Don Hofstrand
Co-Director, Ag Marketing Resource Center
Iowa State University Extension

A business plan is critical for the creation or expansion of a value-added business.  Essentially, the business plan tells how your business will be created (expanded) and why it will be successful. 

Although a comprehensive and well thought out business plan is important to the success of your business venture, many producer groups drag their feet when it comes to preparing one.  They assert that the market changes too fast for a business plan to be useful.  However, you cannot adjust your plan due to a changing market conditions if you don’t have a base plan to start with.  Without a plan you will spend your time going from crisis to crisis without looking at the long-run future of your business

Reasons for Writing a Business Plan

Before you start writing your business plan, you need to identify why you are writing it.  Below are eight reasons for writing a business plan.  Identify which ones are relevant in your situation.

1) Putting the pieces together
Until you start writing your business plan, you won’t know if the internal logic of your proposal is consistent.  In other words, do the pieces fit together.  Writing the business plan will identify holes in your project and force you to think through various aspects of your plan that you previous had not identified.  
 
2)Creating a blueprint for action
The business plan provides you with a “blueprint” or “action plan” for creating your business or business expansion.  The more specific your business plan, the easier it is to implement the plan and build your business.  Think of business planning as a two-stage process.  The first stage is creating the plan, the second is implementing the plan.  A great business plan is worthless if it is not properly implemented.  This is why it is critical that you are intimately involved in writing the business plan.  If you are not involved in writing the business plan, how you can implement it?

3) Focusing founders/management team
During this stage of business development, the founders often become weary from the relentless onslaught of issues facing them.  The business plan helps to focus their activities and presents issues in an organized manner.

4) Obtaining financing
Business plans are often used to obtain financing from banks or other lenders.  The basic premise is to show that you know what you are doing and why your business will be successful.  Look upon lenders as partners.  They can point out shortcomings and deficiencies of the plan.  Lenders concerns about financing your business should be looked upon as opportunities to strengthen your project and increase its chances of success.

However, understand the lenders role in your project.  It is not the lender’s responsibility to be the financial manager of your business and make it successful.  The lenders purpose is to generate returns for the lending institution while protecting their investment in your business.
 
5) Attracting equity investment
Business plans can be used to attract equity investors to your business.  Equity investors in value-added businesses are often producers or other local individuals.  A business plan forms the basis of the offering presentation to potential investors.  Your attorney will use the business plan in the creation of your offering documents.

6) Attracting key managers/employees
An important element of creating a successful value-added business is your ability to attract key managers and employees.  These individuals will want to be assured that you know what you are doing and that your business concept is viable.  A well designed business plan is essential in this process.

7) Obtaining contracts
The success of many value-added businesses is based on their ability to have commitments or contracts in place from users.  However, potential users need to be assured that you can actually deliver on the commitment.  Once again, a well designed business plan is essential for these commitments.

8) Creating joint ventures, mergers and acquisitions
Value-added businesses are moving up the supply chain to take advantage of profit opportunities closer to the consumer.  To achieve this, it is common for value-added businesses to create relationships with existing business in the supply chain through joint ventures, mergers or acquisitions.  The advantage of this strategy is to take advantage of skills and experience of these businesses.  Once again, a well designed business plan is essential for creating these relationships.

Ten Questions to Answer in Writing the Plan

There are certain elements that are critical for a business plan.  Below are ten questions your business plan should answer.  The quality of your business plan will depend on how well you can answer them.  You can use these as a “checklist” of the completeness of your plan.

1. Who are we?
2. What do we do?
3. What do we have to offer?
4. Why will someone pay for our product/service?
5. What resources do we have?
6. Where are we going?
7. What do we need to get there?
8. Why will we be successful?
9. Why should someone participate/invest?
10. How will we measure performance?

How to Write the Plan

Your business plan should be written in plain, easy-to-read language.  Use short simple sentences.  Determine what you want to cover in you business plan and make headings for each of the items.  Make sure your business plan covers all of the relevant topics.  To help you organize your business plan use Create your Own Value-Added Business Plan.

• Proofread your plan for the following:
• Poor organization
• Vague statements
• Errors in logic
• Gaps in the plan
• Repetitive statements
• Inconsistency
• Misspelled words
• Poor grammar
• Incomplete sentences
• Mathematical errors

It is usually a good idea to have someone who is not involved in the project proofread your business plan.  They can help you aspects of your business plan that may need additional clarification and explanation.

Who Should Write the Plan

Although it is common and often preferable to have someone help you write the business plan, the founders or management team is ultimately responsible for creating the ideas and content of the business plan.  Stated simply, if you are not intimately involved in writing the business plan, you will not know what it contains.  If you don’t know what the business plan contains, how can you implement the plan.  If you cannot implement the plan, how can you create a successful business. 

So, the primary responsibility for writing the business plan is with you, the founders or the management team.  Consultants or professional writers can be used to help you with creating the business plan, but their role is only to assist you in this important process. 

However, it is often a wise investment to hire a consultant to review a draft of the plan.  Having an outsider review the plan, especially someone who knows the industry and is familiar with writing business plans, can be invaluable in pointing out deficiencies and shortcomings of the plan.  Finding and correcting these deficiencies can greatly improve your business plan. 

How Long should it Be

Focus on the quality of your business plan, not its length.  The length of the business plan should be the shortest version needed to adequately tell your story.  The business plan should properly and succinctly tell your story.  Does it address the relevant issues?  Anything more is not a sign of depth or completeness.  Rather, it will dissuade people from reading the plan because of its length.  Remember, focus on content -- not length.

Not all Business Plans are Alike

Value-added agriculture includes many types of businesses.  Businesses range from a few producers marketing products directly to local consumers to large-scale integrated processing/manufacturing businesses.  Likewise, who you are writing the business plan for can vary substantially. 

Type of Value-Added Business
Just as all value-added businesses are not alike, all value-added business plans are not alike.  The plan must fit the needs of the business.  For example, the marketing needs of a commodity processing business like ethanol are much different than those of a niche food business.  The financial needs of a processing business are much greater than those of a direct marketing business.  So the focus on investors and lenders is much greater.  In addition, the need for risk management strategies is much greater due to the capital intensive nature of the business and the volatility of commodity markets.  Conversely, the management needs of both types of businesses are substantial, although of a different type.

Who are the Readers of Your Plan
In addition to the type of value-added business you are starting, your plan needs to be tailored to the reader of your plan.  Most value-added businesses have several types of stakeholders.  A stakeholder is someone who has a stake or interest in the outcome of the business.  In addition to the business founders, stakeholders include equity investors, bankers, key employees, and others.  Different stakeholders have different priorities.  These priorities need to be balanced in the business plan.

Below are issues to emphasize or deemphasize depending on whom the plan is written for.  For example, bankers are usually looking for cash-flow while investors may be looking for growth.  This is not to say that the content and direction of the business plan should be altered.  However, it does mean that the focus of the plan may shift.

This means that you may have more than one version of the business plan.  This is alright as long as the same story is told – just with different emphasis.

Business Plan Targeting Summary *

A business plan is only one step in creating a viable value-added business.  Writing a great business plan is meaningless unless you properly implement the plan.  Many value-added start-up business ventures fail because they do not focus their efforts on properly implementing the plan.  Essentially this is a plan for implementing the plan.  A portion of the business plan should focus on the steps required to implement the plan.  This should include a time line and milestones of accomplishments.

The business plan is not something you complete and then forget about.  It is a living document that will undergo change as you move through the business development and implementation process.