How to create a financial forecast for a film production company?
Developing and maintaining an up-to-date financial forecast for your film production company is key in order to maintain visibility on your business’s future cash flows.
If you feel overwhelmed at the thought of putting together a film production company financial forecast then don’t worry as this guide is here to help you.
We'll cover everything from: the main objectives of a financial forecast, the data you need to gather before starting, to the tables that compose it, and the tools that will help you create and maintain your forecast efficiently.
Let's get started!
Why create and maintain a financial forecast for a film production company?
In order to prosper, your business needs to have visibility on what lies ahead and the right financial resources to grow. This is where having a financial forecast for your film production company becomes handy.
Creating a film production company financial forecast forces you to take stock of where your business stands and where you want it to go.
Once you have clarity on the destination, you will need to draw up a plan to get there and assess what it means in terms of future profitability and cash flows for your film production company.
Having this clear plan in place will give you the confidence needed to move forward with your business’s development.
Having an up-to-date financial forecast for a film production company is also useful if your trading environment worsens, as the forecast enables you to adjust to your new market conditions and anticipate any potential cash shortfall.
Finally, your film production company's financial projections will also help you secure financing, as banks and investors alike will want to see accurate projections before agreeing to finance your business.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
What information is used as input to build a film production company financial forecast?
A film production company's financial forecast is only as good as the inputs used to build it.
If you are creating (or updating) the forecast of an existing film production company, then you mostly need your accounting information, key historical operating non-financial data, and your team’s input on what to expect for the coming years.
If you are building financial projections for a film production company startup, you will need to have done your research and have a clear picture of your competitive environment and go-to-market strategy so that you can forecast sales accurately.
For a new venture, you will also need a precise list of the resources needed to keep the film production company running on a day-to-day basis and a list of the equipment and expenditures required to start the business (more on that later).
Let's now take a closer look at the elements that make up your film production company's financial forecast.
The sales forecast for a film production company
From experience, it is usually best to start creating your film production company financial forecast by your sales forecast.
To create an accurate sales forecast for your film production company, you will have to rely on the data collected in your market research, or if you're running an existing film production company, the historical data of the business, to estimate two key variables:
- The average price
- The number of monthly transactions
To get there, you will need to consider the following factors:
- Competition: As the film production industry is highly competitive, the presence of other production companies with similar offerings may drive down your average price as customers have more options to choose from. Keep an eye on your competitors' pricing strategies and adjust accordingly to maintain a competitive edge.
- Consumer demand: The demand for certain genres or types of films may fluctuate, which can affect your average price. For example, if there is a sudden surge in demand for rom-coms, you may be able to charge a higher price for producing these films. Stay updated on current trends and adapt your offerings to meet consumer demand.
- Celebrity involvement: The involvement of well-known actors or directors in your productions may drive up your average price. This is because their star power can attract a larger audience and justify a higher ticket price. Consider partnering with popular celebrities to increase the value of your films.
- Economic climate: The state of the economy can greatly impact consumer spending and, in turn, your number of monthly transactions. During times of economic downturn, people may be less likely to spend money on non-essential items like movie tickets. Keep an eye on the overall economic climate and adjust your forecast accordingly.
- Film festival success: The success of your films at prestigious film festivals can greatly impact your average price and number of monthly transactions. If your production receives critical acclaim and wins awards at festivals, it can generate buzz and attract a larger audience, leading to higher prices and more transactions. Consider submitting your films to reputable festivals to boost your sales forecast.
Once you have an idea of what your future sales will look like, it will be time to work on your overhead budget. Let’s see what this entails.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The operating expenses for a film production company
The next step is to estimate the expenses needed to run your film production company on a day-to-day basis.
These will vary based on the level of sales expected, and the location and size of your business.
But your film production company's operating expenses should include the following items at a minimum:
- Staff Costs: This includes salaries and benefits for all employees, including production crew, directors, and administrative staff.
- Accountancy Fees: You will need to hire an accountant to manage your financial records and prepare tax returns.
- Insurance Costs: You will need to have insurance to cover any potential risks during filming, such as accidents or damage to equipment.
- Software Licences: You will need to purchase licences for editing software, special effects software, and other programs necessary for post-production.
- Banking Fees: This includes fees for maintaining a business bank account, wire transfers, and other financial transactions.
- Equipment Rentals: You may need to rent cameras, lighting equipment, and other production gear, especially if you don't own them already.
- Location Fees: If you are filming on location, you may need to pay fees for the use of the space.
- Catering Expenses: During production, you will need to provide meals for your cast and crew.
- Marketing and Advertising Costs: You will need to promote your film through various channels, such as social media, posters, and trailers.
- Travel Expenses: If your production involves filming in multiple locations, you will need to cover travel expenses for your cast and crew.
- Permits and Licenses: Depending on where you are filming, you may need to obtain permits and licenses for use of public spaces or copyrighted material.
- Music Rights: If you plan to use copyrighted music in your film, you will need to secure the rights to use it.
- Post-Production Costs: This includes editing, color correction, sound design, and other post-production expenses.
- Legal Fees: It is important to consult with a lawyer to ensure all contracts and agreements are legally sound.
- Office Expenses: This includes rent for office space, utilities, and office supplies.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small film production company might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a film production company?
Once you have an idea of how much sales you could achieve and what it will cost to run your film production company, it is time to look into the equipment required to launch or expand the activity.
For a film production company, capital expenditures and initial working capital items could include:
- Camera equipment: This includes cameras, lenses, tripods, and other necessary gear for filming.
- Lighting equipment: Lights, reflectors, and other equipment used to enhance the lighting on set.
- Sound equipment: Microphones, audio recorders, and other tools used for capturing high-quality sound on set.
- Editing software: Post-production is a crucial part of the filmmaking process, and investing in professional editing software is essential for creating a polished final product.
- Studio space: Depending on the type of film being produced, a production company may need to rent or purchase studio space for filming and storing equipment and sets.
Again, this list will need to be adjusted according to the specificities of your film production company.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The financing plan of your film production company
The next step in the creation of your financial forecast for your film production company is to think about how you might finance your business.
You will have to assess how much capital will come from shareholders (equity) and how much can be secured through banks.
Bank loans will have to be modelled so that you can separate the interest expenses from the repayments of principal, and include all this data in your forecast.
Issuing share capital and obtaining a bank loan are two of the most common ways that entrepreneurs finance their businesses.
What tables compose the financial plan for a film production company?
Now let's have a look at the main output tables of your film production company's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your film production company's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a film production company should normally show:
- Sales growing above inflation
- Stable or expanding (ideally) profit margins
- A net profit
This will of course depend on the stage of your business: a new venture might be loss-making until it reaches its breakeven point in year 2 or 3, for example.
The projected balance sheet
The projected balance sheet gives an overview of your film production company's financial structure at the end of the financial year.
It is composed of three categories of items: assets, liabilities and equity:
- Assets: are what the business possesses and uses to produce cash flows. It includes resources such as cash, buildings, equipment, and accounts receivable (money owed by clients).
- Liabilities: are the debts of your film production company. They include accounts payable (money owed to suppliers), taxes due and bank loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.
The cash flow forecast
Your film production company's cash flow forecast shows how much cash your business is expected to consume or generate in the years to come.
It is best practice to organise the cash flow forecast by nature to better explain where cash is used or generated by the film production company:
- Operating cash flow: shows how much cash is generated by the operating activities
- Investing cash flow: shows how much will be invested in capital expenditure to maintain or expand the business
- Financing cash flow: shows if the business is raising new capital or repaying financiers (debt repayment, dividends)
Keeping an eye on (and regularly updating) your film production company's cash flow forecast is key to ensuring that your business has sufficient liquidity to operate normally and to detect financing requirements as early as possible.
If you are trying to raise capital, you will normally be asked to provide a monthly cash flow forecast in your film production company's financial plan - so that banks or investors can assess seasonal variation and ensure your business is appropriately capitalised.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Which tool should you use to create your film production company's financial forecast?
Using the right tool or solution will make the creation of your film production company's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your film production company's projections
The modern and easiest way is to use an online financial forecasting tool such as the one we offer at The Business Plan Shop.
There are several advantages to using specialised software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You have access to complete financial forecast templates
- You get a complete financial forecast ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast, and recalibrate your forecast as the year goes by
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
- It’s cost-efficient and much cheaper than using an accountant or consultant (see below)
If you are interested in this type of solution, you can try our projection software for free by signing up here.
Calling in a financial consultant or chartered accountant
Enlisting the help of a consultant or accountant is also a good way to obtain a professional film production company financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your film production company's financial forecast?
Creating an accurate and error-free film production company financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting software like The Business Plan Shop is built for this.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Use our financial projection templates for inspiration
The Business Plan Shop has dozens of financial forecasting templates available.
Our examples contain both the financial forecast, and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own film production company, looking at our template is always a good way to get ideas on how to model financial items and what to write when creating a business plan to secure funding.
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your film production company.
- Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
- Using financial forecasting software is the modern way of creating and maintaining financial projections.
We hope that this guide helped you gain a clearer perspective on the steps needed to create the financial forecast for a film production company. Don't hesitate to contact us if you have any questions!
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Also on The Business Plan Shop
- Financial forecast example
- How to write a business plan for a film production company
- How to project revenues for a business?
- Sample financial forecast for business idea
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Founder & CEO at The Business Plan Shop Ltd
