Let’s Get Down to Business!
It is with pleasant anticipation and regret that I’ve realised that I am already half-way through my course at The Northern School of Art.
In about 1,5 years, I’ll be done and I will have to venture into the business life that I’ve been dreaming of entering ever since I was 17 years old.
Which was also a splendid point in time to actually start thinking about business and – more specifically – business models for filmmakers in the UK.
The Legal Structures Available
For filmmakers in the UK, there are three legal structures for when you want to open your own business (or when you didn’t get hired by a company, TV or radio channel). These three legal structures are:
Sole trader
Partnerships
Limited Companies
Sole traders
As a (registered) sole trader, you have sole and overall control of your own business. Since you can only be registered as a sole trader as a single person, all responsibility for your business naturally remains with you. However, this also holds true for all the liabilities. As a sole trader, you are not only personally held responsible for all debts you incur; you are also held completely liable with your private funds if your business fails, leaving your assets at risk in a worst case scenario. While you don’t have to open or register separate bank accounts for being a sole trader, there is also a downside to the mixing of personal and business bank accounts.
Regarding the issue of declaring tax, you declare your business profits as income and pay tax towards that sum. You can charge all that is needed to keep your business running and put it towards your tax rebate, such as e.g. office supplies, travel expenses and donations.
This is very much the same in Germany.
As a sole trader in the UK, and in regard to your tax band, you are regarded as self-employed, meaning that you must also pay income tax and contributions to National Insurance, which you will need to settle with the HMRC – Her Majesty’s Revenue and Customs. You would usually want to register within three months of opening your business or else you could incur a penalty fee.
Partnerships
Partnerships is a more advances business model, in which you can be from two up to 20 partners in total. The profits within that partnership are divided between all partners.
However, funnily enough, in regard to your individual tax band, you will still classed as self-employed for tax purposes, which again means that you would have to pay income tax and national insurance contributions. Also with a partnership, and much like with sole traders, each and every partner is held accountable with their private assets if their collective business runs up debt in any form whatsoever.
Because the mistakes (or benefits) of other partners could thus have a direct effect on your income and liability as well, it is imperative that you draw up and sign a deed of partnership that settles how much every partner earns and who owns what responsibility in what area.
Limited Companies
Limited Companies now are more complex, legal structures that typically require more paperwork and proper contracts. They are considered high-risk businesses, in which the company is considered a legal entity for legal purposes. Since this means entering the legal realm of companies, with a Limited, you would also have to start paying corporation taxes on the total profits that you make. You would furthermore have to collect and pay income tax as well as National Insurance contributions through a Pay As You Earn (PAYE) system.
In order to run a Limited, you would need at least three members: at least one shareholder, at least one director and at least one company secretary. A Limited can legally have up to 50 different shareholders; each shareholder is herewith limited in their liability in accordance with the value of their shares.
You would furthermore have to prepare, maintain, and submit accounts to Companies House, which includes – amongst others – a profit and loss account and balance sheets.
The Next Step: Picking a Name
Once you settled on the legal structure of your business, you can then choose your own company name. Whilst you, strictly speaking, don’t need a company name as a sole trader or a partnership, with a Limited, you are required to have one.
However, there are certain aspects to picking a business name that you need to keep in mind:
Your name cannot be already used by another company (or else you breach a registered trademark)
Your name cannot be offensive
Your name has to pertain to government restrictions
If you run a business under a name that is not your own, you require to do the following:
Display the trading name
Display the name of the owner (in case of a sole trader)
Display the name of each partner (in case of a partnership) and
Diplay the business address
In order to be able to register with a certain name, you need to make sure that no other company has claimed the name for themselves. One way of doing so would be running your desired name through the search form of registered companies at Companies House to see whether it has already been taken (or whether you would want to swap for a more distinctive name, in case there are many similar names out there).
Where and Whom to Register With
You decided on your legal structure and you finally managed to settle on a name for your new business. However, now, you want to let people know of your business. Not only in regard to networking and commitments, but also in regard to your taxes. What do you do?
As I already touched upon a bit further up this blog entry, you are regarded as self-employed both as a sole trader as well as a partner. Because of that, you need to register with the HMRC within three months after starting your business.
However, as the owner of a Limited, you will be required to formally register your business with Companies House BEFORE you even start earning a single penny. This requires you to submit a load of documents such and pay a registration fee towards your registration.
How Do You Do With Money?
Speaking from my own experience, I can tell you that starting your own business can take its sweet time. It can take you ages until you first income, let alone a stable stream of income off which you could live.
For this particular reason, you need to know your finances and have a contingency plan in place for the rough patches until your business is fully up and running. It’s a totally different thing if you have enough finances saved up to last you and your expenses for one year, or if you require to have a side hustle – aka a part-time job – because you need to pay the bills as soon as possible once you left university.
Another particularly helpful tip to use in the meantime is asking for a 50% payment upfront for your first couple of commitments in your business. This way, you can afford to pay the running costs for everything whilst still setting your business (and yourself) up. Within these 50%, you would – as a filmmaker – also be able to cover for the required equipment rent for production, as well as for e.g. office space, server space for editing, transportation to locations, etc.
Cash Flow
In the beginning of your business career – and especially in sole trading – the most stressful aspect will be obtaining a regular income that is not only covering your expenses, such as wages and bills, but also leaving you with an income you can live off and start paying towards your insurances – or even, lo’ and behold!, your pension.
Thus, a ‘good’ cash flow is signified by an income that leaves you to do just that, while a ‘bad’ cash flow naturally isn’t. However, as with everything in life, you can also transform a ‘bad’ cash flow into a good one by trying to negotiate payment targets or asking for open account terms.
Profitability
And now we come to the meat of it all, something that I personally find really hard to accomplish: Knowing whether your prices are sustainable or not. Here, I found the recommendation of my tutor really useful when he pointed out that it would be better to work with fewer customers but higher margins, than with more customers but fewer margins.
I am usually the person who tries to spread my assets and finances as wide as possible in order to be in a more stable position in case one element drops out. I’d rather rely on five smaller customers and one of them not being able to pay in due time, than on only one big customer who – if they dropped out – would leave me bankrupt in no time. However, with filmmaking and especially in regard to time management, this attempt would not serve me well either but rather bring me to the brink of a burn-out syndrome.
Giving Credits
The same care goes for giving credits. The standard recommendation in business is well to only give credit when it cannot be avoided, and only give credit with long-standing, trustful customers that have served you well in the past and might serve you well again in the future. However, in this industry, and especially in regard to the opinion that e.g. films, TV ads and music videos are sometimes not considered commodities that need to be paid for, one should be extra careful for giving credits. Thus, it is imperative to be aware of new customers who are asking for credit and don’t ever give a finished product to your client before having received the full payment upfront – this is called pro forma.
Furthermore, in order to avoid as much grief as possible in the long run, tend to give your customer an upper and lower estimate for quotes on any given project. This does not only protect you from accidently putting in more work hours due to misjudgement of work loads and thus ending up with an unprofitable income – which tends to happen especially in the beginning of freelance – but it also serves to inform your customer and give them a feeling of making an informed and transparent choice.
Plus, if you happen to stay below your maximum quote while still being able to pay your bills and live from it, you’ll likely have a happy customer who got their product for a lesser price than anticipated – inclining them to remember you for your cost effectiveness and come back to you for later projects.
Overheads aka Fixed Costs
This holds true especially in the beginning, but make sure that you keep your overheads – any fixed costs that come with owning a business such as e.g. stock, premises, equipment and staffing costs – to the required minimum. Make it a habit to review them often and efficiently, cutting down on anything that might endanger you running into bankruptcy. There is no need for you to keep that temp if they end up earning all of your income, leaving nothing for yourself or the other bills.
More Tips Surrounding Your Business
Don’t buy your own kit
In filmmaking and especially as a young filmmaker just starting out, one trap you should not fall into (unless you have proficient means that is), is the – what I call – ‘have your own equipment trap’.
Whilst buying your own equipment seems like a really good asset for your business – you don’t have to go through the hassle of paperwork and hiring equipment for every single job again and again – it is a massive expense that won’t last you for long in the age of technological advancement where your equipment is generally already out-dated within only six months after purchasing it.
Instead, save these £5,000 to £10,000 and put them towards the rent of your desk or office space or put them into an editing computer. Whilst the aspect of technological advancement also does hold true in some regards with editing computers, editing software has a much longer lifespan until it is noticeably out-dated and needs updating.
Keep a good relationship with your bank accountant
Speaking from experience as someone who has taken out a bank loan to pay the study fees and rent for one year of studying at university in UK, I can only recommend maintaining a good relationship with your bank accountant. It would surprise no one if I claimed that banks are looking for your business and can be very accommodating towards you if they feel that they will still benefit despite (or sometimes even just because of) their amiability.
Being transparent and upfront about your finances whenever required might mean that you would have to make a call to ask for e.g. a loan repayment to be put on hold for three months, but might also require that you can save your business in the long run because you did not incur overdraft fees, penalty fees or had your business seized by a bailiff.
Taxation
Keep yourself informed about tax bands and taxation, especially of tax reliefs that you might be eligible to get. Inform yourself with the HMRC and read up on the matter.
Information
Lastly, make sure to have attended at least one business course or class on marketing, bookkeeping, accounting, or anything that has to do with business. Since running your own business is a major endeavour that does not only entail a lot of ever-changing minor details and large opportunities, but also a lot of risks along the way – down to the possibility of personal bankruptcy in the case of sole trading or partnerships – it is imperative to learn as much as possible to avoid the pitfalls and make the most out of it.
My Learning
Looking at the information I gathered above, most of that is not too dissimilar from German law and legal structures and I personally find most of the tips and tricks quite self-explanatory. Having worked as a freelance translator for the longest time, and thus being a rather lone wolf in business, sole trading for me seems to be the most consequential match for now until I have matured not only in my craft but also in regard to running a business.
And whilst I would love to have the liability security of a limited, this will still have to wait for the abovementioned reasons. Furthermore, since I don’t see myself staying in the North East for long after graduation, I also don’t see myself running a business here with my current course mates, although I would not oppose the idea.
However, it was good for me to learn that I would be able to address the HMRC and Companies House to gather more information on any business model and registration. And whilst I have not yet done any taxation paperwork in the UK, I feel that it won’t be too dissimilar from German tax declarations altogether.
Finally, I will have to see what the situation will be like especially after the Brexit leave on 30 March and my residential as well as corporation rights as a EU citizen within the UK.
References:
Companies House (2019) Search the Register [online] Image taken from: https://beta.companieshouse.gov.uk [Accessed on 15 February 2019]
HMRC (2019) Her Majesty's Revenue and Customs Homepage [online] Image taken from; https://www.gov.uk/government/organisations/hm-revenue-customs [Accessed on 15 February 2019]
Tumisu (n.d.) Question Mark [online] Image taken from: https://blogs.edweek.org/edweek/finding_common_ground/Question%20Mark%20-%20Tumisu.jpg [Accessed on 15 February 2019]