Policy and regulation, macro-economic variables and trends in content consumption, amongst many other factors, can majorly impact the profitability of production companies. Hence, it's prudent for them to adopt some cardinal practices of financial management to ensure healthy returns and minimising of risk in the creative business
10 March, 2023
By Vaibhav Modi
An idea is only as good as the plan to execute it and sound financial management is a must for those who are in the business of turning ideas into content. Irrespective of the size of operation, the creative business is risky and unreliable. Policy and regulation, macro-economic variables and trends in content consumption, amongst many other factors, can majorly impact the profitability of production companies. Hence, it's prudent for them to adopt some cardinal practices of financial management to ensure healthy returns and minimising of risk in the creative business.
Honour financial commitments
It is imperative that the content house has a positive reputation for honouring financial commitments in the market. It's critical for content creators to be acknowledged for their financial integrity and responsibility to get better deals, conducive credit periods and quality talent and vendors.
Be creative about financial management
It might sound like an oxymoron but some amount of 'financial creativity' goes a long way. Consider minimising generic expenses and overheads yet have all costs coming out of direct variable cost of projects. Similarly, while drawing annual budgets, always include development/sales cost along with working capital required for projects. Outsourcing ancillary functions is a good idea for small organisations where the headcount varies as per projects in the pipeline.
Be frugal about capital expenditure
It is always tempting to commit to capital expenditure when the cash register is ringing. Every creative entrepreneur would love to invest in the latest equipment that makes her product shine. This comes with a catch though. Equipment gets obsolete and also demands maintenance, which means additional manpower. While this is just an example of capital expenditure, as a rule, every penny spent towards the real capital in the creative business i.e. content and talent, delivers a better bottomline in the longer run.
Invest in higher return instruments
If you are a producer, financing is a huge need. Instead of keeping cash reserves in your current account, it is sensible to invest in higher-return instruments such as liquid or short-term debt funds, non-convertible debentures (NCD) or intercorporate debentures (ICD). These instruments come with better liquidity than long-term investments, speaking of which, one must mention having some very good quality long-term investments such as equity in one's portfolio. Both the above put together make for good quality collateral for low-cost finance.
Build a strong internal audit
Build a strong internal audit that works like the nerve centre to the finance back-end of the company. It not only helps review controls, contracts, culture and policies but also adds directly to the profitability by weeding out leakages. Strong compliance and clean books pay back by avoiding scrutiny and penalties.
Have A Robust Risk Management Plan
As mentioned earlier, the content houses operate in a risky and dynamic environment. It is hence imperative to have a powerful and effective risk management plan. This includes identifying common risks and developing solutions to them. It arranges the risks in terms of priority and importance. Being prepared for risks before time and insuring against them helps you fight unpredictable mishaps and keep your business safe from external or internal challenges.
Above are a few basic essentials that a content production house should be mindful of. If these basics are in place, there are many more building blocks of financial management and health the management should look into like cash flow management, educating line-production teams on credit and cash flows, having strategic debt, and strong inventory and data management among others. The business of creativity and content can be well-managed if financial health is given importance and is taken care of in tandem with other functions.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.
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