“So, you wanna’ be a Producer?!” Section 4.4

CAPITALISATION, PROFIT & LOSS ANDRECOUPMENT

CAPTIAL SUM

Having estimated the costsof mounting and runningthe production,consideration must begiven to the capital sumthat will be required, takinginto account the following:-

  1. The estimated production costs.
  2. A contingency of say 10% of the production costs to allowfor any overspends.
  3. A reserve of funds to cover any running losses that mayoccur at any time during the run. Lack of such a reserve hascaused many producers to run into financial difficulties.
  4. Sufficient funds to cover any deposits that the Theatre,Equity and/or the MU may require.
  5. Sufficient funds to meet the VAT elements on invoicesrelating to the production for supplies or services and whichcannot be reclaimed timely from Customs & Excise (consultyour accountant).
  6. Sufficient funds to cover any running invoices that may needto be paid during the production period. Hire companies, forexample, give worthwhile reductions on their hire charges if6 or more running weeks are paid in advance.
  7. Sufficient funds to cover closure costs, if the production fails.

Most of the foregoing items, in particular d,e,f & g are a matterof funding cash flow. Items a & b, together with item c, is thetotal expenditure that has to be set against any Weekly RunningProfits in order to achieve Recoupment. Recoupment is normallydefined as ‘The point in time when the Producers share of theNet Box Office Income first equals the aggregate of theProductions Costs plus the Weekly Running Costs to that dateless any weekly running losses to that date’.

Net WeeklyRunning Profit is usually defined as ‘The Producers share of theNet Box Office Receipts less all Weekly Running Costs includingRoyalties’.

Up until the week in which recoupment takes place, all weeklyrunning profits that go towards recoupment are held in theProducers bank account for the benefit of the Investors and arethen paid over to the Investors. Once recoupment has beenreached, investors are entitled to receive back the same sum ofmoney that each individually invested. Normally, repayment ofthe whole investment would not be made until post recoupmentprofits had built up a reserve to meet possible running losses orcash flow needs.

In the event of a show having to close before recoupment takesplace, but when partial recoupment has taken place, eachInvestor would receive only that percentage portion of the partialrecoupment money as that Investor’s percentage investmentbore to the total Capital.

Following Recoupment any aggregate of Weekly Running Profitsagainst any Weekly Running Losses is divided between theProducer and the Investors, the usual ratio being 40% to theProducer and 60% to the Investors. The 60% to the Investorswould be divided, each Investor receiving that percentageportion of profit as that Investor’s percentage investment bore tothe total Capital.

Profit and Loss

An estimated profit/loss illustration can now be assembled. Anexample is given overleaf with figures inserted as a guide to howit works.

The illustration is based on the following:

  • A net box office potential of £120,000.00
  • Fixed Weekly Running costs of £55,000.00
  • Royalties of 15%
  • Showing a Weekly Running Profit
  • Assuming a Total Production Cost of £250,000.00
  • Showing the estimated number of weeks to Recoupment(derived by dividing the Total Production Cost figure by theWeekly Running Profit figure).

© Andrew Treagus