Are the GOP Creating A Boom in Film/TV Production?

 

greenlightRemember when Canada was the first out of the gate with film production tax incentives? The film and television productions were Running Away to “Hollywood North”. Indeed, Canada still holds its own with over a billion dollars a year in crew payrolls alone. Well, this time it’s the GOP tax Reforms, not Incentives, that could cause a trend of Running Back to America, creating a boom of film/TV production.

COST OF FOREIGN PRODUCTION NO LONGER DEDUCTIBLE FOR TAX PURPOSES

If passed, the GOP proposals would no longer allow foreign costs of production to be deductible against domestic revenues. Let’s take an example:

  • Ford builds a truck in Canada for $15,000
  • Then, Ford imports the same truck to America and sells it for $30,000
  • The resulting “Net Profit” of $30,000 – $15,000 = $15,000 would be their current taxable income.
  • No longer! Under the proposed business taxation rules Ford will get taxed on the full $30,000 revenue without being allowed to deduct the foreign cost of manufacturing.
  • Conversely, say Ford builds the same truck in America for $20,000 ($5,000 more) and sells it for $30,000 then the taxable revenue will only be $30,000 – $20,000 = $10,000
  • At a 20% or 25% tax rate Ford is no longer saving money by using cheaper foreign labor.

PRODUCTION COMPLETED IN AMERICA AND SHIPPED ABROAD NOT TAXED

Another major part of the proposal is that all Foreign Revenues earned from American made products and then shipped abroad will not be taxed!   Wow! This is a complete turnabout from current standards. So, that could even help for cars sold in Canada. Let’s take the same example:

  • Ford builds a truck in America for $20,000.
  • Ford sells the same truck in Canada for $30,000.
  • Under current tax rules Ford would pay taxes on the net income of $10,000 less a credit for taxes paid by Ford’s subsidiary in Canada. (The current American Corporate Tax rate is higher than the Canadian tax rate so is usually more tax to pay).
  • No longer! Under the proposed business taxation rules Ford will not be taxed at all on the $30,000 earned from Canada.
  • So, this encourages American made products to be exported.

IMPACT ON CANADIAN PRODUCTION OF FILM AND TELEVISION

The impact on Canadian film and television production in the short term could be big. Let’s say that the cost of film/TV production in Canada is approximately $1.5Billion per year, conservatively. If none of that could be construed as deductible against revenues earned in Hollywood, I’d say that there would be some worried Studio executives. In the longer run I expect that the US Dollar will get stronger and stronger when compared to the Canadian Dollar. So, less and less of that missing tax deduction will be missed by Hollywood. However, nobody likes to pay taxes, which may cause Studio Executives to produce in America regardless of favorable exchange rates. Indeed, these GOP corporate tax proposals would discourage production anywhere else in the world, not just Canada.

DESTINATION BASED CASH FLOW TAX – (Term Used by Economists)

The buzz word for this corporate tax proposal is Destination Based Cash Flow Tax, or DCFT for short. Economists love eye-glazing terms. They can’t help themselves. I mention it only because you may hear the term and when you do you won’t dismiss it as another Economist’s wet dream. My take on it is that the offshore revenues and the offshore costs of production are eliminated from the corporation’s taxable income. Theoretically, this will help production in America, increase jobs and mess with foreign countries production – which will create a howl of protest from various concerned parties.

EVEN THE WASHINGTON POST LIKES IT

If you’re interested, you can read the source document here. Or, the Washington Post’s review – surprisingly good given that they usually hate anything Republican. Here’s a quote from that article:

“It gets complicated, but the upshot is that the cost of imported supplies would no longer be deductible from taxable income, while all revenue from exports would be. This would be a huge incentive to import less and export more, significant change indeed for an economy deeply dependent on global supply chains, and which routinely runs an overall merchandise trade deficit. Meanwhile, the plan would discourage companies from shifting earnings to subsidiaries in low-tax countries and encourage American and foreign companies to operate within the United States.” Washington Post, Charles Lane, Dec 21/16

WHERE WILL THE “RUN-BACK” PRODUCTION RETURN TO?

It would be cool to see any productions coming from Canada and overseas arrive in California. Also, Ohio and Mississippi both have very good tax incentives and don’t appear to have exhausted their crew-talent pools. The usual other film and television production centers are currently working to capacity, or close to it.

CONCLUSIONS

At the time of writing this blog the proposed Corporate Tax Reforms have not been passed yet; indeed, it hasn’t even been fully fleshed out for debate yet. There are big players opposing it – like the oil barons (think Koch brothers) and the Walmarts and Targets who make huge profits by buying cheap offshore stuff. At any rate it’s worth investigating for yourself and discussing it with your local guilds and unions, both in the USA and in Canada. It has the potential for a boom in film/TV production, as well as all manufactured products – and all thanks to the GOP! Whoda thought?

Cheers / John

References:

The Tax Foundation: June 30/16 http://taxfoundation.org/blog/house-gop-s-destination-based-cash-flow-tax-explained

Forbes: Jan 3/17 http://www.forbes.com/sites/danielmitchell/2017/01/03/concerns-about-theborder-adjustable-tax-plan-from-the-house-gop-part-i/#23da766364ed

Forbes: Dec 8/16 http://www.forbes.com/sites/beltway/2016/12/08/border-adjustability-is-already-fueling-tax-reform-controversy/#46e8220142bb

 

 

 

 

 

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The Three Key Areas of Film Accounting

Film Accounting is somewhat of a mystery to outside accountants. There ARE film industry specific practices that separate film accounting from other industries; however, anyone can learn the three key areas rather quickly, and have a lot of fun at the same time.

There are three basic areas to address, preferably in a hands-on workshop:

1.THE FINANCIAL AND ACCOUNTING CONTROL POINTS

6basicfunctions

6 Basic Functions

There are key accounting control points that are standard throughout any film or television production. I have found a workshop environment to be the best way to learn the workflow and processes, pointing out the control points as we go along. There are typical forms, templates and rules followed in film production accounting. You will be able to take home standard templates and forms used throughout the industry every day. Also, flow charts help as a later reference when you start applying what you’ve learned.

2.THE FILM BUDGET AND THE “COST REPORT”

The Film Budget and the Cost Report issued during any film or television production are

the career maker/breakers for any film accountant or producer. You should have an understanding of how to present, read and manipulate both the Film Budget and the Cost Report, something so important to their career as a producer. (The “Cost Report” is the vernacular for Financial Statements in film production. It is confidential at all levels. This workshop may be the only place you’ll be able to learn how to produce it).

3.CASHFLOW REPORTS AND FILM TAX CREDIT ESTIMATION

An emerging producer, or a film accountant, who can prepare a weekly cash-flow schedule from the budget, as well as a reliable estimate of the tax credits expected, is far in advance of other emerging producers in the same pool. A first step is having typical templates commonly used in the industry to create the cashflow schedules and the tax credit estimates.

REAL SITUATIONS

Within these three areas I convey as many real situations as I can, throwing in examples of fraud and how to control it, how the industry is different/similar to other industries, as well as my real experiences with celebrities like Ron Howard, George Clooney, Steve Martin, etc. There are other areas that I get into given time, including how to find work in the film production industry, both as film accountants, and as a services the CPA can perform in the industry.

FILM ACCOUNTING WORKSHOP 101

My next Film Accounting 101 workshop is coming up in Chicago on Oct 22nd and 23rd. Step 3 above is not gone through in detail, but the templates are provided. The curriculum is more designed for those who want to actually work as film accountants. However, the testimonial below from a producer who recently attended reminded me that it is still what many producers want to know about film accounting:

“John Gaskin has an amazing wealth of knowledge that crosses over into various film departments. In his Film Accounting workshop, he outlines the big picture of film financing and production, and then hones in on the detailed accounting procedures. As a producer, the course has given me the confidence to manage larger budgets and communicate with production accountants more thoroughly on different points of financial control. In addition to attending his course, I also read his book “Walk the Talk”, which I’ve recommended to other industry professionals many times. With both formats John breaks down a breadth of complex information in a manner that is clear and digestible.” SR

Come join us at the next workshop. I promise you will NOT be bored!

 

To find out more about the Film Accounting 101 workshop at http://www.filmaccounting.com

Cheers / John

Line Producer – Managing Film Budgets and Cost Reports

Film production has a middle management position called “Line Producer” and/or “Unit Production Manager”. This person is charged with the responsibility of bringing the production in on time and on budget – really – and from the ground level. Most Line Producers and UPM’s learn their ability to manage shooting schedules through education and on-the-job experience. But, what about managing budgets and the related weekly cost report?

Breaking In As A Line Producer – Managing Costs and Reports

How does a 1st Assistant Director, a young producer, a filmmaker, a location manager, etc bust in as a Line Producer? How do they get exposure to the very confidential Cost Reporting process? In this environment of producing films cheaper-better-faster it’s especially important for Line Producers to understand the “Production Management” of budgets and cost reports.

Confidentiality of the Management of Film Budgets and Cost Reports

The confidentiality of the film budget, and its cousin, the weekly cost report, creates a barrier for emerging Line Producers. Most learn through a series of hard-knocks, easily avoidable with some practical training. However, there just isn’t any time on set for an active Line Producer to apprentice someone. It’s too fast and too late. The only way to learn this very important aspect of the film BUSINESS is to train in a controlled environment.

The Practical Methods of Managing Budgets and Costs

During a series of 6 live webinars, each 90 minutes long, we will review a $9Mil budget from several angles, learning the practical methods of managing a film budget used by film producers and production accountants everywhere. From that very important step, we practice the essential steps in controlling and reporting the production costs through the Weekly Cost Report – this report is fundamental to ALL media-based productions, and is reviewed weekly by the completion guarantors, the financiers, the studios, etc. In addition you will be introduced to the 6 basic ways that you can use to control the costs before they are spent.

Visit http://www.talkfilm.biz/filmworkshops5.htm to learn more. The next series of live online webinars is every Tuesday and Thursday night starting October 28, 2014. Note that the webinars are recorded for review at your convenience.

Cheers / John

Film Unions – Finding Financing or Finding Work

FINDING FILM FINANCING, OR EVEN JUST FINDING WORK

In my last article, “Finding Film Financing – Can it be Taught?” I listed several blocks of knowledge which could be taught. Having a workable understanding of such things as Union/Guild Agreements, Film Payroll, Bank Loans, Tax Credits, Production Cost Controls, etc., and how they weave together, will project you as a competent professional.

KNOWING FILM UNION AGREEMENTS ELEVATES YOUR STATUS

Does that mean that a financier will invest in your film project if you know your way around film Guild and Union Agreements (SAG, DGA, IATSE, etc)? Not necessarily. But it does mean that an experienced financier will have more confidence in your decision-making, and will have more confidence in referring you, listening to other strategies more suitable to their portfolio, etc. It definitely gives you an elevated status which the film community will pick up on. That financier might just say, “I’m looking for a young executive like you…” and start negotiating a contract to keep you on full-time.

WORD OF MOUTH IS EVERYTHING IN THE FILM COMMUNITY

The film and television production community prides itself as being much different from the rest of the business world. Word of mouth is everything. Impress one studio executive, or an experienced bond company representative, or a state tax administrator, etc. and believe me you have just made an “in” with their contacts as well. There are so many “wannabe’s” and only a few who will actually go the extra mile to learn the financial building blocks of the business of producing film and television content. Show them you’re in that small group who understand Guild and Union Agreements and their confidence in you rises sharply.

FILM PAYROLL RULES ARE LOCATED WITHIN EVERY “AGREEMENT”

The film unions and guilds have made “Agreements” with the Alliance of Motion Picture and Television Producers, generally known as the AMPTP. The “Agreements” state the rules of the contract between the Guild or Union and the Producer, including all payroll rules.

Each Guild/Union has broken down their rules for calculating payroll into the following 4 categories:

  1. The “Basic Day” and Overtime Rules
  2. The penalties associated with “Rest Violations” (also called “Turnaround”, or “Forced Calls”).
  3. The penalties associated with violating Meal Periods (called “Meal Penalties”).
  4. The various circumstances associated with Travel – whether to a “Distant Location” (i.e. staying in a hotel), or traveling outside of a defined “Studio Zone”.

Once you know where these points are in each of the agreements your task becomes one of familiarization and practice.

THE NECESSARY TRAINING AND PRACTICE

I’ve found that a full weekend practicing the feature film payroll rules, followed up by on-line links to all the materials, is plenty for your average person to learn how to manage and to calculate the union/guild payrolls to “gross” (i.e. to the gross amount of pay due before union and government benefits/deductions). I also supply timecard templates (yes, with the formulas) which are “helpers”. Once you have a working understanding of the various Agreements you can fluidly optimize your management of any union/guild within your production.

For more information see http://www.talkfilm.biz

Cheers / John

 

Finding Film Financing – Can It Be Taught?

A friend of mine told me that he is very interested in opening a Film Financing School in Los Angeles. The school would deliver a series of comprehensive courses by industry professionals. His investors have asked him why no one else has done it before. My friend asked me how I would respond to that question. When I started to answer him, I realized that I needed to find out what others thought. Please feel free to chip in with your opinion.

FINDING FINANCING IS A GAME OF CREATING CONFIDENCE

Finding financing is primarily a game of creating confidence – this is true of any business, but especially of film financing. Those who have expendable income can afford to have professional investment advisers. Those advisers are allergic to risk – period. This is not only true of “Accredited Investors” (those who the Securities Commission have defined as being open to general solicitation of funds) but also of the Major Studios.

REDUCING RISK FOR INVESTORS

So, Film Financing is a game of reducing the risk for investors. Reducing risks CAN be taught. It just isn’t taught in film schools, and is only very rarely addressed in graduate schools. Remember that those with expendable income generally have a wide spectrum of ways to invest their funds. Film is risky; however, it is also sexy, and if a large amount of the risk is eliminated through good business practice I believe that investors will come.

CREATIVE BUSINESS PRACTICES

How do you reduce the risk? The answer could generally be split into two fields: the creative script, and creatively performing the business of film and television.

The creative script is where 90% of the effort is placed, and that’s why so few Indies make it. The writing and casting of the script is left alone here. That is something that the film schools DO know how to teach. In this blog let’s look only at the creative business practices and what it takes to reduce risks as perceived by the investor.

FILM FINANCING – WHAT IS THE BEST COURSE CONTENT

Here is where I need your help. Can you give me feedback as to what you would like to learn in order to make film financing a possibility for you? These are the categories that I feel are needed. Each of these courses/categories could be attended separately; however, it would be best in sequence. These categories are well in advance of most of what’s on the web. Please let me know how you feel about it, especially if you would rather do it online, as opposed to going to LA to attend in person :

  1. Film Budgeting and Scheduling: using Excel and/or Movie Magic applied to an actual script.
  2. State Tax Incentive estimating on at least three film friendly States (say, Georgia, Louisiana and California), utilizing the film budget and shooting schedule completed above. Once an estimation is learned, then the student must learn how to best monetize that tax credit estimate.
  3. Process “An Offer to Sell Securities”, otherwise known as Crowd Funding, applying the current rules and forms per the US Securities and Exchange Commission.
  4. Prepare Cash Flow Schedules (both cash expended and cash funding arranged/postulated) acceptable by a bank as part of a Bank Loan Process. Use the Film Budget as the basis for the cash expended and the State Tax Credits, Pre-Sales to specific territories and Equity expected as the cash funding arranged/postulated.
  5. Process a mock bank loan based on an actual loan processed to experience the range of legal and accounting documents required by the banker and the Completion Guarantor. Use the cash flows above as the basis to estimate the loan interest.
  6. An introduction to the Guilds and Unions of the film industry: What are the general rules of payment and fringe due per the rules of the Writers Guild, the Screen Actors Guild, the Director’s Guild and the IATSE crew unions. How does the residual system work and what are the budgeting and cash flow obligations which the producer must manage.
  7. Film Production Cost Control Points for both producers and accountants: The investors need to know that you have the ability to control production; otherwise the investors will cut you out of the process very early on. The only way for them to have confidence in you is if you can demonstrate an understanding of film industry specific production workflows, forms and practices, including your relationship with the Completion Guarantor through the weekly Cost Report.
  8. Final Business Plan: Bring together all of the above into a final business plan that is professional looking, scalable and defensible.
  9. Salesmanship: reenactments of pitching investors with the business plan above, pitching the script, assuring investors that you CAN control the costs during production, etc. This level is very much a practical where the student will bring together all of his/her knowledge of the line items above.
  10. Other: There are certain legal templates used to Incorporate as an LLC, to acquire Rights Ownership, to write Distribution Agreements, format Pre-Sales of Rights to Territories, Equity sweeteners, etc that can either be introduced within the subjects above, or brought into the mix after acquiring the knowledge above.

 

Each of the 9 items above would have a unique curriculum.

QUESTIONS

There is no guarantee that the Semester Credits would count towards a degree in another university. Is that important to you?

Does this comprehensive course appeal to you? Would it be better delivered in person, or online?

All for now,

Cheers / John

State Film Tax Incentives and Culture

BACKGROUND

The earliest instances of film tax incentives had the purpose of retaining and nurturing culture. Canada is a good example. The film tax incentives began in Canada to nurture “Canadian Content”. It was meant as a way to guard against the encroachment of American culture into the Canadian society. The concept of “French Canadian Culture” has certainly taken root with the film tax incentives; the English-speaking centers of Toronto and Vancouver, and even downtown Montreal, embrace the infusion of American cash while learning and matching the American skills of filmmaking – well, that’s part of their culture, isn’t it?

WHAT CULTURAL ADVANTAGES?

Culture is what the people are doing; how the people are communicating and living life. Does the action of producing television and film in a State boost the local pride, infuse the community with a way to communicate, provide a skill that can be identified? YUP! Look closely at Louisiana and Georgia. I have visited New Orleans and Atlanta as part of my film accounting workshops, and I see a group of people who are downright proud of their participation in filmmaking. Personal pride always pays dividends.

WHERE FILM TAX INCENTIVES HAVE FAILED

Those States that have failed to maintain a film tax incentive, have failed to recognize the local cultural pride and development. The State was looking at cash-in and cash-out on a short-term basis, without a second look at the cultural advantages and how that pays off.

PRODUCE YOUR FILM, IN A TAX INCENTIVE LOCATION, WITH CULTURE IN MIND

A good example is the making of “Whole Nine Yards” in Montreal. The film was being produced in Montreal because of the film tax incentives there, and because it could double as a European city. During prep Bruce Willis decided to let the location BE Montreal, with French accents, Canadian money, and mayonnaise on a hamburger – it was not only produced more inexpensively, but the film went on to gross $106 Million worldwide. It’s an example of boosting the local culture while still making profits – and please take note – the film would not have been produced there without a film tax incentive.

HARD FACTS

Yes, the hard facts are that a State usually gets about 8% of the employees tax, plus 8% of the cast and non-local crew, then the State pays 25% tax incentives to the production company. However, there is also an infusion of millions of dollars into the local economy for purchases, rentals and facilities that would not otherwise be there. The win that tips the scales is the spirit of winning that is granted to the local culture.

If you want to find out more about developing your film, the skills of a film accountant, or just interested in the business of media, visit http://www.filmaccounting.com/filmbusiness.htm .

Cheers / John

Crossing Over to Film Accounting – Financing

FILMACCOUNTING101DEFINING THE WEAKNESS IN FILM FINANCING – NO ACCOUNTING EXPERIENCE

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:

  1. 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.)
  2. 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.
  3. 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.
  4. CASHFLOW REQUIREMENTS: A weekly cashflow requirement schedule both in summary and in detail by account (based on the budget). Click here for more information.
  5. 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.

Crossing Over to Film Accounting-Film Budgets

The film and television approved budget reflects what the financiers have given you permission to spend in order to create a product of a specific quality. Throughout the production process the Producer is managing that budget, and the Film Accountant is swiftly comparing the actual costs with that budget on a line-by-line basis. Both of these professionals must be thoroughly familiar with each others duties and responsibilities.

THE PRODUCER MUST MANAGE QUALITY WITH THE $ IN MIND

Above the Line

Above the Line

The best way to really know how to manage a film or television budget is to know how to create one from scratch. But … that is a time-consuming task and really isn’t a requirement to being a good Producer, nor a good Film Accountant for that matter. What’s vital to exist as a Producer? It’s being so familiar with the budget that one can manage any type of cost, within any number of layers, in any film or television budget that you are given. This is not as easy as it looks in a chaotic film shooting environment.

THE FILM ACCOUNTANT MUST BE SURE WHEN MEASURING

By sure I mean certain and stable, especially when measuring the costs against the approved budget – all in relatively unstable conditions. Again the film accountant may never have created a budget from scratch; however, the accountant better be darn sure of where every type of cost is located and in what layer of each budget under his/her control.

CROSSING OVER TO FILM BUDGETING

So the first step is to know the overall format of every film and television budget anywhere that I have worked or seen budgets – USA, Canada, Europe, South Africa and Australia. We use a professional budget in my workshops which you will have a pretty darn good grasp of by the end of any workshop. At the risk of telling you something that you may already know

Budget Topsheet

Budget Topsheet

the breakdown of sections of all film/TV budgets are:

  • Above the Line
  • Below the Line Production (also called Shooting Period)
  • Below the Line Post Production
  • Other (Insurance, Legal, Interest costs, etc)

CHART OF ACCOUNTS

For you non-accountants the chart of accounts is a listing of all account numbers and account descriptions. I bring it up only because all of the Major Studios and Independent Producers have developed different Charts of Accounts. It’s a bummer, because as soon as you’re very familiar with the account numbers in one budget, another budget will use an entirely different Chart of Accounts.

PRACTICE

The best way to learn thoroughly learn about film budgets and cost controls is to practice in a controlled environment. See my web site for workshops, live webinars and online self-study. Go to http://www.talkfilm.biz

Cheers,

John

Crossing Over to Film Accounting – “The Cost Report”

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”.

costreportTHE COST REPORT IS CONSIDERED CONFIDENTIAL

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)

TRICKS OF THE TRADE
A working knowledge of costs reports and the data behind them is a prerequisite for any CPA to be able to audit the Cost Report for State tax credits; it’s also vital that any emerging producer have a working understanding of Cost Reports.

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.

The Business of Media – Development

THE BUSIEST AND MOST DEMANDING STAGE OF FILMMAKING

So much is happening in this simple representation of business and creative actions that I usually go through these points in a live workshop. As you can see it’s very busy. It needs some structure to review it.

CONTROL POINTS

Film Development

Film and Television Development

So, I came up with the following “Control Points” – just to give the reader a chance to catch their breath:

a)Ownership of the Rights
b)Production Budget
c)Cashflow “Out” (Costs)
d)Types of Financing – Terms
e)Types of Film Tax Incentives
f)Cashflow “In” (Funding)
RAVE REVIEWS
I went over this on my last three workshops for Women-In-Film and had rave reviews. Especially since we took some time to actually practice the steps with templates that I provided.
ENHANCE YOUR CREDIBILITY METER
Although it’s always easier to absorb the information  in a live workshop, I resolved to put it online as a self-study course.
Check it out. It will raise your Credibility-Meter with potential financiers.
Cheers / John
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