Starting a production company and need some advice
Me and two of my friends have decided to start a production company and we had a few things that we were hoping some more seasoned forum members could help us with. Our goal is to eventually make features, but thats at least a couple of years off. Right now we're trying to figure out how to support ourselves with video work until we can convince someone that they should trust us with their money to make a movie. Anyway, my two big questions are:
How exactly should we handle who gets what as far as money goes? We've agreed that no matter what, 10% should always go back into the company to buy equipment, office space, pay for the website, etc. But after that, we're at a bit of a loss as for how to divide up the money that we keep? Should it just be divided up evenly? What if there's a job that only requires one person? Also, should we allow people to do work on the side (by this I mean if a family member asked me to shoot their wedding, not crew work on other productions) or should all video work go through the company?
how do you start finding clients? We have a fairly strong portfolio for corporate videos and music videos, but we'll be relocating when we start the company and won't have many contacts in the area.
Tnere is huge risk starting in a new production community. You are going to need some good references to establish yourself. Also I think you are heading for trouble if you haven't determined how the money will be paid.
Like any company you should view each person as an employee and you each get a salary. Each person is responsible for their tasks. You could award one of the employees if they bring in a big job, but in the end, it seems that one of you needs to step up and take the ownership role of the business....you will take all the risk as well. Search these forums for how well partnerships work out.
Sounds like a couple business classes at the local tech college would do you guys a world of good. And sizing up who the competition will be in the new location will help.
Finally this is probably the worst possible economy to start a new production business. Projects can be hard to find and budgets are shrinking.
Just a couple thoughts.
Tilt Media Inc.
Video Production, Post, Studio Sound Stage
I was composing my reply while you were posting yours. Couldn't agree more, especially where we said some of the same things.
Ouch. This sounds like it has the potential to go bad in any number of ways.
[jensen yancey] "We've agreed that no matter what, 10% should always go back into the company to buy equipment, office space, pay for the website, etc."
To me this indicates a fairly un-realistic view of just how much it costs to operate a production business relative to what it can earn. Think more in terms of 10% to go back into equipment and 40 to 60% going to overhead: rent, phones, utilities, multiple kinds of insurance, transportation, sales & marketing costs, etc.
As to how to "divide up the money," the simplest way to do this AND survive, God forbid, should at some point you and your partners seek a "divorce," is to assign stock or some other form of divided ownership based on what each person provides as their initial investment. Say you come into this with a $20,000 camera and your partner has $10,000 worth of lighting, grip and sound equipment. You should get twice the profit because you provided twice the start-up investment.
Where this gets simpler is everyone gets a base salary first -- which can be equal -- and then at year end (or other agreed upon date) profits are divided based on percentage of ownership. Get a lawyer and an accountant who understand small business to help you set this up. Then, God forbid, should the aforesaid divorce come about things should be MUCH cleaner.
Where it gets more complicated is when one party isn't pulling his or her weight relative to the others, or in the opposite direction where one party is "making all the rain" and bringing in the majority of the business.
Don't mean to be a bummer, Jensen, but for this to really work you'll also need someone to assume the position of boss or president, typically based on who provides the biggest investment. Operating a business is not for the faint or heart and learning one's way past naivety can be VERY expensive.
"Creativity always dies a quick death in rooms that have conference tables."
I have a three part series right here on the Cow on Starting and Running your own Business.
And then a follow-up article on Small Steps to Success
Walter Biscardi, Jr.
Editor, Colorist, Director, Writer, Consultant, Author, Chef.
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Biscardi Creative Media
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You guys in no way are ready for this. It'll just be expensive unemployment if you proceed right now. How do get clients? How do we split the money? really?
Dude you guys go get jobs and make coolness on the side until these questions answer themselves.
[jensen yancey] "Starting a production company and need some advice"
In short, my advice is, don't.
Lot's of things going against you, here are a few I can see right off the bat:
Haven't done a business plan
Trend of plummeting rates
No reason that the partnership is beneficial to the business
Glut of people doing the same thing
No established clients to service
No partnership plan
No start-up capital
This is just a 2011 version of 'Babes in Arms'.
"If you think it's expensive to hire a professional to do the job, wait until you hire an amateur." ---Red Adair
Where were you on 6/21?
Let me just throw my "don't do it" into the ring as well.
BRUTAL downward rate pressure
It takes a masterful business person with long-term industry experience to even keep a studio busy these days, and (no offense) you don't seem prepared. Spare yourself the misery, just say no.
Research, research, research.....
Find some office space - work out your rent.
Find out how much utilities bills will be for that area.
Find out how much phone and internet access will cost.
Find out how much travel to and from the office will cost - business vehicle contract hire?
Find out how much tax you need to pay, and what is the cheapest and most convenient way of doing it.
Find out how much business insurance for your firm will cost and PAY IT.
Find out how much a good lawyer in the area will cost.
Work out how much you will expect the business to contribute toward your daily expenses - travel, food etc..
Find out how much it will cost to do some marketing for your startup firm - SEO, virals, social media, phone book, local tv, free work for publicity etc..
Have a think about what equipment you really NEED. Not what would be cool - judge this by what work you have to complete in the next 6 months. If you have cash saved to buy this, congratulations; you are one of many that doesn't. If you don't, find out how much your repayments on a business loan will be. Find out how much your ongoing costs will be for your equipment - tapestock, batteries, hard drives etc.
Average business rent(private office space, not shared, minimal furniture): £550 pcm
Average utilities bills: £240 pcm
Internet and phone: £45 pcm
Mobile phone contracts x3: £120
Insurance: £45 pcm
Legal fees (average monthly cost): £35 pcm
Marketing costs (SEO allowance, plus business directory): £150pcm
Business loan (£20k borrowed over 5 years at 7.5%): £500(roughly) pcm
Vehicle contract hire - £220 pcm allowance
Total - £1905 pcm costs. With minimal marketing, small office space with no chroma key set or sound stage, small(ish) business loan that would pay for 2 full edit suites, one mobile and one full camera kit, basic insurance and minimal legal assistance. This has to be paid every month, without fail.
This doesn't include tax, wages, travel(petrol, train costs, travel to jobs), food(lunches at work), maintenance for equipment.
If you have 3 people working at the business each drawing a gross salary of £1500 pcm (a modest £18k per annum which is well below the UK average), you need a gross turnover of at least £8k pcm to cope with tax, VAT, travel and food.
If you all think you can, and you want to try - do it. It will be hard, you will want to kill each other.
Jensen, you've gotten some great advice from Rich, Nick, Walter B., Grinner, Scott, Brendan, and Tom -- all people who have worked through the challenges of starting and running a business.
Some of the advice seems to be to make sure you understand what you're getting into; the majority seems to be to put your plan to start a production company on hold until you've gained more experience or decided against it on your own. I'm sure this is not what you wanted to hear, but I do hope you consider it carefully.
Let's change your question a bit.
For those who have suggested that Jensen avoid starting a production company with his friends at the moment, what would you suggest he do in the short term instead? What sort of production industry jobs should he be looking for? How can he meet and network with the industry professionals who can get him work? What skills should he be focusing on? How can he set himself on a path that will take him from where he is to where he wants to be?
Jensen, where are you in your career today, and what specific skills can you show? What are you interested in? Where are you going when you relocate?
You mentioned features, corporate videos, and music videos in the context of your production company. They're worlds apart. Credibility and expertise in one area doesn't automatically transfer to the others. What do you really see doing? How do you really intend to make money at it?
I'd suggest that if you and your friends really have nice reels, you might each want to consider freelancing individually for established production companies for a while before trying to form your own company. You'll all deepen your production skills, and you'll all learn the business skills that will help you answer these questions for yourself -- but you won't have the added interpersonal challenges of trying to build a business together.
Building a successful freelancing career won't be easy, either -- especially if you're relocating to area where you have few contacts, and doubly so if it's also an area with relatively low demand for your services.
Also, you may be surprised at how fast the money you make will go right back out the door. See the Freelance Switch Hourly Rate Calculator [link] to get an idea of how much you'll need to take in to meet your expenses.
Principal & Designer at Keen Live
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[Walter Soyka] "For those who have suggested that Jensen avoid starting a production company with his friends at the moment, what would you suggest he do in the short term instead? What sort of production industry jobs should he be looking for? How can he meet and network with the industry professionals who can get him work? What skills should he be focusing on? How can he set himself on a path that will take him from where he is to where he wants to be?"
Being the eternal pessimist I would not only advise against starting a production business, but working in the business as well. To me getting into production today, would be like going into the steam railway business in 1950.
While there seems to be an increase in demand, it is far outstripped by the exponential increase in the number of 'production' employees coming to the market. Besides the huge number of clients going the DIY route, much of this influx is comprised of idealistic newbies that have no overhead and are working for bottom rates, and huge numbers of displaced broadcast/cablecast workers that were 'downsized' out of a job. This is actually a double whammy because it is those missing broadcast/cablecast jobs that provided opportunity for many to get their foot in the door. LMA's and duopoly's, closing of news/sports departments, production departments, automation and budget cuts are taking these jobs away by the truckload in every market, and dumping those that were in those jobs into the freelance market since they have no where else to go. Add to them, the number of folks displaced by the closing of ad agencies, post and finishing houses and related businesses and your looking at a market that is so over-saturated it will probably never recover.
All you have to do is open your eyes and it's right there to see if your looking.
"If you think it's expensive to hire a professional to do the job, wait until you hire an amateur." ---Red Adair
Where were you on 6/21?
I am going to disagree with the folks that say "don't". Screw that, take a risk, jump out there, don't let fear of failure hold you back.
Firstly, get a business plan, without that you are headed for trouble. Take some business courses; this is a business and you do yourself harm by not knowing how to run one. A lot of it will come from experience, talk to people (like those on this forum) that have done it before, learn from their experience.
"Should it just be divided up evenly?"
The day will come where one of you will be doing most of the work on a project and the others will be bitter that they have to split the profits evenly even though the workload is not even.
Perhaps have a per project percentage basis. So Jimmy will produce project A and our producer rate is X%, Susie will edit it and the editor rate is X%. Jimmy brought the client in so he gets the finder fee of X% of the final budget. That way people are paid based on the work they do, so if projects come in that only require one person you can decide amoungst yourself who will tackle it.
As for those personal projects like shooting a wedding, if you are using your companies gear and resources then do it through the company, but person A will make the money since they are doing the work.
"how do you start finding clients?"
Networking! With the business community and most importantly your peers. I get jobs from other video companies because either I have met them at an industry event and they liked me and my work or I hired them for a gig and they recipricate.
Be nice, be honest, be professional, do good work, don't cheap yourself out by doing work for free or next to free. Look up the article "Clients or Grinders".
Read read read about how to run a video production business. Take other media professionals out to dinner and pick their brains.
Media Production Services
Winnipeg, Manitoba, Canada
[Scott Carnegie]I am going to disagree with the folks that say "don't". Screw that, take a risk, jump out there, don't let fear of failure hold you back.
Would you be willing to invest any money into their fledgling company?
Our high definition video production is located in Austin Texas, and we are happy to travel to our clients to provide on-location video production services.
I might have your first job, give me a call at 507-289-9999 if you want to talk about an idea I have for a show, thanks