Common production funding options – and the traps to look out for
Money makes the world go around – and it makes productions happen.
With each potential funding option, there are a few distinct things you should look out for. Make sure you go into any project with your eyes open to
- how you will fund it and
- how you will account for those funds.
First things first.
No matter how you intend to fund your next project, it’s important that you dive in and go through your financial plan with your accountant or tax advisor. If you have any questions about production finance, accounting or tax, please get in touch. We’re here to support you no matter what stage of production you’re in.
Types of funding
There are many different ways to finance a production, and generally no two finance plans are the same. There are three main types of funding that you might use to make a film in Australia at the independent end of the market.
- Distributor advance (or a minimum guarantee)
Loans are pretty straightforward. You borrow money from a lender and use it to finance your production.
But, in the filmmaking world, loans can be shown as equity in a finance plan. If you ‘cashflow’ your Producer Offset – that is, borrow against the potential future offset at the early stages of a project – then the loan is actually considered as the producer’s equity.
When you borrow against the Producer Offset that money is treated as the Producer Offset itself. That’s because, at the end of the day, the Producer Offset belongs to the producer.
A Distributor Advance might also be known as a ‘minimum guarantee’. As it says in the name, you get an advanced payment from the distributor, which reduces the amount they pay after release.
In the past, distributors were known to advance up to 30% – but now it’s more typical to see advances sit around 5%.
For qualifying for the producers offset at provisional stage, it is best that the advance is at a ‘market level’. That is, it can’t just be a token gesture. They have to show that they have real skin in the game to get the production through.
This includes things like independent investments in the film, grants and any money borrowed against the Producer Offset.
If your production business or Special Purpose Vehicle is registered for GST, then all equity investment must be invoiced with GST. This is a major trap that people fall into. Someone invests $5000, but their actual costs would be $5500 including GST.
A note on reinvestment: Reinvestment is a well-used term in production circles, but in our view it is a misnomer. You might be paying an individual or business who is also investing in your production. We believe it minimises confusion to consider these as two separate transactions. This keeps the invoicing and record keeping clear for all parties.
As already mentioned, when it comes to film financing, no matter what options you have, it’s best to take advice early. You want to make sure that all of your records are correct, clear and in order when it comes to preparing things like your BAS, tax or Producer Offset.
Take the worry off your shoulders by speaking to our team. Book your free consult today.
A note on this article
Information provided by the Above the Line Accounting on this website is general in nature and does not take into consideration your personal financial situation. It is for educational purposes only and does not constitute formal financial advice.