The True Cost of Poorly Managed Cash Flow for Commercial Productions
Managing cash flow for your upcoming commercial project can pose a daunting task. Producers often find unexpected hurdles particularly frustrating, as unforeseen costs are not initially included in the production budget.
The repercussions of inadequately handled cash flow extend beyond financial strain. These ramifications can create a ripple effect that negatively impacts all sectors of your production and strain relationships with clients and vendors. In essence, mismanaging cash flow has the potential to disrupt the seamless flow of your production.
In this blog post, we will explore how poorly managed cash flow can hinder the success of your commercial production. Plus, we’ll highlight how to elevate your cash flow management practices to avoid downstream impacts and improve the back-office functions of future productions.
The Costs of Poor Cash Flow Management for Your Commercial Production
Taking on cash flow management to avoid adding costs may seem like a smart move, but problems could outweigh any short-term savings. It's crucial to consider whether the cost is truly worth it. Inadequate cash flow management can have noticeable repercussions in your production, including additional penalty costs, delays, and even a decline in film quality. Read on as we outline the various challenges that can arise from ineffective cash flow management.
Financial Overrun
A clear indicator of inefficient cash flow management emerges when your production surpasses its budget. Occasionally, your brand, agency, or investor might authorize the exceeding costs and offer supplementary funds to finalize the production. In more unfavorable situations, your production company could be held responsible for the budget overruns.
Production Delays
Inadequate funds to meet crucial financial obligations, such as crew and talent payments or other essential deadlines, can bring your production to a standstill, resulting in delays for the entire project. This situation can swiftly escalate, leading to significantly higher costs.
Compromised Quality
Budgetary limitations can force your production to stretch resources thin, potentially compromising the quality of your final project. This may involve choosing more affordable materials, engaging less experienced crew or talent, or allocating less time and resources to the editing process.
Legal and Contractual Issues
Engaging with union crew and talent involves complying with financial obligations as stated under the contractual agreements. Failure to pay your team on time can lead to potential grievances and claims, incurring additional costs for your production company. In addition, some states such as California impose significant penalties for late payment of wages.
Damage to Reputation
Ineffectively managed cash flow for your upcoming commercial can manifest itself in the final product of your production or in the feedback shared by those involved in your project. This has the potential to significantly harm your company’s reputation, making it challenging to be awarded projects or maintain relationships with vendors in the future.
Risk of Cancellation
In the most unfortunate scenario, if your production exceeds the approved budget without obtaining additional funding approval, your commercial may be at risk of cancellation.
7 Scenarios Where Having Strong Cash Flow Management Matters
Implementing efficient cash flow management for your production can also protect you from unexpected bumps along the way that can prepare you financially to better address and resolve issues before they escalate. Here, we’ll dive into different examples of when cash flow management can prove to be crucial for productions.
Downgrading
If a performer is engaged as a principal performer but their face does not remain in the commercial, the principal performer shall be notified of such downgrading within 60 days after the completion of their employment or no later than 15 days after the first use of the commercial. They are also due one session fee for the downgrading.
Unexpected Production Delays
Unexpected production delays can occur for a number of reasons; bad weather conditions, talent reported sick, or technical difficulties on set. Effective cash flow management and proper insurance coverage can provide the financial support your production needs to cover for extended shooting dates in addition to bringing cast and talent and equipment on set.
Changes in Project Scope or Creative Direction
Script or creative changes often entail additional costs for added scenes, locations and special effects. Maintaining clear control over cash flow enables your team to reorganize production finances accordingly, adapting to these changes seamlessly.
Equipment and Technical Upgrades
The need for higher-quality technology can make the difference for a better quality film, don’t let the lack of funds hold you back from creative success. Effective cash flow management can ensure you have sufficient funds readily available to enhance the quality of your production without adding financial strain.
Post-Production Changes
Additional work may also be required unexpectedly during post production for extensive edits, reshoots or adding visual effects. Having a healthy cash reserve on hand can help accommodate for these unexpected revisions without affecting your budget.
Health and Safety Issues
Unexpected emergencies or health and safety requirements can also lead to unexpected costs. This can include costs for safety equipment, health checks or making changes to ensure you are compliant to the health and safety regulations outlined within union contracts. Ensuring financial resources can help your productions implement these safety measures with ease.
Talent or Crew Changes
Replacing a crew member or talent can be costly especially at the last minute as it involves renegotiating contracts, paying added costs to secure replacements and depending on turnaround time, it can even delay your production. Properly managed cash flow can smoothly navigate the costs associated with hiring replacements, ensuring minimal disruptions to overall production and budget.
Conclusion: Mastering Cash Flow Management
Having ineffective cash flow management can lead to added penalty costs across all sectors of your departments. Meanwhile, efficient cash flow proves to be a crucial role in providing a financial safety net for a number of bumps that may arise throughout your production journey.
The added responsibilities of effective cash flow management can be a heavy plate for any skilled producer on top of their production obligations.
CMS Productions has a qualified team of experts to improve cash flow management among other back-office production support services for your next commercial. Contact us today to see how we can help streamline your upcoming commercial productions.