Cashflow Forecasts

At the start of pre-production it is necessary to draw up a cashflow forecast for the production. The function of the cashflow forecast is to estimate, based on the budget and the production schedule, when production expenditure is likely to occur and when production income is likely to be received. Cumulative income and expenditure can then be compared to arrive at an estimated cash position for the production at all stages.

Many broadcasters have standard invoicing terms for each genre but the Production Accountant should not assume that the standard terms will automatically work for the production being undertaken and should compare cumulative production income using the standard terms to the likely cumulative production expenditure.

Where the cashflow forecast indicates at any stage of production that cumulative expenditure is likely to exceed cumulative income then, in discussion with the Producer, a plan has to be put in place to cover the projected cash shortfall.  Such a shortfall might occur where part of the production budget is to be financed by tax relief which will not be paid until several months after delivery of the programme. A cashflow shortfall can be met by negotiating earlier payments from funders or by asking suppliers to agree to have payment of their invoices deferred until a later date or by a loan.

The Production Accountant also needs to consider the implications of VAT timing differences on the production cashflow, and where this is likely to be an issue the Production Accountant should incorporate VAT income and expenditure into the cashflow forecast. At this stage, the Production Accountant should also consider whether it is necessary to apply to HM Customs to file monthly VAT returns (rather than the standard quarterly returns) to help the production cashflow.

The following links give examples of production cashflow forecasts:

Example Currecny Cashflow.xls
Cashflow forecast.xls

Currency Cashflows

A further complication when looking at cashflow forecasts and funding is the impact of foreign currency income and expenditure.  Where a production has expenditure in a foreign currency the Production Accountant needs to consider where that foreign currency will come from.

If, for example a production is budgeting to spend £1 million in France, the production is going to need £1million pounds of Euros.  In an ideal situation, £1million of the production funding would be in Euros but the Production Accountant needs to ensure that the Euro funding will be received before the Euro expenditure and that a Euro bank account has been opened so that the Euro income does not have to be translated into sterling on receipt and then back into Euros when the Euro expenditure occurs. If the Euro funding is expected to be received after the Euro expenditure, the Production Accountant should consider whether it is appropriate to do a matched forward exchange deal with the bank whereby the production purchases £1 million of euros so that it can finance its euro expenditure and then sells £1m of euros at a date in the future after receipt of the Euro funding. The main advantage of a matched forward exchange deal is that it fixes the currency exchange costs such that the production is not affected if exchange rates move adversely. Such a deal though does require the Euro funding to arrive on time and the Production Accountant should ensure that all parties (including the Euro funders) are aware that additional cost will be incurred if payment is made late.

In summary, the Production Accountant needs to consider the currency requirements (if any) for the production and should plan material currency purchases in advance to avoid exposure to adverse exchange rate movements and consider hedging.