Going Into Business
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Every now and again Nick and I meet face to face with a group of people that wants to start their own film production company. After sufficiently scaring them (a necessary task – this if far from all fun and games), we generally try to give them some practical advice. Please remember that none of this should be construed as legal advice. Always seek the counsel of a lawyer, accountant, and serious head trauma ward before thinking about starting your own business. Also, please be aware that I did not bother to do heavy research into the political underpinnings of any of the groups mentioned. If you have a beef with one of the groups listed please take it out on them and not us. We don’t want your beef. We like chicken.
1) A sense of humor is absolutely essential. If you didn’t even chuckle at the above paragraph, you will never make it past your paperwork. How do you expect to survive a tax season without a sense of humor?
2) There are several types of business models that you can take. The most popular, in my opinion, are the LLC (Limited Liability Company) and S-Corporation. Each has their advantages and disadvantages.
a) An LLC is essentially the same as a partnership in its taxes. When money comes in it is divided amongst each of the members as income, even if none of the members actually gets the money. In other words, if the business has two partners and it makes $1, each partner must claim $0.50 on their income tax, even if the money stays in the business account or is spent on office supplies. If your business should happen to pay you, you then “draw” money from the bank account. It’s like taking money from one pocket and putting it in another pocket. However, the business gets taxed on the initial dollar it made, and you get taxed on however much you draw. Therefore, the same dollar is taxed twice. Fun, huh?
b) S-Corporations are complicated. Read this article for more information. Thinking about it makes my head hurt.
3) Once you have decided on which kind of business model to become, start the business! The process for this varies in every state. The good news is that there are organizations set up by the government to help you to do this. One is the Small Business Administration (SBA). I also highly recommend www.business.gov.
a) You need for a Vendors License to sell goods and services. This is the license you need in order to appropriately pay sales tax to your state. There are different kinds of licenses. We use the Delivery Vendors License because we only ship DVDs and have no physical store for customers to walk into. You may need something different.
b) Before you start selling items, be sure to check out the sales tax for your state. In Ohio we have 88 different counties, each with their own sales tax. If we ship one of our products to one of those 88 Ohio counties, we have to charge sales tax according to what county the product will be shipped to, not our own county rate. Also, various states may or may not charge sales tax on shipping. Ohio does.
c) You should also be aware that you will need to keep every receipt and you will need to invest in bookkeeping software. Quickbooks is a popular program. Believe me when I say that this will help when tax season comes. Consult your accountant to see what they use because you will want to use a compatible program.
4) In case you haven’t noticed, owning a business is almost entirely paperwork.
5) Before you start setting up your business you are going to want a business plan. A business plan is essentially your playbook for the business. You will want to have this down in writing before you get too involved in your actual filmmaking processes. The same is true is all areas of filmmaking – casting, investors, distribution, locations, everything! Get it in writing. This is especially important for friends because they may not be such good friends once the money starts coming in or if they lose their investment. You business plan should include:
a) This may sound terrible, but if we are going to read a persons script we will often have them sign the rights to the script over to us first without pay. People often want us to trust that they will not sue. But what do they have to lose? A few days worth of typing? You have a whole company to protect! They should be required to trust you before you trust them. After all, you are the person with the most to lose.
7) Now that you have your script, go and find money! We actually recommend using your own money, though other people disagree with us. We like to use our own money because then we are not at the mercy of another person. If you decide to get investors be sure that you are the person maintaining creative control and that you do not give them any hope of getting their money back. Films are, in general, very risky investments. Every investor should be aware that the likelihood is that they will never see their money again.
Since we fully expect that information to keep you busy for the next several months, we will leave off there. Filmmaking can be an exciting and fulfilling career, but it is also a business. We have to give Caesar what belongs to Caesar. The actual filmmaking process is somewhat easy in comparison to the business aspects.
Remember that you run a business. Even non-profits make profit. People will constantly want you to give away your products and services for free, especially if you make gospel films. Simple equation: money out + no money in = bankruptcy. You must charge for your services. Do not let people tell you otherwise, especially people who do not own a business. You will be surprised how you are expected to pay forty thousand dollars for a low budget film but many customers are unwilling to chip in ten dollars for a DVD. Math is fun!
Do not forget to take time off. We are big believers in the five-day workweek. Your life should not be defined by how much work you can crank out, but by how well you lived it. Use every fiber of your being in order to leave work and go home. A filmmaker’s work is never done. EVER. Believe me when I say that it can wait. People will constantly want to know what your next project is, when the rough cut will be done, if they can act in your film, etc. Hang up the phone, disconnect the Internet, and go for a walk in the woods. If you are not taking off at least two days a week then something is wrong.
Most of all, remember Who you are doing this for! It is very easy to get caught up in the act of business and to completely forget that you are doing it for the Lord. Please also take to heart that cheating the IRS, using music that you do not have the rights to, pirating software, cutting out on business deals, and stealing office supplies are not biblical practices and should be avoided at all costs. For more information, please check out the websites that we suggested and subscribe to our podcast since we tend to drop nuggets about filmmaking in there every now and again. May the Lord bless your filmmaking adventures!
A friend of mine just emailed me one of your articles from a while back. I read that one a few more. Really enjoy your blog. Thanks
Glad to hear it Aaron! Be sure to check back next week for even more excellent content