Dealing with uneven cash flow in reality TV can seem like trying to answer an impossible riddle. When costs outweigh cash, how can a production company continue producing?
While we don’t have any easy answers, we do know someone who can offer a few solid clues. Below, we’ll walk you through tips to avoid, mitigate, and make the best of uneven cash flow in unscripted TV production.
Please note that the following should not be considered legal or financial advice for you or your production company. Be sure to seek the counsel of a qualified accountant or entertainment lawyer before taking any meaningful action.
Before we jump in, let’s take a moment to introduce our expert.
As the CEO and Founder of Prod Co Accountants, Margot Ransom is an expert in financial management of unscripted production companies. She specializes in bringing corporate and production accounting together in real time, providing a powerful partner for busy producers.
Through Prod Co Accountants, Ransom offers production companies a way to streamline their finances. Its services empowers unscripted producers to make profitable decisions faster, easier, and with more confidence.
Ransom has been kind enough to share her expertise with the public in this post. Let’s dive into her insights on uneven cash flow in unscripted TV.
In any industry, uneven cash flow can occur when payments are issued at irregular intervals or in irregular amounts. This inconsistency can create financial circumstances in which present costs do not correlate perfectly with present income.
The problem of uneven cash flow in reality TV arises when overhead and production costs exceed cash on hand. If left unchecked, this disparity leads to serious instability that can paralyze the production company’s operations. It can even put it out of business altogether.
To illustrate, Ransom provided an all-too-common example:
“The most frequent thing that I see are delayed initial payments. When companies - especially new companies - are starting up their first project, there are all kinds of legal delays and things like that, but they’re being asked to spend money already [to produce the project] before they even have the initial payment.”
Uneven cash flow in unscripted TV can be caused by a variety of factors: delayed initial payments, missed contract milestones, unexpected overages, etc. If it shifts a production company’s math in the wrong direction, it could create uneven cash flow.
In Ransom’s example, a company is being asked to start producing a project before they’ve received any funds from the network or studio. This type of uneven cash flow in reality TV can put a production company in a position where they’re expected to spend money that they literally don’t have.
Let’s dig deeper into why that’s precarious.
Uneven cash flow in unscripted TV can compromise a production or production company’s financial stability. Without enough cash to cover its costs, a production company could face a buffet of unpleasant consequences.
Ransom says the effects could be dire:
“The whole production can suffer if you don’t have enough money to pay the bills. In extreme cases, I’ve seen companies not even be able to meet payroll.”
If you don’t have money, you can’t pay for things. If you can’t pay for things, it’ll be pretty tough to produce a TV show.
Uneven cash flow in unscripted TV can lead to expensive delays, uncomfortable cost-cutting, and compromised quality. In the worst-case scenario, uneven cash flow can threaten the very existence of your production company.
Uneven cash flow in reality TV is never ideal, but there are ways to be proactive and protect your production company from serious harm. Next, we’ll explore basic principles for how to manage uneven cash flow in unscripted TV.
In the event of an uneven cash flow emergency, remain in your seat, stay calm, and remember the following principles. Thanks to Ransom, the next sections provide tips and best practices for managing uneven cash flow in reality TV from a seasoned expert’s point of view.
Note again that these tips do not constitute financial or legal advice for your unique production or production company. Rather, these are principles designed to help you understand the general mechanics of combatting uneven cash flow in unscripted TV productions.
With that in mind, let’s start with the big picture.
In order to understand how uneven cash flow will affect your production company, you first need to understand your company’s costs. Check out how Ransom describes the importance of information:
“The most important thing for all financial areas of the business is visibility. By that, I mean accurate, up-to-date data [for the company’s costs and cash flow]. Not only historical but forward-looking too.”
Visibility into financial data provides a valuable tool for both predicting the impact of uneven cash flow and for protecting your company via targeted cost adjustments.
Without adequate visibility, you’re essentially doing business in the dark. You’ll be less equipped to combat an uneven cash flow situation and less likely to see it coming in the first place.
If you’re looking to upgrade your production company’s visibility, Ransom and Prod Co Accountants offer a free Cash Flow Forecasting Template to get you started. The template helps you plan ahead and optimize cash decisions over the long-term.
Visibility should be a core principle in any strategy for managing uneven cash flow in reality TV. If you can clearly see incoming and outgoing funds, you’ll be able to make more effective financial decisions. You can correct uneven cash flow situations faster and, in some cases, avoid them altogether.
Uneven cash flow affects both show cash flow and global cash flow within a production company. To manage an uneven cash flow situation, producers must understand the difference, as well as the connection, between these two concepts.
According to Ransom, a failure to understand this crossover is one of the biggest cash flow dangers faced by production companies:
“The biggest pitfall? One of the things I’ve seen is that companies know – because the networks require it - about cash flow for a specific production, but oftentimes they don’t have a global cash flow. What about, you know, these salaries that are not allocated to the show?”
“Show cash flow” simply refers to all the costs and financing that connect directly to a specific production. That includes your expenses for professional actors, crew members, equipment, insurance, and anything else you would account for when building a production budget. It also includes any payments from a network or financier that feed directly into the production.
“Global cash flow,” however, stretches beyond the confines of an individual project to include all cash flows into and out from your production company. That includes costs like production company staff, facilities fees, taxes, owner draws, development, office supplies, and any other overhead that is not attributable to a specific project.
It’s easy to forget about global costs when looking at an individual show’s budget, and that’s exactly why it’s so dangerous.
If you don’t accurately account for global costs, small issues with uneven cash flow at the show level can explode into a major problems for the entire company. Expenses can pile up fast and threaten your production company in the process.
Soft costs are any expenses that are not clear or direct. If you’re purchasing drone insurance or paying an entertainment lawyer, those costs are hard costs. You’re giving money in exchange for a concrete good or service. Soft costs, however, tend to be more abstract.
The most popular examples of soft costs in unscripted production are expenses incurred for project development. For instance, you might be paying fees for research, travel, or expert consultation. These items do not fulfill an immediate need within a production company, but they do have a long-term purpose.
To survive, a production company needs to produce. It needs to make things and be paid for them. Therefore, soft costs incurred for development right now are crucial investments in the company’s future. By preparing its next project, a production company is also preparing its next payday.
The inclusion of soft costs in your global cash flow calculations is important because these costs help you see the big picture. When figuring out how to manage uneven cash flow in reality TV production, a macro perspective is necessary to accurately assess risks and effectively strategize solutions.
“If you’re a mid- to larger-sized company, you can get bank financing that uses the contract or the receivables as collateral. You want to talk to somebody in an entertainment division who understands how all this works and understands that networks have delays on payments.”
When you have cash coming in but not yet in hand, bank financing can provide coverage in the meantime. A network contract that promises payment in the near future can be solid, relatively low-risk collateral.
To review your options, reach out to your bank of choice and get in touch with their entertainment division directly. However, if you choose to seek outside financing, remember that any loan should be taken seriously.
Before you sign a document, be sure to have a plan to pay back your loans and bring your production company back to a stable position.
If you see an uneven cash flow situation approaching, it’s a good idea to prioritize your payments. Take a moment to figure out which costs are urgent, which costs can be delayed, and which costs might be negotiable. You may be able to shift expenses to create a more manageable cash flow until additional funding arrives.
When doing so, Ransom emphasizes the importance of transparency and communication:
“For smaller companies, it might just boil down to looking at all your accounts payable aging reports. Like, what exactly is on there? We hate to do this, but sometimes you need to make partial payments to vendors or work out some deals with them. It’s just talking to the vendors. It’s an uncomfortable thing to have to do, but sometimes that has to be done.”
It’s never ideal to negotiate with vendors after a cost has been incurred, but transparency can help you maintain relationships while making your case. If you’re upfront about your situation, you might be able to demonstrate that a deal is in your vendors’ long-term interests.
Collaborating on a temporary fix today will enable you to continue doing business tomorrow.
Keep in mind that prioritizing and negotiating payments is not a surefire method for handling uneven cash flow in unscripted TV. It can be a helpful tool but not one you should plan to rely on in a worst-case scenario. Ultimately, the only actions you can fully control are your own.
Cost-cutting is the most direct way to handle uneven cash flow in reality TV. It follows the most basic rules of math. If you subtract more than you add, you’ll end up with a negative number. The easiest way to change the equation is to simply subtract less.
Trimming expenses isn’t necessarily a pleasant experience, but it is the most logical way to get your production company back to financial equilibrium. It gives your production company the chance to catch up on cash flow over time, rather than forcing it to fall increasingly behind.
If there is a serious cash flow problem, you may have to make difficult decisions. For example you may have to reduce staff size or cut overhead that’s helping your production company grow.
The silver lining is that that cost-cutting is completely within your control. With the right financial visibility, you can choose which expenses to reduce or eliminate strategically.
The best way to manage uneven cash flow in unscripted TV is to prevent it from happening in the first place. While you can’t predict every factor that could lead to uneven cash flow, you can establish meaningful cash flow protections within your network contracts.
Whenever possible, frontload any financing payments that your production company is set to receive from a network or other financing entity. Try to negotiate contracts in which your company receives its operating funds as early as possible.
By setting up payments that come early, you’ll minimize the chance that your production company will have to do work before having adequate cash flow. Gaps in financing will be less likely to occur, which means your production company will be less vulnerable overall.
A few well-placed lines in a contract can prevent you from experiencing weeks, months, or even years of unnecessary stress.
Managing uneven cash flow in reality TV requires a mixture of due diligence and flexibility. With accurate information and a solid strategy, you can meet uneven cash flow head-on, minimizing its effects on your production company in the process.
If you’re getting ready for an upcoming unscripted production, brush up your skills with this intro to unscripted production accounting with Margot Ransom or dive deep into the art of producing unscripted TV with Irad Eyal, the producer behind hits like Floor Is Lava.
At Wrapbook, we pride ourselves on providing outstanding free resources to producers and their crews, but this post is for informational purposes only as of the date above. The content on our website is not intended to provide and should not be relied on for legal, accounting, or tax advice. You should consult with your own legal, accounting, or tax advisors to determine how this general information may apply to your specific circumstances.