Best Practices for Effectively Managing Cash Flow for Commercial Productions
One of the greatest challenges a producer faces in commercial production is managing cash flow effectively. Unlike traditional businesses, commercial productions operate on a project-by-project basis, often requiring costs upfront while dealing with unpredictable cash flow and tight deadlines. To keep productions on track and avoid costly delays, producers must excel in budgeting, strategic financing, and meticulous planning.
Discover what makes cash flow for a commercial production unique and explore the best practices for navigating high upfront costs, unpredictable revenue streams, and tight deadlines through smart budgeting and strategic financial planning.
What Makes Managing Cash Flow for a Commercial Unique
Effective cash flow management in commercial production involves several back-office processes that should be entrusted to the right team member. As we’ll explore below, commercial productions have their own set of special functions that require specialized oversight to ensure smooth operations.
1. Project-based nature
Commercial productions run through cash quickly as they are produced over a short term. Principal photography is often completed over 1-3 days, spending hundreds of thousands of dollars. Budgeting and planning must be highly detailed and aligned to the start and end date of your project to avoid financial disruptions.
2. Revenue timing and predictability
One of the biggest cash flow challenges among commercial productions is the timing mismatch between client funding and expenses that have to be paid. Production companies will face costs upfront such as equipment deposits, start up payroll, and location fees while the payment from the client is delayed.
Costs can vary and be highly unpredictable for commercial projects, with significant upfront expenses. Budget items vary based on production needs, talent costs, location fees, and unexpected changes in production schedules. Creating a detailed production budget and spending timeline during pre-production can ensure your team accounts for all expenses - even last minute ones.
3. Funding sources
For commercials, funding for production comes from the agency or brand with specifically negotiated budgets and payment terms. Commercial productions must plan for agency or brand payment dates to meet production obligations.
4. Contractual obligations and payments
Commercial productions have a large number of contracts for talent, crew, locations, and equipment with specific payment terms. This requires experienced understanding of union contract terms and regulations to avoid delays, cancellations or unexpected fees like union grievances or labor board claims. Crew labor must be paid in a timely manner.
5. Risk profile
Commercial productions face unique risks such as delays, talent availability, or weather related expenses , which can significantly impact cash flow. A good cash flow strategy includes a buffer for producers to handle these unexpected challenges.
Best Practices for Managing Your Commercial Production’s Cash Flow
Implementing the right practices is crucial to ensure effective cash management and stay within budget. Below we’ll list the twelve best practices for producers to ensure smooth cash flow for your upcoming project.
1. Make Allowances for Unexpected Expenses
Budget for contingencies by planning ahead and setting aside a portion of the budget to cover unexpected expenses. This can be a percentage of the total budget, determined based on the project's details. This sets your project with a safety net for any unforeseen changes or disruptions.
2. Quick Access to Financial Resources
The fast moving environment of commercial productions makes it essential to have quick cash on hand, such as p-cards or petty cash for any unexpected expenses that may arise. Ensuring you account for cash on hand within your budget during pre production will ensure your production runs smoothly.
3. Regular Financial Review and Forecasting
Regularly review financials and update cash flow forecasts. This involves tracking actual expenditures against the budget, planning ahead for upcoming expenses, and adjusting plans accordingly. Tracking expenses in real time is essential for effective cash flow for clear visibility of finances to detect and mitigate financial bumps during production.
4. Timely Invoicing and Payment Tracking
Timely invoicing and ensuring all payments are recorded accurately are crucial for an accurate budget. Implement a system for tracking invoices and follow up on late payments to match cash flow requirements. Having a good payment record establishes credibility with the agency, brand, vendor or distributor to solidify important relationships.
5. Cost Control Measures
Implement strict cost control measures. Regularly review expenditures and cut unnecessary costs. This allows for accurate visibility of your production budget ensuring your funds are being used accordingly.
Working with an expert team in back-office production affairs, such as CMS Productions, can ensure cash flow is used effectively and possibly identify cost cutting solutions for your project.
6. Use of Cash Flow Management Tools
Leverage financial management software or tools for better visibility and control over cash flow. These tools can help in tracking expenses, forecasting cash flow, and managing budgets more effectively.
7. Make Sure Adequate Production Insurance is in Place
Having proper production insurance production insurance acts as another way to protect your project when things don’t go as planned. From delayed shoots, equipment damage or injuries on set, production insurance will protect your production from any financial losses.
Conclusion: Streamline Cash Flow to Keep Your Production On Time, On Budget
In conclusion, managing cash flow effectively involves excelling at several skill sets throughout production such as strategic budgeting and proactive financial oversight. The unique challenges commercial projects present makes it crucial for producers to implement the right practices to ensure operations run smoothly.
Manage cash flow like a pro with CMS Productions.
We offer a full suite of back-office production support services including:
Production payroll
Petty cash management
Accounting
Cash flow management
Purchasing cards
Insurance
Contact us for your back office production support needs today!