Getting the green light: CoBank business development officer discusses essential planning needed to finance an added-value cooperative - economic considerations for agricultural businesses planning added-value operations

Once the feasibility study is done and you've outlined the global picture, you will know against whom you're competing. For example, if you're building a plant in Missouri, you may be competing with southern Minnesota, western Iowa or South Dakota. How will your operation fit into that region?

To answer that question, you must move to the next step--the business plan.

On to the business plan

The business plan offers a different point of view from the global perspective of the feasibility study. It extrapolates the information to the local level. The business plan provides details about the operation, the market, management and the organization's financials. It also addresses how to create a profitable income stream for investors.

The business plan covers:

* Markets. This will tell you who you'll be selling to, how much of the market share you want, and the quantity of product you can expect to sell. That "who" is a critical element. It covers your customers and competitors.

* Management. This details the players, and consists of profiles on the board members as well as the general manager, who will run the daily operations.

* Money. This covers capital and cash flow.

Included in the business plan is the marketing element. That marketing plan should outline how you'll create wealth for the investors and owners. It should provide details on your customer base and on the competition. It should include specific tactics for executing the marketing strategy. It should also consider whether there is a distribution channel in place. You need to know if there are existing railroads you can use to move the ethanol or if you will need to transport it by truck or barge.

A business plan also answers such questions as: Are there alliances or marketing firms you can partner with? Are there marketing contracts you can enter into? A business plan also should provide for market contingencies or backups. Backup plans should cover not only markets but also the operations. One contingency that should always be covered is when to end your investment. For example, if you've been losing money for three years, you need to know if it's time to pull the plug.

Delving into the operating plan

One management element of the business plan is the operating plan. For this, you'll need to look at who's going to build the facilities and select the engineers and technology experts. Today's ethanol industry is a mature one, which means there are proven engineers and builders who have successfully built and run ethanol plants.

Selecting management is an important component of the operating plan. Management is a key to the feasibility of an ethanol or biomass venture. Therefore, you need to know which individuals have the expertise you need. This is a particularly big issue in ethanol when you consider all the ethanol plants being discussed in the Corn Belt.

Before you begin your management selection, you must answer some basic questions. Are you going to do a broad-based search for a manager? At what stage will you employ a manager? Hiring the management during the early stages of start-up could be beneficial to help implement the plans and membership drives--if you have the right seed money to support him or her. You must first determine the compensation package. And that package must compare favorably with what your competition is offering. You also need to decide if you're willing to reward your management based upon long-term results.