showcasing how well they understand their market and how effectively they maintain consumer loyalty. Start by emphasizing your personalized marketing strategies - tailored campaigns that align with individual consumer preferences. These efforts not only deepen loyalty but also encourage repeat purchases. Highlight any loyalty programs you’ve implemented, explaining how they reward customers and build lasting relationships with your brand.

Investors are also drawn to data-driven insights that reveal a clear grasp of market trends and consumer behavior. Use this information to refine your products and marketing approaches, demonstrating adaptability and precision. Pair these insights with solid financial metrics, such as consistent sales growth and increased market penetration, to underline your brand’s potential for expansion and profitability. Finally, a compelling brand story that resonates emotionally with consumers can be the cherry on top, making your business even more attractive to potential investors.

Why should CPG companies align their exit plans with investor goals, and how can they identify potential buyers early?

Aligning exit strategies with investor expectations is crucial for CPG companies aiming for a successful and profitable sale. When everyone is on the same page regarding timelines, financial goals, and strategic priorities, it builds trust and creates a unified vision for the company's future. This shared focus not only smooths out the process but also helps craft a narrative that appeals to potential buyers, often leading to a stronger valuation and broader market interest.

To pinpoint potential buyers early, start by building a standout brand. Focus on fostering customer loyalty, improving operational efficiency, and showcasing a clear path for growth. Dive into market research to identify active acquirers in your industry and develop relationships to understand what they’re looking for. Additionally, having well-prepared, reliable financials and clearly outlining the deal’s terms can boost buyer confidence and make negotiations more straightforward.

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