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Don’t Budget Yourself Out of Business… Or Budget Blues

Independent producer/director Mark Simon talks about the death nail to independent production underbids and over-promises.

Mark Simon is an independent animation producer who knows firsthand about the budgeting blues.

Mark Simon is an independent animation producer who knows firsthand about the budgeting blues.

As I sit back and watch animators open up shop as independent production companies, and then shut down six months later, I see a growing stain by the front door and I realize its time to take my pet peeve, Lowball, on a walk. Let me introduce you to my pet peeve. Lowball underbids and over-promises. Clients see him as a cuddly way to get something produced, though seldom delivered properly, for a rate far below that which is practical. Successful independents see him as a detriment to good business practice.

You see, Lowball is a mutt that is often found hanging around after university graduation and studio layoffs. He may be cute and have lots of talented tricks, be he seldom understands the needs and financials of producing an entire project or running a business. Lowball and his friends in the pound are usually great at the few things they did in school and at larger studios, but they seldom saw the big picture and ran the show.

Lowball, in his youthful exuberance, is quick to jump on a project expecting that his only costs are his time, some paper and pencils, and couple of talented friends that can help out. Without putting together a real budget, they throw out unrealistically low numbers, which often sound large when they think its only for two people. Far too often Lowball runs out into the street as a production is moving forward and gets hit by an 18 wheeler of unexpected costs, hardware problems, overhead, the need for more crew, production problems, client delays and changes, and is thrown into a nearby production pond which is over his head.

Lowball, having always been protected from clients in his other jobs, never realized what he was going to run into. When his clients keep taking a week or more to approve things, make changes that cause him extra work and Lowball doesnt protect himself in his budget or contract, he often realizes that hes paying a crew to just sit. Who is going to pay for the extra time the crew needs to finish the project? Without a good production plan and contract, it wont be the client.

Lowball is a nasty pest who can ruin your business.

Lowball is a nasty pest who can ruin your business.

I have gotten many phone calls from clients who tell me they spent most of their budget on someone less expensive, but it didnt work and now they would like me to fix it for the three cents they have left. Most other studios will tell you the same story. Unfortunately, thats usually not possible and everybody loses.

While Lowball and his friends think they will land all sorts of projects by giving low bids, they are both hurting themselves and the industry in the process. They get hurt because their naiveté may cause their projects and business to fail. The industry gets hurt because clients get a false sense of value and expect that everyone should then charge those unrealistically low rates. When projects go way over budget and way over schedule that also leaves a black mark on other creatives.

Some of Lowballs friends have been very successful, but they knew enough to budget and schedule properly and had help expecting all the possibilities. Of course, most of the successful ones were already producing and directing in a studio environment and had gained the necessary experience. No one likes to hear it, but you still have to pay your dues.

Since I dont want to clean up any more messes by the door, Lowball needs advice and training in knowing how to schedule and what to charge. There are two great books that will help him pre-plan and budget an animation project. For large projects, films and TV series, he should read Catherine Winder and Zahra Dowlatabadis book, . These successful animation producers have written the definitive guide to producing large projects and their book includes a large, blank budget form and sample production schedules. The other book is one of mine, Producing Independent 2D Character Animation. It covers every aspect of producing a short or commercial and it also contains a blank budget.

Quite often, Lowball yanks back on his chain to get away from the budget I spread out on the floor to cover his messes. While it may not be pleasant, its a lot better than losing money and going out of business.

The best part of using a good budget template is that it acts as a reminder of all the costs you are likely to incur during a production. By filling in the blanks on a budget you may be reminded of all the copies of the script, the boards, the designs, etc. that will be made for client and crew. Or you may be reminded to budget for software, animation supplies, audio recording, editing and timing. How about the dubs and freight costs? Time and materials to back up your work during and after production? Rent? Overtime? Production assistants? Transfers? Working meals? How about casting expenses? Phones? Get the idea? Production budgets include anywhere from 450 to 700 potential line item costs.

You can read excerpts from Simons book Producing Independent 2D Character Animation on AWN.

You can read excerpts from Simons book Producing Independent 2D Character Animation on AWN.

One of the biggest expenses Lowball tends to forget is labor tax. It costs an extra 26% in taxes on top of what you pay your crew, not including the accountant to take care of it. If you have $10,000 in labor costs, your actual expenses will be $12,600 including taxes. If you hire union animators, the fringe benefits will make the total even higher. The penalties for not paying labor taxes are 100%.

There is one other thing Lowball should remember, doing lots of budgets does not make him better at budgeting. The only way to get better at budgeting is to track actual production costs against budget estimates to see where his estimates were off. Working from a solid production schedule and filling in a proper budget, however, is a great start.

I reminded Lowball of his needing more backgrounds on one of his projects that he didnt budget for. His response was, Thats OK. Ill just throw that in and do it myself. It sounds nice, but he may not have time to everything himself. What if a second project comes in? Where would the extra money come from to pay for the needed labor? It also makes for a quick way back to the unemployment line. You have to properly plan and budget for all expenses or they will add up to a big mess.

The treat at the end of the budget is the markup, or profit line. Most companies mark up 20-30% of the production costs. While this may seem like a large amount, there are many things that eat away at that number. Anywhere from 25% to 33% of your profit goes to Uncle Sam for taxes. Your markup also pays for your office furniture, insurance, copy machines, computers, software, maintenance fees, leases, your staff inbetween projects, electricity, advertising, and more. Beyond these and other overhead expenses, you are a business and deserve to make a profit. Thats what businesses do. Without a profit you cant grow or even exist.

As Lowball is taking his walk to the corner of Opportunity Road and Success Lane, there are a couple of great shortcuts that may help. Everyone offers discounted rates to get started. Thats fine as long as there is enough in the budget to actually cover your expenses, but there are smart ways to handle the discounts. Clients tend to have short memories. You may tell them until you are blue in the face that actual price should be $20,000, but you will do it for $14,000. When they call you back for another project, they will only remember that it should cost $14,000 and will balk at a higher rate.

Producing Animation is another useful book on learning the ins and outs of producing indie toons.

Producing Animation is another useful book on learning the ins and outs of producing indie toons.

Your shortcut to avoid this road hazard is to contract and invoice for the full amount. Then subtract the amount of the discount to lower the final price. This way, the client always sees the proper value and is less likely fight realistic budgets, from you or anyone else.

I tell my pet peeve that its also OK to say No when a client doesnt have enough time or money for a project. Its better to turn down a project than to fail at one.

We always have to educate our clients and we need to protect our future and that of our industry. If we dont show them how long a production should take or what the actual costs are, there is no reason for them to prepare enough time or funds. I keep telling Lowball that by bidding too low on projects not only keeps the rest of us from making more money, it will keep him from making money too.

Only experience will help Lowball properly plan and budget a production. Only experience will help him know how much to pad (also called a contingency) his budget for the inevitable changes, delays and production problems. If Lowball doesnt have the experience, he should find someone who does and spare us all the hassle of picking up after Lowball does his business.

Now you will have to excuse me while turn up the voltage on my pet peeves electric fence. I see him trying to get out again to take a wiz on my Contract and Rights tree.

Mark Simon founded and owns A&S Animation, Inc., an award-winning cel animation house in Florida, which develops and produces character animation for commercials, TV, training videos and the Web. He also owns Animatics & Storyboards, Inc., the largest storyboard house in the southern United States, which has provided work on more than 1,200 productions. Marks accomplishments include owning an award-winning advertising firm, being a syndicated cartoonist, production designer of film and TV, writing entertainment industry books and lecturing on both animation and storyboards. Winning more than 30 animation awards for his efforts, Mark has directed Timmys Lessons in Nature (which he sold as a TV series), My Wife is Pregnant, numerous commercials, training videos and television series special effects.