As I explained in a previous post, tax incentives represent one of the easiest and safest ways for a filmmaker to raise money for their production.
However, there are still a lot of nuances about using tax incentives that you should know. A savvy investor will be aware of these and will want to see that you are too. If you are not, it can make you look unprofessional, unprepared, and create a terrible first impression.
There's a lot more to tax incentives than just chasing a number...
I often receive well-meaning messages from filmmakers who write excitedly to say that a certain location “just raised their tax incentive to 50%”, expecting that this will make a difference to an investor’s assessment of a deal.
Investors LOVE this enthusiasm! And it shows good initiative by a filmmaker to stay on top of the ever-changing and developing tax incentive scene.
Unfortunately, too many filmmakers see an impressive-sounding headline (“Come and shoot here – we’ve just raised our tax credit to 70%!”) and assume that this solves all their budget and financing problems without reading the small print.
Because there is always small print. And if it sounds too good to be true… Well, you know the rest.
Having a good grasp of how an incentive works shows an investor that they should take you seriously. It’s filmmaking 101. But if you present yourself in the wrong way, not only will you miss a great opportunity to impress an investor, but you may also plant a seed of doubt in their minds. Are you really ready to handle millions of dollars of other people's money if you don’t even know how a tax incentive works?
You don’t have to know everything about it. After all, the big studios have entire teams of highly-skilled and well-paid financing people that focus on tax incentives for their high-budget productions. Nobody’s expecting you to compete with that.
But if you are approaching investors to get your production financed then you do have to know the basics. Here are some of the do’s and the (definitely) don’t’s of how to talk about tax incentives with an investor:
DON’T say a 20% tax credit means 20% of your budget!
It never does, other than in the most exceptional of circumstances. It makes an investor’s heart drop to see a finance plan that has 20% of the budget covered by a tax incentive whose headline number is 20%. It just shows that a filmmaker has not read or understood the legislation.
DO show that you understand what “qualifying spend” is!
This is what will get you to an accurate number of how much the incentive will ultimately be worth. You simply can’t understand tax incentives if you don’t understand qualifying spend. It’s so important that we dedicate an entire chapter to qualifying spend and how to calculate it in our book on tax incentives.
DON’T assume that all locations are interchangeable!
You should never assume that just because a certain region or area has increased their tax incentive to an impressive number, you can simply re-locate your production there and automatically cover the hole in your budget and finance plan.
DO remember that the creative is still the most important factor!
Show an investor that you have considered the creative aspects of a location when deciding to base your production there. Not all locations look alike – that’s the beauty of being able to shoot practically anywhere in the world! Of course, some places can be faked to look like others thanks to some incredible production design and special effects. But a savvy investor will know when you’re trying to back your production into an incentive program. Instead, show them how and why it will work creatively.
DON’T forget that moving your production to a new location might increase your budget (significantly)!
Re-locating your production might incur additional costs for your HOD’s and essential cast and crew members, including flights, hotels and meals, as well as equipment costs and a number of other issues. Local crew rates might be more expensive, not to mention the cost of living, eating and working. After all these additional costs, will the tax incentive still be worth it?
DO show that you’ve done your research!
Show an investor that you’ve thoroughly analyzed and scrutinized your location and are confident that it will have the necessary resources, finance, facilities and crews available to you during your shooting schedule to make it work both creatively and financially.
DON’T ask an investor whether you can get the tax incentive money first to fund pre-production until you get the rest of your financing!
Please don’t do this. This is a huge red flag to an investor and makes you look inexperienced and unknowledgeable. For a traditional debt financier such as a bank, boutique financier or even a savvy film investor, the risks of doing this would be enormous. If the production doesn’t proceed then they would have zero chance of getting their money back. You may just find a bridge financier or equity investor that will take on this risk… but it’s a tough one.
DO show that you know what a financial closing is!
This is when all your debt finance (including the tax incentive money) is likely to drop. Be able to show how you will be funded until then for any development costs. Be realistic in your expectations.
DON’T forget about minimum requirements!
Most locations will have certain minimum requirements that you will have to meet to qualify for their tax incentive. This could be a minimum number of shooting days, money spent, local residents hired, or a number of other things. Don’t let the investor find out about this before you do!
DO show that you have made connections with the local film commission!
You should know exactly what the film commission in your shooting location can offer you. Sometimes this will be benefits in addition to the tax incentive, such as free permits and a development scout. Don’t just regurgitate what you’ve read on their website – an investor can look this up themselves. Phone or e-mail the film commissioner and see what else they can do to entice you to shoot there. Nothing impresses an investor more than when a filmmaker actually teaches them something that they don’t know.
ABOVE ALL…
However you approach the topic, DO be able to justify your location choice for all the reasons described here, and DON’T just chase a number.
For more information on everything you’ve read here, and to learn more about tax incentives and how you can use them to raise the funding you need for your production, check out our book on the subject by clicking here!
Happy filmmaking!
Comments