Whether you know it or not, every project has a finance plan.
Understanding what this is can be one of the most critical elements of the film and TV industry, yet you would be amazed how many people – investors, producers, and filmmakers – have no idea how to read one or put one together.
The good news is that it isn’t very complicated.
A finance plan is basically the answer to a very simple question: “How is your project going to get financed?”
This doesn’t have to be that intricate or arduous. It could be very straightforward. But everybody needs to know what a finance plan looks like and how to create one.
What Is A Finance Plan?
Every film or TV show has a budget. A finance plan provides a shorthand way to tell potential investors how you are hoping to bring that budget together by identifying:
The sources (potential or confirmed) from which you hope or intend to raise the financing
How much each source is likely to contribute
A finance plan could be one line, or it could be twenty. In fact, financing can come from an almost infinite number of sources. You just need to identify what each source is and how much it is bringing.
So, a straightforward finance plan could look something like this:
Budget: $10m
Equity Investor A: $2m
Equity Investor B: $3m
Tax Incentive: $2m
Pre-Sales: $2m
Gap Financing: $1m
It’s as simple as that!
Of course, you may have other sources of funding to add to that, such as a post-production deal or a sales agent MG. Just make each one clear in the finance plan, and have something to back it up where necessary.
Why Is A Finance Plan Important For Investors?
An investor should always request a finance plan, and a filmmaker or producer should always be ready to supply one.
If an equity investor is putting in half the budget from their own pocket, it begs an obvious question: “Where is the other half coming from?”
If a producer doesn’t know the answer to that, they might be in a bit of trouble. The last thing an investor wants is to transfer their money over to the production and see it being spent without there being a plan to raise the rest of the financing.
Of course, it is reasonable for a producer to say that they hope to finance the entire production through equity investors and they are still on the hunt for more of these for a certain amount.
But even then, the producer should know roughly how much they are expecting in tax incentives and/or pre-sales, for example, in order for the equity investors to make an informed decision.
If the producer doesn’t have any knowledge about this, it is very hard to persuade a smart investor to part with their money.
The finance plan enables a producer to show that they are aware of the financing possibilities, and a potential investor to understand how many other financiers and types of financing will be sitting at the same table with them.
Above all, the finance plan should make the equity investor feel comfortable that the project has a great chance of getting made, and that the producers and filmmakers have a realistic roadmap in place.
A Realistic Finance Plan
An investor wants to see that a producer or filmmaker has put some real thought into how the project is going to come together. A finance plan can be a very revealing insight into their thought processes.
This means that you have to do some research and be smart in your expectations. You must be able to back up your finance plan with numbers and evidence if necessary.
For example, if a producer claims that they are expecting to raise 60% of their budget from gap financing, they need to be have a clear indication that such an amount is realistic in today’s lending market. For a savvy investor, that figure would set alarm bells ringing!
An investor is entitled to ask the producer what that assumption is based on. If they are ultimately unable to raise the envisioned gap financing of 60%, that would leave a massive hole in their finance plan.
If a producer is making unrealistic claims in their finance plan, this can give the impression that they aren’t actually that familiar with the industry in which they are raising money and operating.
For an equity investor, this creates unease and a lack of trust.
Producers and investors alike should research every element thoroughly to ensure that the finance plan is workable and realistic, even if it leads to some difficult questions. This may end up being for the long-term benefit of the project.
Re-Using A Finance Plan
No two finance plans are ever the same. Why? Because no two projects are ever the same.
However similar they might appear, there will always be differences in budgets, numbers, sales estimates, finance sources, and a whole host of other variables. Each project is different and requires individual attention.
Perhaps more significantly, changes in the markets – both within the entertainment industry and the world at large – can mean that what was feasible in the past may no longer be feasible now.
So, just because a finance plan worked for a project two years ago, don’t simply assume that you can replicate it now and everything will fall into place.
It always requires market research and in-depth knowledge to create a sustainable finance plan. Make sure that your efforts are well-informed.
Changing A Finance Plan
Nothing is set in stone. A finance plan can change at any time!
As your project rolls towards its production start date, it is entirely possible that one investor might fall off the wagon while another one jumps on.
Things change all the time. That’s OK.
However, if changes are made to a finance plan once the wheels are already in motion, there must be a good and reasonable explanation for it.
Good, open dialogue between the producers and investors is the key to avoiding disappointment as things progress. In this way, everyone can make decisions together in a collaborative way to do what is best for the project.
The above is an excerpt from the book HOW THE HELL... Do I Get My Film Financed? Book Three: EQUITY FINANCING. Its author, Ricky Margolis, has over 15 years' experience in the entertainment industry and has been involved in the finance, development, production, and/or distribution of over 30 titles. Still want to know more about film & TV financing and production? You can find the other books in the series by clicking here.
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