INDIE FILM BUSINESS PLANS 

By John W. Cones

            Technically speaking, the business plan is not a financing vehicle or entity but can be used in conjunction with several other investor-financing techniques to raise money for independent feature film projects.  For example, a business plan can be used with an investor-financing agreement to raise money from one or two active investors.  It can be used with a joint venture agreement to raise money from another entity also acting as an active investor/joint venture partner.  In limited circumstances, it may also be used as a means of identifying possible founding shareholders for the initial incorporation, a strategy discussed elsewhere in the book 43 Ways to Finance Your Feature Film (Southern Illinois University Press).

            Another important use of the business plan is helpful in establishing a preexisting relationship with prospective investors for a subsequent securities offering.  Thus, the business plan becomes a method for conducting a general solicitation while looking for active investors, and if the active investor campaign does not prove successful, then the use of the business plan can be halted, a three or four week interim waiting period can be observed and then the information in the business plan can be converted into a private placement securities offering memorandum for the purpose of seeking investments from a larger group of passive investors.  If the private placement approach is used for the subsequent securities offering, those persons contacted during the active investor general solicitation (using the business plan) may be approached as prospective investors for the private placement since the initial contact with those prospective investors is likely to be sufficient to establish the preexisting relationship which, although not technically required by the federal securities laws, still is an important element in proving that no general solicitation occurred.

            The film production company business plan can be very similar to the producer's package except that it is usually bound and may be presented in a more organized fashion.  The business plan is often the first step in procuring investor financing, whereas the producer's package is more commonly used for similar purposes in obtaining funding from a distributor or other industry sources.  The producer's package might include, for example, a screenplay, a list of credits for key persons attached to the project and a proposed budget, whereas a business plan might include a synopsis of the screenplay, narrative biographies of the key persons attached to the project and a use of proceeds section, which corresponds closely to the budget top sheet.  A business plan can be as simple or as sophisticated as the producer and his or her advisors choose to make it.

            Like other forms of film finance, using the business plan has inherent advantages and disadvantages.  The advantages of the business plan approach include: (1)  No securities laws involved--So long as the business plan is associated with an active investor form of financing (i.e., investor-financing agreement, joint venture or initial incorporation), producers using a business plan may approach any prospective investor without fear of violating the securities law prohibitions relating to private placements, which in turn (as a practical matter) limit offers and sales to persons with whom the producer or other upper-level management of the issuing entity have a preexisting relationship.  (2) No formal rules--There are no formal rules promulgated by any governmental authority regulating the contents of a business plan; thus, producers have considerable freedom in drafting such a document.  There still may be some liability, however, for inaccurate or misleading statements.  (3) Relatively easy to assemble--

            In the context of the film business, a business plan is merely a specific adaptation of the producer's package, which in turn contains many of the documents a producer would ordinarily generate in the preplanning stages of putting together a film project.  (4) General solicitation permitted--The business plan, properly handled, allows the producer to go out into the marketplace and conduct a general solicitation for a single active investor or other possible combinations, and if not successful in raising the necessary monies using the business plan, the producer may convert his or her offering into a securities offering and then go back and call on those same investors within the context of a securities private placement.

            Disadvantages of the business plan approach include the following: (1) May be unneeded step--If the producer already knows that he or she is going to use the limited partnership or limited liability company as the financing vehicle, for example, and already has a sufficient pool of prospective investors available, the business plan is just another step in the financing process that might be eliminated.  (2) Inadvertent securities sales--Producers who are not aware of the important distinction between active and passive investor offerings may confuse the two in using a business plan and thus inadvertently be guilty of selling an unregistered security, a law violation raising the possibility of both civil and criminal penalties.  Thus, producers beware: ignorance of the law is no excuse.

            The following is a sample outline of a business plan to be used in promoting a feature film production company:

            Business Plan

                        Executive Summary

                        Introduction (Setting of the Stage)

                        Status of the Independent Producer

                        General Company Description

                        Management and Organization (narrative biographies)            

                        The Proposed Film           

                                    Film Synopsis/Treatment

                                    Screenplay Rights

                                    Comparable Box Office Performances (or distributor rentals)

                                    Production of the Picture

                                    Budget/Use of Proceeds

                                    Distribution Approach           

                                    Funding of the Picture and Cofinancing

            Industry Overview

            Exhibits

                        Résumés of Principals

                        Literary Property Option/Acquisition Agreements

                        Financial Statements

                        Letters of Interest/Intent

                        Industry Articles

                        Press Coverage

                        Financial Projections

            The following are other possible exhibits (depending on the stage at which financing is sought) that may be included as part of the business plan: title report, copyright search report, chain of title documents including a certificate of authorship for the screenplay, copy of the copyright registration, copyright assignment, distribution agreement(s), completion bond commitment letter, corporate resolution authorizing the producer to negotiate and sign a financing agreement, final screenplay and shooting script, cast and production credits, synopsis of the script, biographies of key people, feature stories on lead actors and the director, production stills, casual cast photos, agreements relating to the film's music, the MPAA ratings certificate (if available) and the E&O certificate of insurance.


Copyright 2011 by John W. Cones
ALL RIGHTS RESERVED
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