Capital allocation is strategy: How to build a capital allocation system that actually works

Capital Allocation: First Principles

Capital allocation isn’t just about "who gets what."
It’s about how fast, how wisely, and how flexibly you deploy resources against a moving target.

If strategy defines where you want to go,
capital allocation defines how you survive the trip.

Here’s the problem:
Most companies treat capital like it’s permanent.

• Department budgets lock it down.

• Annual forecasts reinforce it.

• Politics cements it.

But winning companies treat capital like it's liquid; flowing constantly toward the best opportunities, away from decaying ones.

🛠 THE CFO EFFECT PLAYBOOK (Part I)

Step 1: Define Your Capital Buckets

Every dollar you deploy should fall into one of three buckets:

Without clarity on these 3 buckets, everything blurs into “spend.”

Step 2: Attach ROI and Risk to Every Dollar

Every request for capital should answer three simple questions:

1. Return: What measurable outcome are we targeting?

2. Risk: How confident are we in the assumptions?

3. Resilience: What happens if this bet fails and how much exposure do we carry?

If a budget owner can’t answer these questions without fumbling, the request isn’t ready.

Step 3: Set Trigger Points for Reallocation

Here’s the dirty secret of annual planning:
The world changes faster than your budget updates.

That’s why you need trigger points baked into your system.

Examples:

• If CAC exceeds target by 20% for 2 months → Pause acquisition spends

• If operating cash flow dips below $X → Initiate expense review

• If a bet hits 80% of projected return early → Reinvest surplus elsewhere

Forecasts are useless without attached actions.

Step 4: Capital Reviews Every 45 Days

Forget about quarterly reviews.
Forget about endless meetings.

Set a simple Capital Sprint cadence:

• 30 to 45-day review cycle

• Light touch, high impact

• Only two questions:

  • Are our funded bets still the best use of our capital?

  • If not, where should we reallocate?

Use a 2x2 Heatmap to triage fast => Check it in my LinkedIn Post.

Capital allocation is finance’s ultimate leadership move.
It’s where FP&A stops reporting and starts engineering growth.

Most companies won't change how they budget until it's too late.
You don’t have to be one of them.

🔜 Next Week: Working with the CEO - Becoming a strategic copilot

This the plan for next Sunday:

Vision without execution is hallucination.
The CEO sets the destination.
The CFO makes sure the plane doesn’t crash.

Next week, I’ll break down:

✅ How to build real operational trust with your CEO
✅ How to translate high-level vision into executable financial plans
✅ How to protect the CEO’s big bets, while keeping them grounded in reality

Because the best CFOs don’t just protect the business.
They make the founder’s vision real without letting ambition outrun execution.

If you want to be the right hand your CEO can’t imagine working without, you don’t want to miss it.

Talk soon,