The Importance of a Business Plan For Film Projects

A business plan is a tool with three basic purposes: communication, management, and planning.

As a communication tool, it is used to attract investment capital, secure loans, convince workers to hire on, and assist in attracting strategic business partners. The development of a comprehensive business plan shows whether or not a business has the potential to make a profit. It requires a realistic look at almost every phase of your film project, in particular the distribution and subsequent revenue streams needed to recoup your investment. Furthermore, it shows that you have worked out all the problems of your project.

As a management tool, the business plan helps you track, monitor, and evaluate your progress. The business plan is a living document that you will modify as you progress in your project. By using your business plan to establish timelines and milestones, you can gage your progress and compare your projections to actual accomplishments.

As a planning tool, the business plan guides you through the various phases of your business. A thoughtful plan will help identify roadblocks and obstacles so that you can avoid them and establish alternatives.

But even more importantly, in a film project the business plan also serves another major purpose; you need it to attract investors to fund your project. No one is going to invest in your project unless they can see how they are going to get repaid and more importantly, make a profit.

“Anyone looking for financing for anything should have a business plan, period,” says talent manager Glenn Rigberg, of the Beverly Hills firm of Rigberg, Roberts, Rugalo. “An independent film business plan [without money and a hard offer to go with it] won’t get actors attached. But a solid, compelling plan can give a filmmaker a certain degree of credibility in the fundraising arena. That’s where it counts.”

What should go into a film business plan? Your business plan should always be simple and straightforward. Don’t waste a lot of time developing a 40 page document that no one will read. Keep it to 10 to 15 pages at most. Generally, every plan includes the following;

* The Executive Summary – a cover sheet that lists the credits of the producers, director and talent and describes the budget, start date and other key information in short, bite-size paragraphs.

* A Synopsis- A short version of the storyline followed by an “investment merits” section, which breaks down all the positive elements of the project, but does not include the ending (you want them to read the script). These elements might be established talent, distribution guarantees, or large potential audiences for the film.

* Environment- A brief summary to educate your reader about the industry and opportunities within the industry. You can also describe who your potential customers are and you can mention a few films that resemble your project.

* Operations- Description of how your internal operation will be structured from the top down in order to produce the project. Indicate what support services, casting, equipment, facilities, locations, legal advisory services, subtitling, etc. will be required to successfully execute the project. Document any key capital requirements necessary for delivering your project. Outline sources of and terms for funding. Indicate what financing has been sourced and how much is still required.

* Marketing- Describe your company’s approach to pursuing the market to distribute your film and earn revenue. Summarize your distribution channels and strategy.

* Financial Projections- Provide an analysis of what it will cost to produce the film which addresses total funds required, funds source, and balance to be financed. Include a budget summary with projected above-the-line and below-the-line costs. List your sales projections and briefly describe how you derived them.

* Financial Statements- Prepare a cash flow statement showing inflows and outflows of cash from month to month during the first year. Prepare a balance sheet reflecting the assets and liabilities of the project. Prepare an Income Statement showing the income, expense, and profitability of the project.

In these recessionary times, cash is hard to come by. It’s no longer enough to present a killer script and a terrific pitch. In this new independent film economy, the people who still have money want to see recoupment projections, marketing plans, internal rates of return, and multiple revenue streams. A properly prepared and informative business plan will go a long way in helping you to obtain the financing for your project. It can also be a valuable tool in ensuring the timely and efficient completion of your film.

No Owner Ever Wants to Offer Seller Financing

I have been a business broker in New Jersey for the past 6+ years. Nine out of ten times when I have an initial meeting with a business owner I am told that they do not want to hold a note (seller financing) for the sale of their business. It has been my experience that many of these business owners end up holding a note when the transaction is completed. Why is this and how do they protect themselves?

Like real estate, the overall majority of business sales encompass some form of lending. As Americans we all have been trained to use leverage. It increases the return we receive on our investment and it also allows a buyer to acquire a larger business with larger profits. If you are an all cash buyer and have $150,000 you can buy a business valued at $150,000. If you purchase a business valued at $600,000 than your cash down represents 25% of the sale price. Most likely, the $600,000 business will have much higher earnings even after you factor in debt service on the loan. When the loan is paid off the earnings will be that much higher even if a new owner does not grow the business.

If a buyer wants to use leverage they basically have two choices; 3rd party lender (bank, family member or friend) or seller financing. For this discussion I will ignore the family member or friend option because most buyers do not have this choice. Contrary to what you might be reading in the press about lending, SBA (Small Business Administration) guaranteed loans are readily available and most banks that offer them are eager to find borrowers. They are relatively safe loans to a financial institution because the government guarantees the majority of the loan. There can be many aspects of a transaction that make it more difficult to have this type of loan approved.

For one, most businesses are run in a manner to minimize the tax burden on the owner. In many cases the financial statements and tax returns will show losses. Even after the financial statements are re-cast the lender might not believe there is enough cash flow to pay the loan back and for the owner to make a reasonable living. Most SBA lenders usually want the buyer to put up some collateral such as the assets of the business, a home with equity, investments, etc. It is also critical that a buyer has very good credit. SBA lenders also want to see that the buyer has working experience that relates to the business they are buying.

In many cases a loan applicant is turned down because they do not meet or the business does not meet most of the above criteria. Sometimes we run into a time issue because SBA loans can take up to three months to close. When an SBA loan is not practical a motivated owner must consider seller financing. Certain small businesses such as food based (deli, pizza, convenience store, etc.), laundromats, and other retail have a sizable percentage of sales that come in as cash. Many of these owners do not record this cash for tax savings. These businesses must offer seller financing to get reasonable value for their company because there are no other alternatives.

In part 2 of this article we will discuss why many owners selling their businesses offer financing and the benefits of doing this. We will also look at ways that an owner can protect themselves from a buyer defaulting on a seller note.

Small Business Finance

Your optimism on the future of the business may overshadow the crucial aspects and specific details required in keeping the business on the progressive status. Sometimes, owners happen to be very aggressive and confident in terms of financial standing that they tend to become very lax when dealing with borrowing money. This creates a big problem since every cent of the money borrowed needs to be put into proper use. Unfortunately, what happens to some is that when they have the chance to borrow money, they borrow more (or less) than they require.

So when it is time for you to take a small business finance, you have to know how to calculate your needs.

There are several factors that affect the amount of money you need. They are worth discussing one by one.

Credit rating – The eligibility for a loan, especially on small business finance, is based mainly on the credit rating of the person. A good credit score means higher amount of loan and lower interest rate. Tip: Obtain a copy of your credit report long before you approach a lender. With a good lead, you have enough time to improve it further or to have your score fixed should there be any inaccuracies. Also gather all your business documents. This includes financial statements with attachments and schedules, tax returns, financial statement (interim year-to-date), and other documents that will help the lender assess your loan application. By doing so, the processing time is reduced.

Savings – Establishing a business or keeping a business running requires a good capital. Pulling out money from your saving will significantly reduce the amount of money you require for a loan. Tip: before you borrow money from lender, tap your resources first. This can cut the amount of money borrowed and the interest you pay, which in turn will increase your profit further.

Expected return/monthly expenses – Before borrowing money, project the amount you can afford to pay back. Your expected income minus the monthly expenses should be well over your loan payment.

Amount required – How much money do you need? Where should the loan go? These 2 questions should be answered first before you go to a lender. You do not simply say, “as much as you can lend” when you asked by the lender on how much money do you need. A reply like this will definitely shut your chances of getting a loan. Have a good estimate of how much money you need. Know where the money should be spent. This way, you can better plan the repayment or project whether or not you can afford to pay the loan back. Another good thing about knowing exactly how much you need is you can carefully manage your finances against other factors that were mentioned above.

Your credit rating, savings, expected return, monthly expenses, and amount of loan required should therefore be included when calculating your needs.

How to Calculate Your Needs?

Once you know where the money should go, identify which items are optional and which are necessity. Having a good funding on your small business is imperative but creating an impartial judgment towards management of funds will bring you a long way. Pinpoint the total amount of money you need by enumerating the small detail. For example, the start up expenses you may include: installation of fixtures and equipment, fixtures and equipment, decorating and remodeling, starting inventory, licenses and permits, legal and other professional fees, deposits with public utilities, consulting and software, advertising and promotion for opening, cast, etc.

Then ask yourself, “Can you afford to pay for the loan?” Borrowing is easy, paying it back can be a problem. So to make sure that you can afford to pay the money back, make a good projection of the future income of your business. Compute your monthly expenses which may include the following: monthly expenses, salary of owner-manager and staff, rent, supplies, advertising, telephone, utilities, delivery expenses, insurance, interest, taxes, maintenance, legal and other professional fees, etc. Deduct these expenses from the projected monthly income. Is your net income more than enough to pay your loan? If yes, then the loan can be borrower. If not, then it is not worth the risk.