Jeff KistnerJeff KistnerBusiness DevelopmentBusiness Development

CoBankCoBank

1.800.346.5717 ext. 20251.800.346.5717 ext. 2025

jkistner@cobank.comjkistner@cobank.com

FINANCING VALUE ADDED --GETTING THE GREEN LIGHT

FROM YOUR BANKER

THE ADDED VALUE EQUATION

Strengths - Weaknesses > Uncertainties

WHAT DOES IT TAKE TO ATTRACT FINANCING?

• Capacity--Repayment ability

• Capital--Financial condition

• Character--Management

• Collateral--Quality and value

• Conditions--Purpose, amount and requirements– External– Internal

START UP STAGES FOR ADDED VALUE START UP STAGES

FOR ADDED VALUE Initial meetingInitial meetingOrganization formedOrganization formedPre-Feasibility studyPre-Feasibility studySecure seed moneySecure seed moneyDevelop business planDevelop business plan

Operation planOperation plan Marketing planMarketing plan Management planManagement plan Financial planFinancial plan

Develop prospectusDevelop prospectus

Membership driveMembership drive Annual meetingAnnual meeting Finance projectFinance project

Feasibility studyFeasibility study Economic, MarketEconomic, Market Technical, FinancialTechnical, Financial ManagementManagement

Hire managerHire manager Project construction Project construction Begin operation Begin operation

CONDUCT FEASIBILITY STUDY

• Use third-party assistance Use third-party assistance

• Market analysis/Marketing plan:Market analysis/Marketing plan:– Supply and demand characteristics (inputs & output)Supply and demand characteristics (inputs & output)– Market shareMarket share– Pricing trends and Pricing trends and sensitivity sensitivity for finished goodsfor finished goods

and raw materialand raw material– Transportation of products and raw materialsTransportation of products and raw materials– Response of competitors to additional Response of competitors to additional

supplies/supplierssupplies/suppliers– Technology employedTechnology employed– Relative cost competitivenessRelative cost competitiveness

FEASIBILITY STUDY (CONT.)

• Ease of market entryEase of market entry– Contracts with buyersContracts with buyers

• Realistic income projectionsRealistic income projections– ““What if” assessmentWhat if” assessment– Worst / best caseWorst / best case

scenariosscenarios

• CapitalizationCapitalization

COMPREHENSIVE BUSINESS PLAN

• Markets– Who

– What

– How much

– Management• Board or local leadership

• Operational

• Money– Capital

– Cash flow

MARKETING ELEMENTS OF BUSINESS PLAN

• Marketing planMarketing plan– Strategic and tactical orientationStrategic and tactical orientation– Who are your customers, competitors?Who are your customers, competitors?– Distribution channelsDistribution channels– Alliances and partneringAlliances and partnering– Nature of marketing contract(s) - Nature of marketing contract(s) -

legal reviewlegal review– Contingencies / back up plansContingencies / back up plans

MANAGEMENT ELEMENTS OF BUSINESS PLAN

• Operating planOperating plan Building facilitiesBuilding facilities

* Utilize engineers and technology expertsUtilize engineers and technology experts

* Plan for cost overruns (minimum of 10%)Plan for cost overruns (minimum of 10%)

Select managementSelect management* Broad-based searchBroad-based search

* Employee early in processEmployee early in process

* Compensate to attract the bestCompensate to attract the best

* Reward based on long-term resultsReward based on long-term results

• Financial planFinancial plan– Return on InvestmentReturn on Investment– EquityEquity– DebtDebt

• Guarantees? Guarantees?

And now more about DEBT...And now more about DEBT...

MONEY ELEMENTS OF BUSINESS PLAN

RISK AND RETURN--WHAT ADDS VALUE

FOR YOU?• Return on investment?

– Should equity investors expect 15% for a value-added venture? – Higher target w/ venture capital involved - 20%-25%Higher target w/ venture capital involved - 20%-25%

• Return for additional expense?• Investor analysis should not include return from the sale of any raw material input - Project basis only!Investor analysis should not include return from the sale of any raw material input - Project basis only!• Ability to stay on the farm?

When should you expect to break even with a new venture? Three years?

ITEMS TO CONSIDER WHEN PLANNING A

VALUE-ADDED PROJECT • Total cost of plant, property and

equipment

• Start up expense planning to full capacity period

• Beginning working capital

Plan to have 40-60% equity

CAPACITY--REPAYMENT ABILITY

DEPENDS ON...• General condition

of the economy

• Competition

• The need for goods and services sold

• Technical changes in the industry

• Regulatory climate

• Cyclical nature of the industry

• Environmental or other threats

KEYS TO SUCCESSKEYS TO SUCCESS– Leadership - Local investors; Leadership - Local investors; JV partnersJV partners; project manager; project manager– Excellent managementExcellent management– Sound business and marketing planSound business and marketing plan– Excellent risk management plan and execution - Excellent risk management plan and execution -

solid contractssolid contracts– Well capitalized to cushion unplanned adversityWell capitalized to cushion unplanned adversity– Communications with investors:Communications with investors: frequent, open, honestfrequent, open, honest– Remember to focus on value of your stock, Remember to focus on value of your stock,

not just return to products committed not just return to products committed – Remembering your no longer a commodity or livestock producer, but that added value processor Remembering your no longer a commodity or livestock producer, but that added value processor

Jeff KistnerJeff KistnerBusiness DevelopmentBusiness Development

CoBankCoBank

1.800.346.5717 ext. 20251.800.346.5717 ext. 2025

jkistner@cobank.comjkistner@cobank.com

Start-up Assistance

Information on Sources of Start-

up Assistance

Jeff Jobe

Cooperative Services

USDA Rural Development

(515) 284-5192

jeff.jobe@ia.usda.gov

Technical Assistance Resources

• Iowa State University Extension to Value-Added

• Iowa Institute for Cooperatives

• CoBank’s Business Advisory Services

• AgMRC: visit their site at agmrc.org for a complete list of consultants

State Funding

REVAMP - Rural EconomicValue-Added Mentoring Program

• Provides grants up to $1,000 todevelop or refine business plans

• Because of state budget cuts,only $10,000 is available.

Iowa Department of Agriculture and Land StewardshipOffice of Renewable Fuels and Co-Products

REVAMP Project Requirements• Business must start or expand in Iowa

• No farming or livestock operations

• Use agricultural commodity or output

• Must be innovative product or process

or

• Renewable Fuels Production Facility

Iowa Department of Agriculture and Land StewardshipOffice of Renewable Fuels and Co-Products

REVAMPContact Information

Pat PaustianOffice of Renewable Fuels and Co-Products

Iowa Department of Agriculture and Land Stewardship

(515) 281-6936

Pat.Paustian@idals.state.ia.us

www.agriculture.state.ia.us/revrev.html

Value Added Agricultural Products and Processes

Financial Assistance Program

(VAAPFAP)

Joe JonesIowa Department of Economic Development

June 5, 2002

VAAPFAP

Created in 1994

Primary Purposes:

– Renewable Fuels

– Innovative Products and Processes

– Project Creation

Program Operations

Funds awarded as Loan/Forgivable Loan

Generally $20,000 or less is a grant or forgivable loan

Over $20,000 is combination loan/forgivable loan

Maximum award is 25% of annual appropriation– Higher the award, the higher the loan portion

141 projects awarded to date (September 2001)

two-thirds of counties represented to date

Program Rules Application – Complete Business

Plan

Ag Products Advisory Council recommends to Director of IDED

Cannot fund production agriculture

Facilities must be located in State

Project Creation Assistance:

Focus on Strategic Initiatives affecting broad ag interests

Requires consultation with major agricultural organizations

May utilize 20% of annual appropriation

VAAPFAP Assistance

Project Creation - Strategic Initiatives: Research and feasibility studies to address significant new opportunities

Organization of collaborative ventures among Iowa farm operators

Livestock waste management and food quality assurance issues

Development of systems to manage identity preserved grains

Cooperative programs for advanced plant or animal biotechnology

Development and marketing of new food products utilizing soybeans

Innovative agricultural risk management projects

VAAPFAP Initiatives

Contact Information

Web - www.iowasmart.com/financial.htm#vaapfap

E-mail – joe.jones@ided.state.ia.us

Phone – (515) 242-4801

Federal Assistance

Technical Assistance for Multiple Owner Businesses

– meeting & process facilitation– basic cooperative knowledge– organizational development-

articles & by-laws – surveys & feasibility studies– market research– business planning– board training– strategic planning

Value-Added Agricultural Product Market Development

Grants

The primary objective:

Is to help eligible producers of agricultural commodities, agricultural producer groups, farmer and rancher cooperatives, and majority-owned producer-based business ventures develop business plans for viable marketing opportunities and develop strategies to create marketing opportunities in emerging markets.

The Farm Security and Rural Investment Act of 2002

• Farm Bill Highlights– $40 million per year for 6 years– Maximum Grant Amount

$500,000 (priority points will be given for

applications under the $500,000 max) – Applicants must provide

matching non-Federal funds at least equal to the grant.

– Expanded eligibility

The Farm Security and Rural Investment Act of 2002

Is Your Project Eligible?

1) Are the funds being used for an eligible purpose?

– Planning

– Working Capital

2) Is your project an eligible entity?

– Independent Producers

– Farmer or Rancher Cooperatives

– Ag Producer Groups (Commodity Organizations)

– Majority Owned Producer Based Businesses (50% or more)

Three Questions to Ask?

Is Your Project Eligible?• Does your project meet one of the four categories of

value-added activities?– Change in the physical state of the product

– The production of a agriculture commodity or product in a manner that enhances its value, as demonstrated through a business plan.

– The physically segregating of an agricultural commodity or product in a manner that results in the enhancement of the value of that commodity or product.

– Any Agriculture commodity or product that is used to produce renewable energy on a farm or ranch.

• These Activities Must:– Expands customer base for the product or commodity, and

– Result in a greater portion of the revenues derived from the value-added activity that is available to the producer.

Application Process

• An original and two copies of the proposal, with all required forms and documentation, must be submitted in one package to the appropriate USDA State Office.

• Electronic submission is encouraged!

Original

Copy

Copy

Other Grant SourcesFederal

• The United States Department of Agriculture has a variety of funding

opportunities. – www.reeusda.gov– www.sare.org/htdocs/sare/.– www.rurdev.usda.gov/rbs/– .reeusda.gov/crgam/cfp/

community.htm– www.fedmoney.com/grants/

fn0000.htm

State & Private• Numerous state funding programs are available

– www.reeusda.gov/smallfarm/valuedir.htm

– www.nasda.org/nasda/nasda/member_information/usmap.

– www.reeusda.gov/1700/statepartners/usa.htm

– www. fdncenter.org/funders/

– http://www.iowacorn.org/pdf/TAGP%20Gudielines.pdf

Grant Writing Recommendations

• Grants have limited funds and applications are selected using a competitive scoring system.– Address all selection factors – Provide all application materials – Submit application early – Be clear and concise

FOR MORE INFORMATION

• Contact the Rural Development Area Office nearest you

Storm Lake 712-732-1851Humboldt 515-332-4411New Hampton 641-394-3183Tipton 563-886-6006

Albia 641-932-3031Indianola 515-961-5365Atlantic 712-243-2107Or

Rural Development State Office in Des Moines at 515-284-4714

www.rurdev.usda.gov