I recently participated in a discussion about the values and pitfalls of business plans for Indie filmmakers trying to attract equity investors. While they can contain relevant information about the project being developed, most film business plans also contain gross misinformation.
A business plan - when done well - helps convey a sense of professionalism in the project. As one participant concisely stated:
The business plan must be dispassionate in setting out the business proposition from an investment standpoint, covering "business" topics such as project description, key attachments, whether the production is bonded, how the investor's money will be cashflowed during production, producer's track record, prospects for domestic distribution and international sales, revenue guarantees (soft money, if any), proposal for recoupment of the investment and profit participation, tax considerations for investors, historical returns for films in the genre (a range! don't just point to those hoary chestnuts, Four Weddings and a Funeral and Blair Witch Project) and, depending on what kind of document it purports to be, legal boilerplate to satisfy securities regulators.
Most of the above mentioned items must be included in any business plan and a producer should know them regardless. My issue lies mostly with revenue projections and prospects for distribution many filmmakers include. The problem I see in most projections is that they are based on the tiny pool of films that actually secure distribution each year and ignore the hundreds (thousands) that don't.
For companies and producers that have existing distribution pipelines, those estimates hold some validity. For independent filmmakers and the financiers who back their films, they do not.
Showing that ten horror films released last year averaged $15mm in domestic theatrical gross revenues (arbitrary numbers), isn't painting an accurate picture to potential investors because it ignores the dozens (hundreds?) of other horror films made in that same time frame that didn't and won't earn a dime.
Most filmmaker's create business plans that mislead investors (whether purposely or due to their own ignorance), with overly rosy projections. Then they cover their asses by tossing in a risk clause.
So OK - caveat emptor (or caveat investor as the case may be). Investors must do their due diligence. But as a producer I take full responsibility for all business and financial matters on the films I produce and misleading the people trusting me with their hard earned money is not the way I want to start a business relationship.
When preparing a business plan for a feature film one must be accurate and forthcoming with projections. As a filmmaker that is an absolute obligation. The good news is that full disclosure won't dissuade someone if they are truly interested in your project. People with the fiscal strength to finance an independent film understand the relationship between risk and reward. And savvy investors will appreciate knowing they are working with someone with integrity who is watching out for their interests.
Quote used with permission of JBV Kelly.
Mr. Kelly can be reached at filmlaw@gmail.com
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