Planning

Chapter 16

Why do I need a business plan?

There are several very good reasons to prepare a business plan. The primary one is to enhance the opportunity for success. Other reasons include:

  1. A well-assembled business plan provides a roadmap for business leadership.
    A good plan will help business management stay on track while negotiating changes in directly influencing factors and environmental conditions.
  2. The business plan assists financing. Whether you are a small business start-up, or an established concern, banks and other financial institutions want to see that you know where you are, where you are going and how you are going to get there.
  3. The plan will show how much money is needed, when it will be needed, and how to get it; in other words, the business plans shows how to finance your operation.
  4. A well-defined business plan facilitates thorough consideration of all aspects of the type of business that is being started.
  5. Business plans raise the questions that need answers in order to achieve business success.
  6. It establishes a system of checks and balances that will reduce business management errors.
  7. A business plan establishes benchmarks that help to keep a business under control.
  8. Planning helps develop the competitive spirit management must have to always be prepared and ready to operate.
  9. The exercise of completing a business plan protects against oversight as it promotes careful consideration of the entire business process.
  10. An excellent business plan will cause a thorough analysis and understanding of competitors.
  11. Business plans facilitate a process that tends to eliminate emotion in reaching "LAUNCH", "HOLD", or "CANCEL" business decisions.

 

Chapter 17

What are the parts of a good business plan?

No two business plans will look exactly alike, although all business plans tend to share certain common elements. Examples of various business plans and universal business plan templates can be found on the Internet by accessing the homepages of the U.S. Small Business Administration, the United States Department of Agriculture - Rural Development, or any number of other service providers. State and local business development offices, such as Iowa State University Extension or the Small Business Development Centers, are excellent places to find models of business plans and personal, one-on-one, business planning assistance.

1. Elements of a Business Plan

1. Cover sheet
2. Statement of purpose
3. Table of contents

I. The Business

A. Description of business
B. Marketing
C. Competition
D. Operating procedures
E. Personnel
F. Business insurance
G. Financials

II. Financial Data

A. Loan applications
B. Capital equipment and supply list
C. Balance sheet
D. Breakeven analysis
E. Pro-forma income projections (profit & loss statements)

  1. Three-year summary

  2. Detail by month, first year
  3. Detail by quarters, second and third years
  4. Assumptions upon which projections were based
     

F. Pro-forma cash flow

  1. Three-year summary
  2. Detail by month, first year
  3. Detail by quarters, second and third years
  4. Assumptions upon which projections were based

.

III. Supporting Documents

  1. Tax returns of principals for last three years

  2. Personal financial statement (all banks have these forms)
  3. In the case of a franchised business, a copy of franchise contract and all supporting documents provided by the franchisor
  4. Copy of proposed lease or purchase agreement for building space
  5. Copy of licenses and other legal documents
  6. Copy of resumes of all principals
  7. Copies of letters of intent from suppliers, etc.

 

Chapter 18

How are the parts of a business plan filled out to present a picture of the business?

The body of the business plan can be divided into four distinct sections: 1) the description of the business, 2) the marketing plan, 3) the financial management plan and 4) the management plan. Addenda to the business plan should include the executive summary, supporting documents and financial projections.

18.1 The Business Plan - Description of the business.

In this section, provide a detailed description of your business. An excellent question to ask yourself is: "What business am I in?" Your answers to this question should include your products, market and services as well as a thorough description of what makes your business unique. Remember, however, that as you develop your business plan, you may have to modify or revise your initial questions.

The business description section is divided into three primary sections.

Section 1 actually describes your business, Section 2 the product or service you will be offering and Section 3 the location of your business, and why this location is best.

1. Business Description

.

A Cover Sheet goes before the description. It includes the name, address and telephone number of the business and the names of all principals.

.

When describing your business, you should explain:

  • Business form: value added cooperative, proprietorship, partnership, or corporation.
  • The licenses or permits you will need, and from where you will obtain them.

2. Business type: marketing, manufacturing or service.

3. Describe your product or service.

4. Are you starting a new business, assuming an existing business, or expanding/upgrading an established operation?

5. Why will this business be profitable?
What are the growth opportunities?
Will outside factors affect growth opportunities?

6. What will be the operating schedule for the business (days, hours)?

7. What have you learned about your kind of business from outside sources (trade suppliers, bankers, other franchise owners, franchisor, publications)?

In the description of your business, describe the unique aspects that will help a new or expanded position in the marketplace. Emphasize any special features and describe why targeted consumers will find them appealing.

The business description should clearly identify goals and objectives and why you want to be in business.

18.2 The Business Plan - Products/Services of the business.

Describe the benefits of your goods and services from your customers' perspective. Successful business owners know or at least have an idea of what their customers want or expect from them. This type of anticipation can be helpful in building customer satisfaction and loyalty. In addition, it certainly is a good strategy for beating the competition or retaining your competitiveness. Describe:

1. What you are selling.
2. How your product or service will benefit the customer.
3. Which products/services are in demand; if there will be a steady flow of cash.
4. What is different about the product or service your business is offering.

18. 3 The Business Plan - The Location.

The Location of your business can play a decisive role in its success or failure. Your location should be built around your customers, it should be accessible and it should provide a sense of security. Consider these questions when addressing this section of your business plan:

1. What are your location needs?
2. What kind of space will you need?
3.Why is the area desirable? the building desirable?
4. Has the site been cleared of any potential environmental hazards?
5. Has the site had an environmental due diligence assessment? Do you fully understand the environmental aspects of the site and the effects they might have on the value, risk, and legal status of your business? Have you identified and assessed potential liabilities? Does the site lend itself to management procedures for any environmentally sensitive byproducts your business might create? Have you addressed the allocation of risk amongst owners, lenders, and investors if an environmental situation occurs?
6. Is the site easily accessible? Is good transportation available?
7. Are market shifts or demographic shifts occurring?

it may be a good idea to make a checklist of questions you identify when developing your business plan. Categorize your questions and, as you answer each question, remove it from your list.

18.4 The Business Plan -The Marketing Plan.

Marketing plays a vital role in successful business ventures. How well you market you business is a primary factor that may ultimately determine success or failure. The key element of a successful marketing plan is to know your customers-their likes, dislikes, expectations. By identifying these factors, you can develop a marketing strategy that will allow you to arouse and fulfill their needs.

If you intend to market directly to consumers, identify your customers by their age, sex, income/educational level and residence. If your intent is to become a supplier to retailers or finished processors, get to know their business and gain a complete understanding of their needs. At first, target only those customers who are most likely to purchase your product or service. As your customer base expands, you may need to consider modifying the marketing plan to include other customers.

Include a marketing plan with the business plan. Make sure to answer the following questions:

1. Who are your customers? Define your target market(s).
2. Are your markets growing? steady? declining?
3. Is your market share growing? steady? declining?
4. How is your market segmented?
5. Are your markets large enough to expand?
6. How will you attract, hold, increase your market share?
7. What is your pricing strategy?

18.5 The Business Plan - The Management Plan.

Managing a business requires the ability to make decisions and the ability to manage both employees and finances. Your management plan, along with your marketing and financial management plans, sets the foundation for and facilitates the success of your business.

Like plants and equipment, people are resources -- they are the most valuable assets a business has. Employees and staff play a very important role in the total operation of your business. Consequently, it is imperative that you profile your own skills since you will have to hire personnel to supply those that you lack. Additionally, it is imperative that you know how to manage and treat employees. Employees oftentimes have excellent ideas that can lead to new market areas, innovations to existing products or services or new product lines or services that can improve your overall competitiveness.

Your management plan should answer questions such as:

  • How does your background/business experience help you in this business?
  • What are your weaknesses and how can you compensate for them?
  • Who will be on the management team?
  • What are their strengths/weaknesses?
  • What are their duties?
  • Are these duties clearly defined?
  • What types of professional assistance will you need to contract for?
  • Will this assistance be ongoing?
  • What are your current personnel needs?
  • What are your plans for hiring and training personnel?
  • What salaries, benefits, vacations, holidays will you offer? If a franchise, are these issues covered in the management package the franchisor will provide?
  • What benefits, if any, can you afford at this point?
  • Operating procedures, manuals and other policy related materials should be included in this section of the business plan.

18.6 The Business Plan - The Financial Management Plan.

Sound financial management is one of the best ways for your business to remain profitable and solvent. Well managed finances are the cornerstones of every successful business venture. Each year thousands of potentially successful businesses fail because of poor financial management. As a business owner, you will need to identify and implement policies that will help ensure your ability to meet financial obligations.

To effectively manage your finances, plan a sound, realistic budget by determining the actual amount of money needed to open your business (start-up costs) and the amount needed to keep it open (operating costs).

18.6a Start-up Budget

The first step to building a sound financial plan is to devise a start-up budget. Your start-up budget will usually include such one-time-only costs as major equipment, utility deposits, down payments, etc.

The start-up budget should allow for these expenses:

  • personnel (costs prior to opening)
  • legal/professional fees
  • occupancy licenses/permits
  • equipment
  • insurance
  • supplies
  • advertising/promotions
  • salaries/wages
  • accounting
  • income
  • utilities
  • payroll expenses

18.6b Operating Budget

An operating budget is prepared when you are actually ready to open for business. The operating budget will reflect your priorities in terms of how your spend your money, the expenses you will incur and how you will meet those expenses (income). Your operating budget also should include money to cover the first three to six months of operation.

An Operating Budget should allow for the following expenses:

  • site and/or building preparation prior to occupancy
  • personnel
  • insurance
  • rent
  • depreciation
  • loan payments
  • advertising/promotions
  • legal/accounting
  • miscellaneous expenses
  • supplies
  • payroll expenses
  • salaries/wages
  • utilities
  • dues/subscriptions/fees
  • taxes
  • repairs/maintenance

18.7 Financial Reports

If you are not completely familiar with financial statements, business ratios, balance sheets and other means of measuring business performance, now is the time to seek assistance. The financial section of your business plan will be closely examined by any investor or lender you approach so do all you can to make sure it is ready to stand the test. The service providers listed in the Appendix will gladly help you find the assistance you need at little or no cost.

The financial section of your business plan should include any loan applications you have filed, a capital equipment and supply list, balance sheet, breakeven analysis, pro-forma income projections (profit and loss statement) and pro-forma cash flow. The income statement and cash flow projections should include a three-year summary, detail by month for the first year and in some cases detailed quarterly for the second and third year. The accounting system and the inventory control system that you will be using are generally addressed in this section of the business plan also.

The following questions should help you determine the amount of start-up capital you will need.

  • How much money do you have?
  • If purchasing an existing business, what is the cost of the business?
  • How much money will you need for start-up?
  • How much money will you need to stay in business?

Other questions that you will need to consider are:

  • What type of accounting system will your use? Is it a single entry or dual entry system?
  • What will your sales goals and profit goals for the coming year be?
  • What financial projections will you need to include in your business plan?
  • What kind of inventory control system will you use?

Your plan should include an explanation of all projections. Again, unless you are thoroughly familiar with financial statements, get help in preparing your cash flow, income statements and balance sheet. Your aim is not to become a financial wizard, but to understand the financial tools well enough to understand what they are telling you. Your accountant or financial advisor can help you accomplish this goal.

18.7a Sample Income Projections (Profit and Loss) Statement

The following format is provided as a brief and basic example. Precise planning may require and expansion of the categories and the addition of columns for monthly estimates on the first year, quarterly estimates for years two and three, and annual totals for each category.

Income Projections

  Ind %* Q1 2000 Q2 2000 Q3 2000 Q4 2000 Yr 2001 Yr2002
SALES ________ ________ ________ ________ ________ ________ ________
MATERIAL ________ ________ ________ ________ ________ ________ ________
LABOR ________ ________ ________ ________ ________ ________ ________
SUPPLIES ________ ________ ________ ________ ________ ________ ________
GROSS PROFIT ________ ________ ________ ________ ________ ________ ________
GROSS PROFIT MARGIN ________ ________ ________ ________ ________ ________ ________

 

 

             
CONTROLLABLE (VARIABLE) EXPENSES ________ ________ ________ ________ ________ ________ ________
SALARY EXPENSES ________ ________ ________ ________ ________ ________ ________
PAYROLL EXPENSES ________ ________ ________ ________ ________ ________ ________
OUTSIDE SERVICES ________ ________ ________ ________ ________ ________ ________
SUPPLIES (OFFICE) ________ ________ ________ ________ ________ ________ ________
REPAIR & MAINTENANCE ________ ________ ________ ________ ________ ________ ________
ADVERTISING ________ ________ ________ ________ ________ ________ ________
TRAVEL ________ ________ ________ ________ ________ ________ ________
ACCOUNTING & LEGAL ________ ________ ________ ________ ________ ________ ________

 

 

             
FIXED EXPENSES ________ ________ ________ ________ ________ ________ ________
RENT and/or LEASE ________ ________ ________ ________ ________ ________ ________
DEPRECIATION ________ ________ ________ ________ ________ ________ ________
UTILITIES ________ ________ ________ ________ ________ ________ ________
INSURANCE ________ ________ ________ ________ ________ ________ ________
LOAN REPAYMENTS ________ ________ ________ ________ ________ ________ ________
MISCELLANEOUS ________ ________ ________ ________ ________ ________ ________

 

 

             
TOTAL EXPENSES ________ ________ ________ ________ ________ ________ ________
NET PROFIT (LOSS) ________ ________ ________ ________ ________ ________ ________
BEFORE TAXES ________ ________ ________ ________ ________ ________ ________
ESTIMATED TAXES ________ ________ ________ ________ ________ ________ ________
NET PROFIT (LOSS) ________ ________ ________ ________ ________ ________ ________
AFTER TAXES ________ ________ ________ ________ ________ ________ ________
               

* Industry Percentages. Benchmarks against which to compare your business with others.

18.7b Instructions for Income Projections Statement

The income projections (profit and loss) statement enables a breakdown of the amount of income generated, based on reasonable predictions of periodic levels of sales, costs and expenses.

As estimates are developed and entered into the income projections statement, they can serve as definite goals for controlling the business operation. As actual operating results become known each month, they should be recorded for comparison with the monthly projections. A completed income statement allows a comparison of actual figures with projections.

Industry Percentage

In the industry percentage column, enter the percentages of total sales (revenues) that are standard for your industry, which are derived by dividing

Costs/expenses items x 100%
total net sales

These percentages can be obtained from various sources, such as trade associations, accountants or banks. The reference librarian in your nearest public library can refer you to documents that contain the percentage figures, for example, Robert Morris Associates' Annual Statement Studies (One Liberty Place, Philadelphia, PA 19103).

Industry figures serve as a useful benchmark against which to compare your cost and expense estimates.

Sales (Revenues)

Determine the total number of units of products or services you realistically expect to sell each period at the prices you expect to get. Use this step to create the projections to review your pricing practices. Exclude any revenue that is not strictly related to the business.

Cost of Sales
The key to calculating your cost of sales is that you do not overlook any costs incurred for all materials, labor and supplies. Calculate cost of sales of all products and services used to determine total net sales. Where inventory is involved, do not overlook transportation costs. Also include any direct labor.

Gross Profit

Subtract the total cost of sales from the total net sales to obtain gross profit.

Gross Profit Margin

The gross profit is expressed as a percentage of total sales (revenues). It is calculated by dividing

gross profits
total net sales

Controllable (also known as Variable) Expenses

  • Salary expenses--Base pay plus overtime.
  • Payroll expenses--Include paid vacations, sick leave, health insurance, unemployment insurance and social security taxes.
  • Outside services--Include costs of subcontracts, overflow work and special or one-time services.
  • Supplies--Services and items purchased for use in the business.
  • Repair and Maintenance--Regular maintenance and repair, including periodic large expenditures such as painting.
  • Advertising--Include all advertising expenses aimed at reaching desired sales volume.
  • Travel--Include charges if personal car is used in business, including parking, buying trips, etc.
  • Accounting and legal-Outside professional services.

Fixed Expenses

  • Rent or Lease Expense--List only real estate used in business.
  • Depreciation--Amortization of capital assets.
  • Utilities--Water, heat, light, etc.
  • Insurance--Fire or liability on property or products. Include workers' compensation.
  • Loan repayments--Interest on outstanding loans.
  • Miscellaneous--Unspecified; small expenditures without separate accounts.

Net Profit (loss)

  • (before taxes) -- Subtract total expenses from gross profit.

Estimated Taxes

  • Include inventory and sales tax, excise tax, real estate tax, etc.

Net Profit (loss)

  • (after taxes) -- Subtract taxes from net profit (before taxes)

Annual Total

  • For each of the sales and expense items in your income projection statement, add all the monthly figures across the table and put the result in an annual total column.

Annual Percentage

  • Calculate the annual percentage by dividing

Annual total x 100%
total net sales

Compare this figure to the industry percentage in the first column.

18.7c Sample Balance Sheet

The following example represents a very basic picture of how a Balance Sheet. In order to accurately represent your business scenario, it may be necessary to add extra accounts and categories.

Balance Sheet

CURRENT ASSETS  

Cash $

_____________

Accounts Receivable $

_____________

Inventory $

_____________

TOTAL CURRENT ASSETS $

_____________
FIXED ASSETS  

Land & Building $

_____________

Fixtures & Equipment $

_____________

Vehicles $

_____________

TOTAL $

_____________
NET PROPERTY & EQUIPMENT $ _____________
OTHER ASSETS _____________

Licensee $

_____________

Goodwill $

_____________
TOTAL ASSETS $ _____________
CURRENT LIABILITIES _____________

Notes Payable $

_____________

Accounts Payable $

_____________

Accrued Expenses $

_____________

Taxes Owed $

_____________

Current Portion, Long Term Debt$

_____________
TOTAL CURRENT LIABILITIES $ _____________
LONG TERM DEBT _____________

Loans $

_____________
TOTAL LIABILITIES $ _____________
NET WORTH $ _____________
TOTAL LIABILITIES & NET WORTH $ _____________
   

18.7d Instructions for Balance Sheet

Figures used to compile the balance sheet are taken from the previous and current balance sheet as well as the current income statement. The income statement is usually attached to the balance sheet. The following information covers the basics of the balance sheet.

  • At the top of the page fill in the legal name of the business, the type of statement and the day, month and year.

ASSETS

List anything of value that is owned or legally due the business. Total assets include all net values. These are the amounts derived when you subtract depreciation and amortization from the original costs of acquiring the assets.

Current Assets

  • Cash--List cash and resources that can be converted into cash within 12 months of the date of the balance sheet (or during one established cycle of operation). Include money on hand and demand deposits in the bank, e.g., checking accounts and regular savings accounts.
    Petty cash--If your business has a fund for small miscellaneous expenditures, include the total here.
  • Accounts receivable--The amounts due from customers in payment for merchandise or services.
  • Inventory-Includes raw materials on hand, work in progress and all finished goods, either manufactured or purchased for resale.

Fixed Assets

Also called plant and equipment. Includes all resources a business owns or acquires for use in operations and not intended for resale. Fixed assets may be leased. Depending on the leasing arrangements, both the value and the liability of the leased property may need to be listed on the balance sheet.

  • Land & Building--List original purchase price without allowances for market value.
  • Fixtures & Equipment
  • Vehicles

LIABILITIES

Current Liabilities

List all debts, monetary obligations and claims payable within 12 months or within one cycle of operation. Typically, they include the following:

  • Notes payable--The balance of principal due to pay off short-term debt for borrowed funds. Also includes the current amount due of total balance on notes whose terms exceed 12 months.
  • Accounts payable--Amounts owed to suppliers for goods and services purchased in connection with business operations.
  • Accrued Expenses--could be listed separately as:
  • Interest payable--Any accrued fees due for use of both short- and long-term borrowed capital and credit extended to the business.
  • Payroll accrual--Salaries and wages currently owed.
  • Taxes Owed--Amounts estimated by an accountant to have been incurred during the accounting period.
  • Current Portion, Long Term Debt -- Amount due at date of Balance Sheet

Long-term Liabilities

  • Loans--List notes, contract payments or mortgage payments due over a period exceeding 12 months or one cycle of operation. They are listed by outstanding balance less the current position due.

Net worth

Also called owner's equity, net worth is the claim of the owner(s) on the assets of the business. In a proprietorship or partnership, equity is each owner's original investment plus any earnings after withdrawals.

Total Liabilities and Net Worth

The sum of these two amounts must always match that for total assets.

18.8 Ratio Analysis of Financial Reports

The Income Projections Statement and Balance Sheet are really only the beginning of business analysis and management. Ratio Analysis of Financial Statements paints a much more defined picture of the success, failure, and progress of your business. Ratio Analysis will help you spot trends and compare performance against similar businesses in the same industry.

Ratio analysis may provide the all-important early warning indications that allow you to solve your business problems before they cause serious damage to your business.

18.8a Income Projections Statement Ratios

The following important State of Income Ratios measure profitability:

  • Gross Margin Ratio This ratio is the percentage of sales dollars left after subtracting the cost of goods sold from net sales. It measures the percentage of sales dollars available to pay the overhead expenses of the company.

Comparison of your business ratios to those of similar businesses will reveal the relative strengths or weaknesses in your business. The Gross Margin Ratio is calculated as follows :

Gross Profit
(Gross Profit = Net Sales - Cost of Goods Sold)
Net Sales

  • Net Profit Margin Ratio

This ratio is the percentage of sales dollars left after subtracting the Cost of Goods sold and all expenses, except income taxes. It provides a good opportunity to compare your company's "return on sales" with the performance of other companies in your industry. The Net Profit Margin Ratio is calculated as follows:

Net Profit Before Tax
Net Sales

18.8b Balance Sheet Ratios

These ratios measure liquidity and solvency (a business's ability to pay its bills as they come due) and leverage (the extent to which the business is dependent on creditors' funding). They include the following ratios:

Liquidity Ratios

These ratios indicate the ease of turning assets into cash. They include the Current Ratio, Quick Ratio, and Working Capital.

  • Current Ratio. The Current Ratio is one of the best known measures of financial strength. It is figured as shown below:

Total Current Assets
Total Current Liabilities

The main question this ratio addresses is: "Does your business have enough current assets to meet the payment schedule of its current debts with a margin of safety for possible losses in current assets, such as inventory shrinkage or collectable accounts?" A generally acceptable current ratio is 2 to 1. The minimum acceptable current ratio is obviously 1:1, but that relationship is usually playing it too close for comfort.

If you decide your business's current ratio is too low, you may be able to raise it by:

    • Paying some debts.
    • Increasing your current assets from loans or other borrowings with a maturity of more than one year.
    • Converting non-current assets into current assets.
    • Increasing your current assets from new equity contributions.
    • Putting profits back into the business.
  • Quick Ratio. The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best measures of liquidity. It is figured as shown below:

Cash + Government Securities + Receivables
Total Current Liabilities

.

The Quick Ratio is a much more exacting measure than the Current Ratio. It helps answer the question: "Could my business meet its current obligations if all revenue suddenly disappeared?" An acid test of 1:1 is considered satisfactory unless the majority of your "quick assets" are in accounts receivable, and the pattern of accounts receivable collection lags behind the schedule for paying current liabilities.

  • Working Capital. Working Capital is more a measure of cash flow than a ratio. The result of this calculation must be a positive number. It is calculated as shown below:

Working Capital = Total Current Assets - Total Current Liabilities

Bankers look at Net Working Capital over time to determine a company's ability to weather financial crises. Loans are often tied to minimum working capital requirements.

A general observation about these three Liquidity Ratios is that the higher they are the better, especially if you are relying to any significant extent on creditor money to finance assets.

  • Leverage Ratio

This Debt/Worth or Leverage Ratio indicates the extent to which the business is reliant on debt financing (creditor money versus owner's equity):

Total Liabilities
Net Worth

Generally, as this ratio gets higher, you can expect that the lender's comfort level will sink lower along with your chances of a favorable loan.

18.8c Management Ratios

Management Ratios

Other important ratios, often referred to as Management Ratios, are also derived from Balance Sheet and Statement of Income information.

  • Inventory Turnover Ratio

This ratio shows how well inventory is being managed and is calculated as follows:

Net Sales
Average Inventory at Cost

  • Accounts Receivable Turnover Ratio

This ratio indicates how well accounts receivable are being collected. The rule of thumb is 60 days. The ratio is calculated as follows:

Sales Per Day
(Divide Sales by 365)
Accounts Receivable

  • Return on Assets Ratio

This measures how efficiently profits are being generated from the assets of the business when compared with the ratios of firms in a similar business. A low ratio in comparison with industry averages indicates an inefficient use of business assets. The Return on Assets Ratio is calculated as follows:

Net Profit Before Tax
Total Assets

  • Return on Investment (ROI) Ratio.

The ROI is perhaps the most important ratio of all. It is the percentage of return on funds invested in the business by its owners. In short, this ratio tells the owner whether the business has been worthwhile. If the ROI is less than the rate of return on an alternative, risk-free investment such as a bank savings account, the owner may be wiser to sell the company, put the money in such a savings instrument, and avoid the daily struggles and risk of small business management. The ROI is calculated as follows:

Net Profit before Tax
Net Worth

 

Chapter 19

Where can I turn for help in planning for a value-added type businesses?

In large part, planning for success in a value-added business is mostly the same as planning for success in any other type of business. However, ISU Extension and the Center for Industrial Research and Service (CIRAS) have available an excellent example of a business plan for a value-added cooperative venture.

Iowa Department of Agriculture and Land Stewardship (IDALS)

IDALS offers REVAMP (Rural Economic Value-Added Mentoring Program). The program is designed to assist Iowans and Iowa agriculture. It provides business planning assistance to innovative value-added businesses that want to start or expand in Iowa.

Eligible Projects

Eligible projects include renewable fuels production, value-adding processing industries, and "new uses" manufacturing utilizing agricultural commodities produced in Iowa.

Applicant must be interested in developing a value-added business located in Iowa by:

  • Producing a product from an Iowa agricultural commodity which
  • was not previously produced from that commodity; or
  • Developing a new process for producing a product from an agricultural commodity which was not previously used to produce that product; or
  • Establishing or expanding a renewable fuel production facility.
  • Applicant must submit REVAMP Planning and Technical Assistance Application.
  • Applicant must include a copy of the current business plan. If none is available, a summary of current activities and description of planned activities must be provided.

(Farming and livestock production operations are not eligible.)

How Does REVAMP Work?

Very simply, the program provides technical assistance (mentoring) to help innovative new and expanding businesses develop sound business plans.

The basis steps in the process:

1) Interested individuals or companies file a REVAMP Planning and Technical Assistance Application with the Iowa Department of Agriculture and Land Stewardship’s (IDALS) Office of Renewable Fuels and Co-Products.

2) IDALS then pays mentors (qualified consultants) up to $1,000 to work with the company to develop or refine a business plan.

3) Many times, more than $1,000 is required to complete the business plan. Based on the consultant’s recommendations, IDALS may provide up to an additional $24,000 in financial assistance for mentoring to complete a business plan.

4) Once the plan is completed, the Applicant may apply for funding through VAAPFAP (Value-Added Agricultural Products and Processes Financial Assistance Program). Administered by the Iowa Department of Economic Development, VAAPFAP loans and forgivable loans are available to assist innovative new and expanding value-added businesses.

U.S. Small Business Administration (SBA)

The SBA offers an extensive selection of information on most business management topics, from how to start a business to exporting your products. This information is listed in "Resource Directory for Small Business Management." For a free copy contact your nearest SBA office. SBA has offices throughout the country. Consult the U.S. Government section in your telephone directory for the office nearest you. SBA offers a number of programs and services, including training and educational programs, counseling services, financial programs and contract assistance. Ask about

Service Corps of Retired Executives (SCORE), a national organization sponsored by SBA of over 13,000 volunteer business executives who provide free counseling, workshops and seminars to prospective and existing small business people.

  • Small Business Development Centers (SBDCs), sponsored by the SBA in partnership

with state and local governments, the educational community and the private sector. They provide assistance, counseling and training to prospective and existing business people. Business Information Centers (BICs), offering state-of-the-art technology, informational resources and on-site counseling for start-up and expanding businesses to create business, marketing and other plans, do research, and receive expert training and assistance.

For more information about SBA business development programs and services, call the SBA Small Business Answer Desk at 1-800-U-ASK-SBA (827-5722).

  • Other U.S. Government Resources

Many publications on business management and other related topics are available from the Government Printing Office (GPO). GPO bookstores are located in 24 major cities and listed in the Yellow Pages under the "bookstore" heading. You can request a "Subject Bibliography" by writing to Government Printing Office, Superintendent of Documents, Washington, DC 20402-9328. Many federal agencies offer publications of interest to small businesses. There is a nominal fee for some, but most are free.

Below is a selected list of government agencies that provide publications and other services targeted to small businesses. To get their publications, contract the regional offices listed in the telephone directory or write to the addresses below:

  • Consumer Information Center (CIC)
    P.O. Box 100
    Pueblo, CO 81002

    The CIC offers a consumer information catalog of federal publications.

  • Consumer Product Safety Commission (CPSC)
    Publications Request
    Washington, DC 20207

    The CPSC offers guidelines for product safety requirements.

  • U.S. Department of Agriculture (USDA)
    12th Street and Independence Avenue, SW
    Washington, DC 20250

    The USDA offers publications on selling to the USDA. Publications and programs on entrepreneurship are also available through county extension offices nationwide.

  • U.S. Department of Commerce (DOC)
    Office of Business Liaison
    14th Street and Constitution Avenue, NW
    Room 5898C
    Washington, DC 20230

DOC's Business Assistance Center provides listings of business opportunities available in the federal government. This service also will refer businesses to different programs and services in the DOC and other federal agencies.

  • U.S. Department of Health and Human Services (HHS) - Public Health Service Alcohol, Drug Abuse and Mental Health Administration
    5600 Fishers Lane
    Rockville, MD 20857

Drug Free Workplace Helpline: 1-800-843-4971. Provides information on Employee Assistance Programs.

  • National Institute for Drug Abuse Hotline:
    1-800-662-4357. Provides information on preventing substance abuse in the workplace.
     
  • The National Clearinghouse for Alcohol and Drug Information:
    1-800-729-6686 toll-free. Provides pamphlets and resource materials on substance abuse.
  • U.S. Department of Labor (DOL)
    Employment Standards Administration
    200 Constitution Avenue, NW
    Washington, DC 20210

    The DOL offers publications on compliance with labor laws.

  • U.S. Department of Treasury
    Internal Revenue Service (IRS)
    P.O. Box 25866
    Richmond, VA 23260
    1-800-424-3676

    The IRS offers information on tax requirements for small businesses.

  • Environmental Protection Agency Office of Small Business Ombudsman
    U.S. Environmental Protection Agency (EPA)
    Small Business Ombudsman (Mail Code 2131)
    Room 3423
    401 M Street, S.W.
    Washington, D.C. 20460
    1-800-368-5888

The EPA offers more than 100 publications designed to help small businesses understand how they can comply with EPA regulations.

  • U.S. Food and Drug Administration (FDA)
    FDA Center for Food Safety and Applied Nutrition
    200 C Street, SW
    Washington, DC 20204

The FDA offers information on packaging and labeling requirements for food and food-related products.

  • For More Information:

A librarian can help you locate the specific information you need in reference books. Most libraries have a variety of directories, indexes and encyclopedias that cover many business topics. They also have other resources, such as Trade association information.

Ask the librarian to show you a directory of trade associations. Associations provide a valuable network of resources to their members through publications and services such as newsletters, conferences and seminars.

  • Books

Many guidebooks, textbooks and manuals on small business are published annually. To find the names of books not in your local library check Books In Print, a directory of books currently available from publishers.

  • Magazine and newspaper articles

Business and professional magazines provide information that is more current than that found in books and textbooks. There are a number of indexes to help you find specific articles in periodicals.

  • In addition to books and magazines, many libraries offer free workshops, lend skill-building tapes and have catalogues and brochures describing continuing education opportunities.

 

Chapter 20

Where is the best place to go for information about licensing and permits?

It is always best to start locally. If your operation will be inside of the incorporated limits of a municipality, make sure and check with City Hall. Also, unzoned land within 2 miles of a zoned area, like a municipality, may also be subject to city zoning requirements.

If you are outside of the jurisdiction of a municipality, be sure to call or stop by the office of the County Auditor, Treasurer, or Engineer for information.

Regardless of where your site is situated, make sure you have a full understanding of the status and possible limitations of the Drainage District in which you are locating your business. Drainage Districts represent some of Iowa's oldest, and most frequently misunderstood, areas of jurisdiction. Someone at the county courthouse should be able to provide a full evaluation of the district you are locating in.

For other regulatory information, a great place to check is the Iowa Business License Information Center at www.state.ia.us/sbro , or 800-532-1216. The center provides a single electronic gateway to information on licenses and permits. Access to this information is through multiple media formats, including the Internet, 24 hour telephone messaging, and document fax-back.

Contributing Organizations:

Iowa Department of Economic Development
Iowa Department of Natural Resources Environmental Protection Division
Department of Commerce
Accountancy Examining Board
Architectural Examining Board
Engineering & Land Surveying Examination Board
Landscape Architectural Examination Board
Real Estate Appraiser Examination Board
Real Estate Commission

Contacts:

Professional Licensing & Regulation
Roger A. Halvorson

281-5596
Professional Licensing & Regulation
Roger Hansen

281-7361
Department of Economic Development
Phil Dunshee

242-4849
 
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