Crossing Over to Film Accounting – “The Cost Report”
December 30, 2013 3 Comments
As in most businesses there is a particular report which is considered “vital” to investors of any film or television production. As you may expect, the industry has developed its own very distinct financial report for any production. The income statement, balance sheet and profitability/ liquidity ratios are all ignored. The primary, and very confidential, report goes by the innocuous name of “The Cost Report”.
Seriously, I wish that more creativity had gone into the name; something which reflected the career breaker-maker nature of the report. Within the ‘Biz it’s so protected, and kept so secure, that not even Variety Magazine nor the Hollywood Reporter even refer to it.
COST OVERRUNS ARE LEARNED VIA THE COST REPORT
It’s not uncommon to hear in the news about a wildly Over-Budget movie like ‘Titanic’ or ‘Water World’. In reality, there aren’t many films that get that far out of hand. With only two or three exceptions, most of the films that I’ve worked on have been produced for amounts in close proximity to the Approved Budget. Indeed, it’s a career breaker not to have foreseen those Over-Budget costs, regardless of very good reasons offered up by the Director, Producer, Production Accountant, Department Head, etc. why they didn’t know.
The whole reason for a Weekly Cost Report is to give the Studio Execs, Producers, Bonding Company, etc. enough time to correct for any projected over-budget costs (that is, to find ways to cut the costs in the remaining time of shooting, or to find more money, etc).
DETAILS OF A COST REPORT
Now let’s get down to the nitty-gritty of this little known, but key, film production report.
The first thing to understand is the simple arithmetic of the report. First, have a look at the picture above , or click here to see a clear pdf page, and then follow each of the columns as described in the next paragraph.
When examining the 10 columns, keep in mind the following simple arithmetic:
Col. 1 and 2: are the account number and description of the account.
Col. 3: The numbers here represent the costs PAID THIS WEEK only.
Col. 4: The numbers here represent the costs PAID from inception to the current date.
Col. 5: The commitments are Purchase Orders committed but not yet paid.
Col. 6: Total Costs = Col. 4 (Cumulative Costs PAID) + Col. 5 (PO’s not yet paid)
Col. 7: Estimate-To-Complete = Amount of money needed to complete the production.
Col. 8:Estimated-Final-Costs = Col. 6 (Total Costs Paid/Committed) + Col. 5 (ETC’s)
Col. 9: The Final Approved Budget (sometimes called the ‘locked’ budget).
Col.10:Variance: the difference between Col. 7 (Budget) and Col.6 (EFC’s)
There are several ‘tricks of the trade’ in reading a Weekly Cost Report. They’re available in my book,“Walk The Talk”.
Visit http://www.filmaccounting.com for more info on the book, week-end workshops, self-study courses and live webinars.
Cheers / John
PS – If you are curious about film production accounting as a career see this article.