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

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Manufacturing Desire – by Slated

Slated, my favorite online source for Indie filmmakers, has a truly spot-on article. It’s based on a talk given by Erikl Feig, president of production at Lionsgate, explaining to a WGA West audience last year how even the largest independent film studio in North America has to tap dance between two polar sets of interests.

Colin Brown, the managing editor at Slated, has written this article and is well worth the time to read – as usual his writing style is simple to follow with excellent references.

It starts out with a quote from Erikl Feig:

“Every single movie that we make has to be sold twice. First, on a pre-sale basis, to a bunch of independent foreign distributors who are worried about losing money. And second, to a consumer who wants to see something that they haven’t seen before. Trying to find the right project and the right package that can satisfy both of those moments in time, separated by eighteen months of hopefully good execution, is really, really hard.”

The article is at this link:

http://info.slated.com/the-manufacturing-of-desire/ 

To learn more about the the basics of putting together a business-like package, see more at http://www.talkfilm.biz/filmbusiness.htm

Cheers / John

Creating Investor Confidence For Your Film Project

“ACCREDITED INVESTOR” – THE OFFICIALLY WEALTHY WHO YOU NEED TO SOLICIT FOR FINANCING

The “accredited investors” as defined by the new SEC ruling allowing for general solicitation, are officially wealthy, and are accustomed to dealing with basic financial reports and terms.

THE HIGH RISK OF INVESTING IN FILM

Mr. Bucks has heard about the high risk of the film business. You will need to create the confidence with Mr. Bucks that you CAN produce – at a return. So, now, more than ever before, it behooves Indie film producers to understand the basics of the film industry as a business – especially if he/she wants to solicit the officially wealthy who don’t know film.

THE BUSINESS LANGUAGE OF FILM

For those of you who do learn the Business Language of the film industry you will find that doors previously closed to you will open – just a crack , at first, but with some perseverance the Completion Guarantors, experienced Directors and Cinematographers, some Mini-Major Studios, etc. will be impressed and will offer more and more opportunities. Success breeds success, and it starts with generating confidence.

CREATING CONFIDENCE THAT YOU ARE FISCALLY RESPONSIBLE

From my point of view (30 years in the ‘biz) there are 5 or 6 things you should learn more about, and with a little practice, you will have a very good shot at creating the confidence needed by the investor that you are fiscally responsible. You really can’t lose. In my book, “Walk The Talk” I refer to it as “Directing the Money”.

Here are the topics. All are inexpensive online self-study courses. Most of the information is on video. See the Filmmaker page of my website:

1. Learn More About the Full Business Cycle of the Film Industry (From Development through to Revenue Sharing)

2. Have a working Insight Into Film Tax Incentives in America and Canada as a Source of Financing (Including Section 181)

3. Know How to Manage Film Budgets Professionally (not create from scratch, just to be able to manage)

4. Know How to Manage Cost Reports Professionally

5. Know the fundamentals of Creating Cashflows “Out”/”In” for Bank Loan Purposes

6. Understand the Role of Hot Costs During Film/TV Production 

Knowing these topics you won’t be confused with the clutter of people who “have a great idea”.

For more information on the online self-study courses offered see the Filmmaker page of my website

Cheers / John

Crowdfunding – Going Legal

Crowdfunding always seemed like a “wank” to me until I started to look into the new SEC Rulings from July – 2013. (They’re taking effect in mid-Sept – 2013). Really, I had the idea that Crowdfunding was an effort by a bunch of Indie wanna-be’s whining to raise funds without making the effort to understand the Business of Film.

Maybe it was a hope and a wish before, but now it’s about to go open up Indie financing in previously unknown ways.

CROWDFUNDING IS ACTUALLY AN OFFER TO SELL SECURITIES

The Crowdfunding process is actually making “an offer to sell securities”, so it falls into the sacred territory of Hedge Funds. The people who invest will own a few points in your film – the number of points will be proportional to the amount of money invested – this is the same principle as Hedge Funds, and, indeed, is regulated by the same Regulation D of the Securities Act.

THE DIRTY THIRTIES

Many moons ago, right in the middle of the “dirty thirties” following the terrible market crash in October, 1929, the US Securities & Exchange Commission passed a ruling saying that you must register every offer to sell securities. At that time they left a loop-hole – Regulation D – a list of “Rules” for small businesses who couldn’t afford all the red tape involved with this registering process. The Rules are numbered 501 through to 508, so you may see terms like “Reg D, Rule 506”, etc. The rules are meant to be protective of the integrity of non-registered sales of securities and are restrictive.

THE JOBS ACT – SECTION 181, AND NOW RULE 506 (C)

The Jobs Act, which is the legislation behind the Federal Film Tax Incentives (generally referred to as “Section 181”) encourages investment in small business by easing certain securities regulations.  As part of the general compliance with the Jobs Act, in July 2013 the SEC passed Rule 506 (c) ) to allow general solicitation and advertising for a private placement offering. However, in a Rule 506(c) private offering all of the purchasers must be accredited investors and the issuer must take reasonable steps to determine that the purchaser is an accredited investor. The SEC legislation can be downloaded by clicking here http://www.sec.gov/rules/proposed/2013/33-9416.pdf

ACCREDITED INVESTOR

The SEC has defined an “Accredited Investor” in 8 ways – see this link for a very clear, and easy to read, definition of the 8 definitions  http://www.sec.gov/answers/accred.htm .

The most interesting to me is #7: “a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year”.

WHAT DOES THAT MEAN TO THE INDIE PRODUCER?

I think an article by Carl Brown in “Slated” on July 19, 2013 says it best:

“ … even if the SEC’s final rules don’t end up inducing millions more private investors overnight into the film industry, they will still spur the need for more diligent background checks, not to mention private placement memos that are grounded in more realistic and informed financial projections. The demand for better film data and verification paperwork will increase, and so too the likelihood that this industry will win acceptance and long-term legitimacy among a wider pool of accredited investors”.

IN SUMMARY

You will see a field of investors opening up which had been blind to us all before; however, it will also raise the bar on the quality of proposals required by the Indie Producer. Yes, the creative idea will still have power, but there will be a very high expectation from “Accredited Investors” that the Indie Producer is competent to handle their money. Your challenge will be to generate that confidence by demonstrating that you understand finance.

To find out more about how to get to that point of generating confidence see this YouTube Video: http://youtu.be/tYduDZHNRhw

 

Cheers and happy prospecting / John

Business Management for Media Professionals

The business end of producing and releasing any media project is still overwhelming. The money is tight; investors are careful; the projects that are being “green lit” are under constant risk assessment; those who have done it before are somewhat trusted – those who haven’t are openly distrusted.

Credibility, by that I mean your financial credibility with those who hold the purse strings, was never so sought after – at least not that I’ve seen over the past 30 years.

The missing credibility factor dies off quite fast during the Development Stage. That’s because 50% of development is financial. There are several stages within the development stage which, when ignored, signal an “in-(not)credible” producer.

When was the last time you a saw an Indie Blog talk about Cashflows-Out Matching the Cashflows-In for bank loan purposes, or impressing the Bond Company with your ability to manage the six basic accounting functions during production….

Rhetorical, I know, so I’ll stop.

I have done my bit with this video followed up with 2 hours of videos.

Please have a look, and let me know what you think. Or, go to http://www.talkfilm.biz/filmbusiness.htm

Film and TV Production – A Growth Area for Accountants

The growth in the film industry is indisputable.

REVENUE GROWTH – FILM AND TELEVISION

Stats show revenue growth over the past year in both the film and television. The Motion Picture Association of America 2012 stats show the Domestic Revenues have 6% growth from 2011, and 12% growth from 5 years ago. The Global Revenues show 6% growth over 2011.

JOB GROWTH FOR FILM AND TELEVISION INDUSTRY

The MPAA stats show that in 2010 direct industry jobs generated $42.1 billion in wages, and an average salary 32% higher than the national average. Also, there were nearly 282,000 jobs in the core business of producing, marketing, manufacturing, and distributing motion pictures and television shows. These are high quality jobs, with an average salary of nearly $82,000, 74% higher than the average salary nationwide. Those numbers don’t include over 400,000 jobs in related businesses that distribute motion pictures and television shows to consumers. (And … remember that there has been steady growth over 2011 and 2012)

STATE FILM TAX INCENTIVES

Of the 52 States a whopping majority – 42 States – have some form of film tax incentive. (The naysayers are Nevada, Arizona, North and South Dakota, Nebraska, Kansas, Iowa, Delaware and New Hampshire.)   After working in the film production business for 28 years, and delivering workshops in 7 States, I can say unequivocally that filmmakers need your help to manage the required reports for Film State Tax Incentives, as well as give audit opinions, agreed upon procedures, etc for the certification of their cost reports.

DIGITAL CAMERAS AND FILM SCHOOLS CREATING MORE FILMMAKERS THAN EVER BEFORE

It has been said for a few years now that the digital camera will revolutionize the film industry. There was a time, say just 4 or 5 years ago, when it was only possible to make films with very expensive 35 mm cameras that were bulky, required tons of lighting, dolly tracks, etc. Those days are still with us on the big time film productions, but it is swiftly declining as the major means of shooting film and television projects. This new generation of filmmakers need the accountant’s help.

EVEN ACCOUNTING FIRMS ARE PRODUCING THEIR OWN FILMS!

Even Accounting Firms are doing their own filmmaking, witness Withum’s Mob Flash Dance (really up-beat!) and the Center For Audit Quality’s series – my fav is CAQ – The Financial Statement Audit (very cool comic book style).  These two YouTube videos have had 53,000 and 72,000 views, respectively.

OPPORTUNITIES FOR PROFESSIONAL ACCOUNTANTS AND BOOKKEEPERS

This all spells opportunity. Take a minute to get an insight into the opportunities available for accountants of every status – watch this video.

Film Industry Cycle

I made this video for public accountants, but after viewing it a few times I realized it would be excellent for emerging producers.

I’m going to expand it a bit to include more about ownership and distribution. Let me know what you think!

Cheers / John

Testimonial – Things Harvard Never Taught You – Film Accounting

I just received this email from a workshop attendee at my last Toronto workshop – he’s an MBA, Chartered Accountant who has also done some work in producing films. Here it is:
_______________________________________________________________________
Hi John and Helene,
Please find attached my testimonial for the course and for John.  Please let me know if I got any of the facts wrong or if you would like me to comment on a specific aspect or change anything.  And you are more than welcome to use all or parts or none of it as you please.
Best,
Craig

Pioneer

John Gaskin is, in my opinion, a pioneer.  Never before have I seen such a well thought out course that offers a non-accountant with the tools to walk the talk of film accounting lingo when dealing with producers and studio execs.  John’s materials are pure gold and his extensive experience in the film industry as a production accountant makes him a great role model.  And he’s a really nice guy, too!  What more could you ask for when taking a course on a topic that is seemingly shrouded in mystery.  John demystifies it all and his course is also a fun opportunity to meet interesting people and make permanent friends in the industry.

Experience

John knows from experience how to walk the talk and he gives you practical examples of what exactly the production manager, the producer, and the studio executives expect from the production accountant.  And John reminds us that ethical behaviour is a cornerstone to success because he knows that our longevity in this business depends on it.

Harvard Never Taught You

In this course, we get a rare glimpse inside the accounting aspects of the film industry, a field that the creative artists may shy away from but ignore at their own peril.  And John makes the material easy enough for anyone to understand so if you’re a non-accountant, don’t be afraid of this course.  It won’t give you a headache, I guarantee.  And if you happen to be an MBA, there are things in this course that Harvard never taught you.

Summary

John loves his work and it shows and I’m glad to have met him.  He’s here to break down the budgets and the cost reports that govern the filmmaking process into easy to understand components.  It was an absolute pleasure to be one of John’s students and he gives back because John sincerely wants us all to succeed in the film industry, making profits as well as art.


_________________

Michael Craig Lowe
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mcraiglowe@yahoo.com
“We are such stuff as dreams are made on and our little life is rounded with a sleep.” ~ Shakespeare
The Tempest, Act 4, scene 1

Getting Work In Film Accounting/Production- Attitudes Count

Since I decided to do a series of workshops on Film Budgeting, Accounting & Auditing it’s occurred to me many times that I need to instill an attitude as much as accounting & budgeting skill. This is not just true for those who want to work in Film Accounting, but is also true for Public Accountants & Line Producers who come to the workshop for entirely different reasons.

Here’s the dilemma:

– how do you present something that is fundamentally a skill but is primarily an attitude? Man, it’s a difficult thought process.

Within each workshop I try not to make any promises of work…. that is, to promise that the attendees will fall out of the workshop, certficate in hand, and find a producer, production manager, key accountant who will hire them on the spot. There is an attitude prevalent amongst all who work in the film industry that unless you’ve been-there-done-that then you just can’t do it.So, it’s my task to not only give you a skill, but to introduce you to the attitudes of those hiring you. I usually do that through relating actual events that have happened to me, so as to give you concepts that you can relate to your own life.

Because I have worked in such a wide range of professions in my early days:

-Land Surveyor,

-Engineer,

-bottom end of a major public accounting firm,

-Controller at a Bank,

-high-priced-temp-Accountant for a variety of industries,

-small private bookkeeping & tax practice

I can see attitudes from across the room. One glance let’s me know how tough the person is going to be to deal with. In the Film Industry you’re dealing with attitudes that are deep in the fabric of everyone who is involved in it.

And…. one of those attitudes is – you don’t understand what it’s like, so you may not “make it”. This kind of pre-assumption of failure doesn’t allow for any training – at least within a film or television production environment. The old phrase, “Many are called but few are chosen” comes to mind. If a training environment IS provided, it’s quite likely an internship (a euphemism for NO PAY).

What can I do to help you to overcome that barrier? Well, I definitely lay it on the line – knowing this Film Attitude (i.e. pre-assumption of failure) is usually behind every interview is a big factor inn dealing with it. Also, I drill you (that is have you practice several times) so that you are no longer intimidated by the film accounting process, or the attitude of the production manager or film accountant, which is more important (remember what I said about the film industry and attitudes).

Another thing that’s important is to have the ability to speak up and to have a sense of humor. This is not a platitude, although it sounds like one. When the pressure is on, when you’re working 12 hour days, and the Key Accountant throws a BF, it’s expected that YOU don’t.  The only way to avoid getting caught up in a shouting match is to keep your sense of humor.

How do you do that? There have been a few times when I didn’t, but immediately afterward I could see what’s going on and I’d do a face-to-face conversation with whoever – it pretty much always works if you understand the film business and if you look at the positive side of the film attitudes towards work (and life).

There are positive sides to the Film Attitude – the fact that film and television productions get done at all is due to the PUSH attitude. There are so many collaborative steps to produce and distribute a feature film or television show that the longer I’m in the business the more amazed I am that so many productions are made! (On the other side of the coin I’m also amazed at why so many people make it so hard on themselves while they’re making them).

Enough said – here’s the point:

There are downsides and there are upsides to the Film Attitude, and overall the upsides are admirable. If you want to work in any aspect of the film business, especially in film accounting, you need to know what they are and you need to know something of how to deal with them…. as well as have your film accounting skills honed.

Until the next blog….

John

See my web site at http://www.talkfilm.biz for scheduled workshops, articles, etc.

Film Production: Faster Better Cheaper – Pick Any Two

I just Googled “Faster Better Cheaper – Pick Any Two” for film and tv production and was shocked to see that no one’s (apparently) blogged this old adage.

Because old it verily is. About 1970 I saw an interview with Hattie Jacques, a veteran character actor who always played the dowdy Matron, Wife, etc. through the series of “Carry On ___” movies out of the UK. She not only used the phrase, “Faster-Better-Cheaper pick any two”, but she said that it was a mantra that she had been living for many years.

 Let’s think about it. It’s a generality, and I think it’s lasted so long because it really makes you ponder. But, like all generalities, not always true.

 Let’s look at the easier combinations first:

Faster-Cheaper: Yep. It’s pretty much a no-brainer that faster-cheaper will ultimately lead to NOT “Better”. But there are rare exceptions, like Sydney Lumet and Clint Eastwood. In general, though, faster is usually “Cheaper”, unless wholesale panic ensues from the props, wardrobe, set dressing buyers. If they need to grab the first thing they see because of the lost time, it will cost more and will have a ripple effect on “Cheaper”, upsetting the director, causing the cast to mope because they’re not wearing what was promised, etc. In spite of it all, though, Faster will reduce the labor time and so should bring it in “Cheaper”, but at a sacrifice of “Better”.

 

Faster-Better pretty much excludes “Cheaper”. A better quality, even if it’s just more rehearsal time, will cost more than otherwise. Better-Faster would mean ensuring you have an experienced Cinematographer, a ‘show runner’ who knows the genre and can coax the best out of the script, etc. These types of heavy hitters are worth it, and will speed up the production. Perfect locations, stylized wardrobe, manufactured props are all “Better” at the sacrifice of “Cheaper”. Keep in mind, though, that “Better” may not mean “Faster”. Most directors want more coverage and love to wait for that perfect shot (dawn-in-the-desert kind of thing) and that is definitely not “Faster”. So, this combination works only with tried and true professionals who have enough time to plan an agreed upon shooting schedule.

 

Better-Cheaper is the bane of Independent Filmmaking. I have personally heard Production Designers lament, “If only I had more money, it would have looked so much better.” (I giggle in my sleeve when it’s already a $30Mil + production.) Each year, though, there are independent films that just DO IT cheaper and better than anyone else – “Little Miss Sunshine”, “Happy Go Lucky” and “Frozen River” are three such films that come to mind right off the top of my head. But to get back to topic, “Cheaper” is not any right of passage to “Better”, and this is where the adage falls down. There is some truth to the fact that if you ignore “Faster” and take more time to plan and rehearse, as well as to shoot, then you can make it better – but the “Cheaper” factor is only possible if the cast and crew are working for flat fees (i.e. no overtime). You would need to find a production cast and crew that are willing to do that for no extra fee – hmmmmm. Was that a Union Rep who just called?

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