Crossing Over to Film Accounting – Financing
March 9, 2014 Leave a comment
An accountant is seldom used to help the Producer pitch for financing. Most emerging Producers aren’t educated in pitching to financiers who are well schooled in standard business practices – and, even if the pitching Producer has some idea that help is needed in preparing financial projections, the cost of the accountant’s services may seem prohibitive.
ACCOUNTANTS GENERALLY LACK EXPERIENCE
Even if the pitching Producer does go to his/her local CPA, it may very likely be a disappointment. Most accountants ARE weak in this unique area of film finance. Ask any CPA about investing in film production and they’ll tell you straight up – too risky! But … ask that same accountant about investing in a rental property in Bohunk, say a small medical center, and the accountant will jump in with both feet. Why? Simply because the accountant has experience in similar projects and there is an infrastructure in place to find and analyze data of a similar nature.
FINANCING FILM PROJECTS IS PIONEERING WORK
The film industry has been a closed industry. The current blast of YouTube, Netflix, etc has opened the door to the industry, but it certainly isn’t a “taped path” to success. However, there are a few steps that are proven true in current film financing projects. These steps are only a crossover from standard business accounting to film accounting. The standards are still in the pioneer stages, so be prepared for some hard won work.
FINANCING = GENERATING CONFIDENCE WITH GOOD BUSINESS STANDARDS
The weakest factor for emerging producers to overcome is to have the ability to generate a financier’s confidence – that is, to have those with disposable income (financiers of any kind) feel confident that the film project being pitched will generate a return. That financier has several investment avenues available. Indeed there are teams of professional investors knocking on their door, all with clear documentation and proven track records. Your best hope of generating that confidence is to present your facts according a business standard that the financier is familiar with.
CROSSING OVER TO FILM ACCOUNTING
Enter the accountant, or professional producer, who has crossed over to film accounting. The film accountant is familiar with five particular ways of generating confidence – all of which should be referenced in any Executive Summary and Business Plan:
- FILM BUDGET: A professional film budget with both a summary page and supporting detailed accounts. If this document is unfamiliar to you please click here for more information. (Note: Within the appendix of the business plan include a copy of a standard “Cost Report” so the investor can see the industry standard of reporting the costs and how they are controlled.)
- STATE TAX CREDIT ESTIMATE: A clear schedule estimating the State Film Tax Incentive available based on the budget. If this topic is unfamiliar to you please click here for more information.
- FILE FORM D WITH THE SEC (CROWD FUNDING): Show the investor that you are only looking for “Accredited Investors” by filing a “Form D” with the SEC. This is a relatively simple form which separates you from the novice who is looking for a freebie. Please read my blog on this topic to get a better understanding of what it takes to legally solicit funds broadly.
- CASHFLOW REQUIREMENTS: A weekly cashflow requirement schedule both in summary and in detail by account (based on the budget). Click here for more information.
- FINANCING CASHFLOW SCHEDULE: By preparing this schedule the investor can see that you are transparent and alert to the costs of borrowing from film friendly institutions. Click here for more information.
Including these documents in your business plan, clearly referenced in your executive summary, will raise your credibility meter significantly with any financier.
For those of you interested in getting into film accounting in a more detailed way, should visit my web site for upcoming Film Accounting 101 2 Day workshops – two coming up, one on the West Coast and one on the East Coast. See http://www.filmaccounting.com
Cheers / John
30 year veteran of over 50 film and television productions in 6 different countries.