The Optimal Business Plan
For years, I've been doing motion graphic videos as a freelancer. I made a good reputation in my country, worked with big clients, I had a very good income as a freelancer. I decided to start my video production company officially. Why? Two reasons:
1) Clients are making a lot of valuable requests now, I can't do them all because I care for 'Production Value' and I need time to achieve that. With people working with me, I can do more projects in terms of quantity, also and I can make large-scale videos which I always wanted to do.
2) I was having difficulties working on my own because I had to do everything in the process, and this was really killing me. I'm sure it's more efficient to distribute the work and tasks between a team so everyone will work faster in his/her specialty.
I wrote a well thorough business plan, but I got stuck in one major part: Financial Statement!
No matter how I estimate the expenses, the ending balance will be in minus in the next five years! The only way to have a sustainable business is either to increase the number of projects we do until unrealistic measures OR to decrease the manpower expenses to unrealistic measures OR to increase sales prices to unrealistic measures. If I adjust one variable, another variable will turn to be not working correct.
I just want to have a clue on what production companies and animation studios are doing to make profit? how much they charge for their projects? what are their expenses and costs? What is their profit margin? I know this differs from place to another, from business strategy to another, but having a general clue on the numbers will give me an insight on the relationship between business components, so I can make a realistic estimation.
I don't know where you are based?
1st priority for expanding your business, is to make sure that people can find you ;-)
Business plans are a wonderful thing to show to the bank and people who think that they will like to invest in your new company - however, they are also a big time waster created just for the purpose of satisfying your own vanity - sadly, I am speaking from experience here...
If your turn-over currently is below the local VAT (sales tax) threshold - don't bother.
If you are still serious about building a company to take over the world with - good.
Read this free book first: http://www.sethgodin.com/sg/docs/bootstrap.pdf - it told me everything that I needed to know, five years too late. But I am certainly going to use it next time around.
The only two people that you need on board is a good honest book-keeper and a great accountant. Make sure that you agree with both: How much they'll cost you? and that they don't work more hours than is needed.
All other "employees" will follow as either freelancers/contractors, or if there is enough work for an assistant, hire one of those. But NOT until you have the cash in the bank. Don't be afraid of making strategic partnerships where you with like minded people share office space/telephone answering service/cleaner etc.
With regards to finance for the venture - only spend money on marketing and keeping the clients happy. (Do create a marketing plan)
At some stage your accountant will talk to you about forming a company to protect yourself from liabilities and make better tax savings. Only do this if you can afford to pay him in cash up front and if you're actually going to save some money on doing it.
Bottom line: Keep your clients happy, Make profit!
You make profit by selling your products at a higher price than it cost you to produce them - don't forget to factor in all the small things such as paper clips etc. Every company in this sector is different, so you're better off working out your own margins based on your cost base.
If you have too many clients, you could be better off by raising your prices by 50-100%, rather than expanding - as shockingly as that might sound, do try it - I'm sure that you'll be pleasantly surprised by how many of your clients will accept the extra cost in return for good work.
Do not waste your time with a business plan unless you're looking for at least $2 Million in capital (That is the point where the bankers and investors will entertain you, and do so with a big smile)
All the Best
@madsvid, London, UK
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[Mads Nybo Jørgensen] "Read this free book first: http://www.sethgodin.com/sg/docs/bootstrap.pdf - it told me everything that I needed to know, five years too late. But I am certainly going to use it next time around.
Thanks for the book recommendation. I'm on page 3. "I keep my focus on growing the business--not on politics, career advancement, or other wasteful distractions."
Thanks for your interesting comment. I gotta say it's way too against the plans I was making, but it is always good and healthy to have a view on a different aspect. I didn't read the free book yet, but it seems great. Thanks for sharing it.
I'm in Saudi Arabia. (By the way, we don't have VAT or other similar rates, there is only a fixed flat tax to any commercial entity which is 2.5% of the balances.)
Here in my country, although there is a huge demand on video services, we don't have an active creative design industry, therefore it's rare to find freelancers, that's because it's considered a risky position. Artist prefer to work full-time in an established companies instead of offering their services as freelancers. For this reason, I can't rely on freelancers as a production strategy, I have to offer the artists a full-time job. Sadly, it is the highest cost in the business, but it's unavoidable if you want to increase your production speed and quality so you can 'make your clients happy'.
[Ala Mctoom] "Artist prefer to work full-time in an established companies instead of offering their services as freelancers. For this reason, I can't rely on freelancers as a production strategy, I have to offer the artists a full-time job."
If you adopt this view as a given then you are ignoring the fact that we now live in a global workplace. For computer-based work your freelancers could be in India, Eastern Europe or even the United States. (OK, Mads, even the UK.) There are multiple ways to track down people with various specialties including the "Jobs Wanted - Higher Pay" section right here on the COW. And, even though the COW doesn't have this feature (yet, that I know of), some freelancer sourcing sites allow you to ask for bids based on specific job specifications. You just need to be able to communicate in a common language and as that more often than not tends to be English you're already ahead of the game.
Expanding on Mads' suggestions, when you're starting a business don't buy things until you get to the point of actually needing them. By renting things like cameras and lights and/or hiring people with their own gear only for specific jobs, not as full time employees, you should be able to grow organically.