by Sanne Kure-Jensen
Many farm and business owners do not have a written business plan. Many written business plans are unrealistic. Former Bank Vice President, John W. Nelson, III said too many businesses are ill prepared; they spend too much money on poor advice and do not have accurate financial records or projections.
Nelson shared his insights on creating realistic business plans during a workshop called How to Construct Business Plans and Loan Presentations That Raise Capital.
A business plan should begin with a one page Executive Summary and it should include:
• Amount requested
• How will the money be used (purpose)
• How long it will be needed (loan term)
• Owner’s down payment
• Collateral, equity value and outstanding loans
• Owner’s relevant experience (include resume in appendix)
• Market potential and current competition
• Products and/or services offered/to be offered
• Contact person
Check with lenders to ensure they finance your type of business or project. Ask them what percentage they require down.
Nelson recommended putting the minimum money down, keeping as much working capital as possible. The Small Business Administration (SBA) requires owners to put 10 percent down. Other lenders’ programs vary.
Describe basic business operations in eight pages or less. This business overview should have no more than a few paragraphs on these topics; put longer explanations in an appendix.
• Business legal name, address, phone, email, website, social security number and/or Employer Identification Number (EIN)
• Names of principal owners, business titles, percent of ownership, social security numbers and complete contact information
• Legal structure of business and state of incorporation/organization
• Business purpose or mission
• Rational for financing, short and long-term goals (i.e. grow business to sell in five years)
• Changes needed if financing approved (purchase/lease additional land or equipment, site renovations, raise more crops or move)
• Plan for how to continue and/or grow business after financing
• Industry trends – growing/shrinking
• Professional Team: CPA, bookkeeper, business attorney, insurance agent, board of directors (if any) and business advisors and contact information
• Management and backup (if owner unavailable) and costs
• Who performs marketing, financial, operations and human resource functions (The owner may do it all.)
• Any outside contractors or consultants (duties and fees)
• Employees – titles, salaries, benefits and costs, training, availability of staff, number of jobs created
• Explain how crops will be raised, value-added product or service created (include photos in appendix). Explain customer delivery and who pays for delivery
• Farm/site – describe site; why chosen
• Land, buildings and equipment needed to raise crops, create value-added products or service (include photos in appendix)
• Renovation description (include contractor bids in appendix)
• Supplier list and contacts, inputs, seed, packaging companies, terms, percent of total needs (should have multiple suppliers)
• Market – size of geographic area to be served (internet may allow farther sales for value added crops), typical customer profile, pricing (consider competitors) products and services offered (current and potential), realistic costs of production
• List certifications, licenses, permits, variances, zoning – permitted business types and signage, traffic patterns
• Distance to market, distribution options and challenges, nearby business that may draw customers
• Marketing plan – personal and online marketing (list who will design and costs)
• Why your products/services better than competitors’
• Market share – how much new market can you can create and how much you can take from competitors; list competitors in order of market share; list your strengths and weaknesses versus competitors
These supporting documents should be included in an appendix.
• Staff job descriptions, qualifications, pay rate, benefits, training plan
• How requested resources would be used:
Purchase/lease real estate (include copy of deed and plat plan)
Construct or renovate barn/buildings, purchase or lease equipment, machines and/or fixtures (include bids, schedule)
Seed, production inputs, packaging for valueadded products, other inventory (include sources/costs)
Refinancing (include copy of notes)
For seasonal line of credit/working capital (include cash flow projections)
• Resumes of business principals, contractors, consultants, backup management (if owner injured or unavailable)
• Crop plans, growing practices and experience
• Soil tests with recommendations
• Articles of Incorporation, LLC Agreement or Partnership Agreement (as appropriate)
• Good Standing Certificate from Secretary of State and the Division of taxation
• Projected profit & loss (P&L) statement and balance sheet (with three years history and tax returns, if existing business)
• Insurance policies (must be extendable through the life of the loan)
• Construction estimates/bids on contractor letterhead with proposed schedule, contact information and qualifications
• Certifications and licenses; i.e. Good Agricultural Practices, organic, approved commercial kitchen, Food Safety Manager, TIPS, etc.
• Business permits, variances, zoning and traffic pattern map or Google Map showing site
• Sample promotional material – for your business or a similar business: advertising schedules, website, social media, press releases, direct mail, brochures, etc. (list who will design/manage and costs)
• Contract with buyers or business feasibility study (as applicable)
• Appraisals (new or old)
• Environmental studies (if available)
Include photographs in your appendix:
• Site, buildings, equipment, machines, crops, fields, inputs, seeds, value added packaging, inventory of processed products
When buying an existing business, the business basics section should include:
• Farm/business history
• Why the owner is selling
• Selling price and what is/ is not included: real estate (plat plan, flood zone map), equipment, inventory, customer contracts and/or other assets
• Seller financing (some lenders require partial seller financing)
• Signed purchase and sales agreement
• Three years of tax returns and interim financial statements (P&L statement and balance sheet with projections into the future)
• Valuation and how value determined
• Photographs of business (inside and outside)
• Certified copies of patents, trademarks, copyrights, licenses, permits, agreements, variants (ensure transferable)
• Certificate of occupancy for buildings
• Maintenance agreement and warrantees (if any; ensure transferable)
• Proof of escrow agreements and down payment deposits
• Contracts with customers, suppliers and/or subcontractors (if any; ensure transferable)
• Asset valuations for buildings, equipment, fixtures and/or inventory and how the value was determined
• Co-op or franchise agreement (if any)
Nelson recommended people complete the bank’s loan application last. This will be easy once the other work is finished.
Assemble the whole package in a simple 3-ring binder. Lenders are likely to take it apart, shuffle it into the order they want. Nelson said not to waste time, effort and money to create a fancy binding or insert pages in plastic sleeves.
A complete package will ensure speedy processing. Lenders should respond in seven to 10 days. If funding is not approved, be sure to ask how to improve your chances of success in the future. Lenders generally will make helpful suggestions.