Hey Doc, What Does A Business Plan Entail?

This was a question I received via e-mail from a former student and teaching assistant who graduated nearly a decade ago and now is a manager at a landscape business. The student wanted to know about developing a five-year business plan.

First and foremost, a business plan starts with the vision, mission and purpose of the business. Where the five-year plan comes into relevance is short, intermediate and long-term strategies, goals and actions along with the timeline for accomplishment.

Short-term goals are to be accomplished in under one year, while the timeline for intermediate goals is one to three years and long-term goals are to be accomplished in three to five years. Beyond this timeline, much of the analysis becomes irrelevant due to the rapidly changing business environment.

Next, my student must develop a marketing plan, covering the four Ps: product, price, promotion and place (distribution). For a commodity or value-added producer, this would include contracts, plans to purchase inputs and an overall marketing plan.

An organizational and employee chart with job descriptions and responsibilities is useful in the communication and allocation of human resources. Boards of Directors, advisors and stakeholders should be included.

A risk management plan including insurances and standard operating procedures needs to be in place. A financial component including projected balance sheet, income statement and cash budgets is the next step. Develop one year and then test sensitivity using best, average and worst case scenarios over the planning period. Variance analysis comparing actual to projected performance is a useful tool to measure progress. An executive summary of two pages or less, covering highlights in the plan, is placed at the beginning of the document.

Management Tip Of The Week:
Most effective business plan development sessions include a preliminary survey of owners, management and employees, summarized by an outside facilitator. This survey helps to tailor the plan to address concerns of all parties involved in the business. Most effective plans are 20 pages or less, excluding exhibits and appendix.

Editor’s note: Dave Kohl, The Corn And Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.