Should Freelance Animators Set Up a Limited Company?

A freelancer at work

Part of our job at Bucks is to teach our students to be working professionals, which includes not only the ability to do excellent work at a high level of professional skill,  but also the ability to run a small business and tackle freelance work. Almost all digital artists take on freelance work of one kind or another, and we help our students out by bringing in small commercial projects at our virtual online studio at nano-films.com, giving our students paid experience on live briefs. Being a freelancer involves learning a lot of new business skills, and one of the most common questions asked by students is: "Do I Need to Set Up a Company before I become a freelancer?" The short answer is "no", but it's not quite as simple as that - it all depends on your personal circumstances.

Render Under Caesar What Is Due To Caesar

Both in the UK and the USA it is very simple to be an independent freelancer. You just start working for clients, send out an invoice, and get paid. At the end of the tax year, you report to the IRS or the Inland Revenue all your income, less your expenses (computers, software, travel expesnes etc) and you pay tax on the difference - which is your profit. It's called being a sole trader, and it is very simple to do. It is the same basic structure for anyone selling a product, whether it is a shop on ebay or a stall at the farmer's market. You don't need to register with the Revenue - you jut start trading.

Setting up a company is different. You have to pay fees to set the company up in the first place, to register it, and also to file annual reports, as well as paying annual corporation tax. It's much more of a hassle than being a sole trader, and there aren't really any tax advantages.

So why set up a company? There are three main reasons:

1. Because your customers and clients make you. Once you reach a certain size, plenty of companies won't like doing business with a sole trader. They are used to dealing with companies, and they will insist on it. 
2. Liability. As a sole trader, you are personally liable for everything the company does, down to your last penny.  Most companies are Limited Liability Companies (hence Ltd) which means that if the company goes bust or gets sued - you won't lose your house.
3. It's the grown-up thing to do. Once you start to grow and employ people, it makes sense to have a formal vehicle for your operations. Sole trader status is convenient, but it only makes sense for small operations of low complexity.

In effect, company status is something that, sooner or later, will likely be forced upon you as you grow. It is one of the perils of success. While you are still small then, you are probably better off being a sole trader, but with size and complexity comes the need for a more formal status.

To see more about the benefits and burdens of setting up a company versus being a sole trader, see this link:  http://www.theguardian.com/small-business-network/2013/sep/12/sole-trader-limited-company-freelances

For more on the experience of studying at Bucks New University, come and visit us at one of our Open Days,  take a virtual tour of one of our animation studios, check out what our students think of our course, and see why we're ranked in the top 12 creative universities in the UK. Find out why we're giving free laptops to all our students, and why we give all our students free access to videos at Lynda.com. Also, see what financial assistance might be available to you. Learn which is better for animation, a PC or a Mac? Get hold of a copy of a map so you can find your way around campus, and learn about motion capture at Bucks.  

Secrets of Independent Film Finance Revealed

How do you finance an independent animated feature film? And what is Gap Finance? If you are trying to raise funds for a movie, gap finance is something you need to understand. In brief, it's the point in the funding process where you bridge the gap between what you have been promised, and what you actually have in the bank to start making your picture. At the European Media Forum Closing the Gap, Ian Hutchinson of Silver Reel partners explained what Gap Finance is, and how it actually works.

Ian Hutchinson

Ian Hutchinson introduced Silver Reel as a "quite new" finance company. They are fairly small, and they are in essence a debt fund, that is to say they "they provide finance against tax credits and pre-sales, in other words - Gap Finance". However, it is important to understand what they do not do. "They do not do development and they do not take big risks." So, if you are looking for a business angel or equity investor to get your project started from scratch, these are not the folks to talk to. However, if you've got some of the way towards financing your film, you will need to talk gap finance.

Ian financed over 80 films with Bank of Ireland

Ian Hutchinson described himself as an investor "with a banking background". He has "financed over 80 films at the Bank of Ireland", before leaving to found Silver Reel. What does Silver Reel do? The answer is: "project finance for high end independent films, in the region of £5-40 million. Their credits include Killing Bono, Iron Clad, Railway Man, LoveBirds and Jobs, the movie about Apple founder and entrepreneur Steve Jobs.

Silver Reel gap financed Grace of Monaco

What does Silver Reel Do Exactly?

To start with, Silver Reel "only finance films that they believe in creatively". Ian does not read the script of a movie himself - he leaves that to his creative team - ie script readers. Silver Reel "employ people to read scripts, and to give coverage". [What is coverage? Coverage is the process of giving notes on and evaluating a screenplay - Ed]. In essence, the script readers and Silver Reel "evaluate the value of the product". How do they do this? By "looking at comparable films". They ask themselves the question - "will this film work around the world? What will territories will buy it?". There is a process, and "every box must be ticked". Generally, "buyers [of movies] are conservative". At Silver Reel, "they want everything". In short, they want "great numbers, a brilliant director, a great script, a low budget, a high value for the project, and a star cast". Tick all of those boxes and you are in with a chance.

Film finance is a jigsaw puzzle. Image: Wikipedia

What elements do you need to put in place?

For starters, a sales agent. "Your Sales Agent is the single most important element in the film finance jigsaw puzzle." But beware - they are not all created equal. Before accepting a sales agent on board, you or your producer "should check with your financiers to see if they are acceptable". The question to ask is "are they big and strong enough" to sell your movie around the world?" You should "try to view the sales agent as a friend and ally. Take their advice. They know what people want to buy." According to Ian: "Some sales companies will give you sales estimates up front. These may or may not be accurate", but they are very important. "If your script is strong, the big sales companies will be interested, so you should aim high".

It's all about raising the money. Image: Wikipedia

How does Silver Reel Structure the deal?

Silver Reel is a lender; they will "lend the money" to make the film, although there is (of course) "a fee and interest to pay on the loan". They also "often take a small 5-10% equity stake" in the film. Generally, "it's good for the investors to have an upside if the film does well." In effect Silver Reel is "a lot like a bank". US Banks "may offer gap finance, but European banks do not". Why? Because "banks are very cautious, even Los Angeles banks" who know the business.  How big a gap can Silver Reel finance? "Up to 20% gap finance".


What are the Big Mistakes made by Producers?

The biggest mistake is "giving the Same pitch to different people". Why? Because you must "customise your pitch". Ask yourself "Who are you selling to?" You should also "keep it short". Do you need "twenty minutes to tell your story? No. Keep it to two minutes". Why? Because "sales agents aren't really interested in story; they want to know about the marketing hook". How can they sell the film? Who will want to go and see it?

How does the process work?

Ian "starts off pessimistic". He asks himself "what is the worst case scenario?" After all, "not many films get a US theatrical release - It probably won't happen" for most independent films. As a UK film-maker, you must "have your film pre-sold in UK". Why? because "foreign buyers won't buy your film if you can't sell it locally". You must have the confidence of your local market. Silver Reel "must have a worst-case scenario prepared and ready", else they will not invest. Your home market is "your number one market".

Pixar - making it tough for the competition

Do Silver Reel invest in animation?

Animation "is a greater risk" for Silver Reel, says Ian. Why? Because it "takes longer to make, and therefore costs more money" in interest payments on the loan. Also, "Pixar is so good - they have set a very high bar" for others to emulate.

What you need for Silver Reel to look at your project?

You should "not come to Silver Reel without a director, a script, and a sales agent attached". In other words, "come with as much in place as you can. Silver Reel provides production financing". In theory at least,  they "start to pay out on the first day of shoot." How long do they lend for? "The cycle is usually 18 months to get their money back, from the first day of shooting. If that does not happen, then something has gone wrong." This is where animation can be a problem, because it takes longer.  As Ian put it: "Investors like short cycles. They target a double digit return for investors". Silver Reel is a "relatively low risk fund - they want to protect capital". So, "out of 15 films they have invested in, they have lost money on only one." Who are their investors? The investors are "seriously wealthy people in Switzerland". These are experienced investors, and perhaps just "2-3% of their wealth maximum is invested in film". However, it is good business. "Film is doing well at present - better than hedge funds". What are Silver Reel, really? They are in effect "like a bank deal, but more expensive". However, they are "much less bureaucratic than a bank. Who makes the decisions at Silver Reel? - the three principals" who own the partnership.

You must have a completion bond

How does Silver Reel work in practice?

They start by estimating what the Tax Credit on the film is going to be worth.  To do this, they "need accountants to estimate what it is actually worth" in hard numbers. Silver Reel "will advance 80-90% of the value of this tax credit. They also advance cash on pre-sales". It is hard to get pre-sales, however [A pre-sale is where you pre-sell a territory - such as the UK - to a distributor. In other works they agree before the film gets made that they will buy it from you for a fixed price - Ed]. Pre-sales are still available, but "prices have come down", owing to the overall problems in the film industry.

Overall, "gap financing is expensive". It is "the most expensive bit" of the financing process. Sometimes, Silver Reel "will agree to take cash out of revenues rather than out of the budget, but then they charge much higher fees". This is known as "super gap" financing. Why is it so much more costly? Because it involves "much higher risk". .

Tax Credits: What are they?

"All of them [tax credits] are different. Most tax credits are actually rebates. Most will require you to make your film in that country. Then, you submit your audit and you get cash back from the Government body which offers the rebate." How does it work in the UK?  Here in Britain "you get 20% back from HMRC, though it is actually more like 15-18% in the end". When do you get the rebate? "You get this at the end, so therefore you need to find someone to lend you the cash in the meantime, and also take the risk that you will not qualify." What are tax credits for, and why do governments offer them? "The purpose of tax credits is to create a sustainable industry. Some regions such as Canada will give you a 35% rebate, and Australia will give you as much as 50%."


Completion Bond (or guarantor)

In addition, "a Completion Bond is a requirement"; the film must be bonded. [A completion bond is an insurance policy which guarantees that the film will be completed and delivered on time and on budget - Ed].  Not just any company either; note that "there are just three reputable completion bond companies out there". Why must the film be bonded? Because without a bond, "the risk is too great". What is a bond company? The completion bond company is a company "backed by insurance companies. They guarantee to complete the film". What does it all cost?" The answer is "2-3% of your budget". Why do some films not use a completion bond? Because "Producers don't like it", because it costs extra, and budgets are tight. But, "not many financiers will proceed without one". And, the "bigger the budget, the more financiers will insist on it." However, you can "treat them as a partner - they are there to help. They can look at your budget and see if it realistic or not".

Collection Agents

Collection Agent 

What is a Collection Agent? "A Collection Agent keeps everyone honest". But, it "must be a reputable one. They collect all the revenues". Who are they? "The big ones are Freeway and Fintage", the latter "based in Hungary, run by Dutchmen". What does it cost? The cost is "1% of all your revenues". You need to budget for this, though Ian says that it is "not usually in the budget". What is it for? It is really an "audit process - they are experts in revenues". When someone asks "Where has all the money gone? - They will know".


What about Co-Productions. Does Silver Reel like them?

Co-Productions "add complexity to the legal process. The trouble w co-pros is that there can be too much soft money." [Soft money is government grants, which generally do not have to be paid back  -Ed] Ian is "not sure if there is always a commercial potential" where government grants are involved. Rather, he "wants to see market validation". In other words, is there really a market for your film?


Here at Bucks we want our students to be film-makers as well as good technicians. Animation is not just about learning to move characters around and create a performance (though this is a vital part of it), it is also about telling stories, and learning the craft of film-making. We hope all our students will have a story they want to tell, a story that they will bring to the screen in one form or other. Great films are a marriage of great creativity and great business - only with the help of the latter can a great story come to the screen.

---Alex

For more on the experience of studying at Bucks New University, come and visit us at one of our Open Days,  take a virtual tour of one of our animation studios, check out what our students think of our course, and see why we're ranked in the top 12 creative universities in the UK. Find out why we're giving free laptops to all our students, and why we give all our students free access to videos at Lynda.com. Also, see what financial assistance might be available to you. Learn which is better for animation, a PC or a Mac? Get hold of a copy of a map so you can find your way around campus, and learn about motion capture at Bucks. And find out about how our online video tutorials work.

What questions should you ask a client when you start work on your first freelance job?

What questions should you ask a client when you start work on your first freelance job - or indeed any freelance job? It's your job as a professional to keep everything on track and deliver what you promised. All projects start off full of optimism and excitement, but the scope for misunderstanding is great, and the risk of things going wrong is considerable. So it's worth asking the right questions up front, to ensure that the job goes well and your happy client comes back for more. Below is a list of useful questions to get you started.

What does the client have to spend? Image: Wikipedia

What is your budget?
All clients have some kind of idea in their head of what they can afford to spend. A couple of hundred? A few thousand? A million? The answer to this question is the single most important factor in what you can deliver. After all, with animation you get nothing for free. Everything must be made from scratch.

How long should it be?
Many clients, especially those who have never done animation before, struggle to understand just how long it takes to create. Finding out what the client's expectations are of the length of their project is vital. A minute? Two minutes? Half an hour? Find this out as early as possible.

A screenplay. You need one of these

Does the client have a script?
Many clients have no idea what story they want to tell. In this case, part of your job will be to write a script based on their needs. This can be fun, but also frustrating if the client has no idea what they want. But, you must have a script (also known as a screenplay) before you begin, else you are groping in the dark.

What style of animation does the client want?
Does the client have any animation or images in a style that they like? If they don't know, show them some clips from YouTube in styles that you like, or think you can reasonably achieve given the budget you have. Everyone likes Toy Story, but few clients can afford Pixar quality animation. Part of your challenge is to find a style that the client likes and that they can afford.

What is the deadline?
Next week? Next month? By Christmas? And is the deadline in any way flexible? Unrealistic deadlines are often a deal-breaker.

What is the target audience?
Who is it for? Kids? Businessmen? Adults? Teenage boys? This will affect the style of your storytelling and the tone of the film.

Is there a message the client wants to get across? 
What feeling should the audience have after they have finished watching?

Who is directing? Photo: Wikipedia

Who will approve the work?

Ideally, you want to get notes from one person only. It's a common problem to find that the client that you thought was making decisions has a number of bosses that they answer to, and you end up getting notes from multiple people you have never heard of. These notes are often contradictory and tie you up in knots. Try to make sure that one person is in charge, and that person gives you one set of notes.

What is the final output?
What does the client want at the end? A digital file? Film? A DVD? HD? 4K? What aspect ratio? Agree up front exactly what you will deliver. Sometimes clients want editable files so they can tinker with the edit, which can cause all kinds of problems with incompatible software and non-transferable files.

Payment schedule and contract
It's a good idea to agree terms in advance. Money up front? On completion? Half and half? Big clients will have a standard contract, smaller ones may look to you to draft a basic agreement.

Below is a video made for especially for illustrators, presumably by a freelancer who has been burned one too many times.




The basic lesson of course is to agree as much up front as possible, to avoid confusion, misunderstanding and disappointment later on. Problems thrive in dark corners where both parties make assumptions about what will happen in the future.


For more on the experience of studying at Bucks New University, come and visit us at one of our Open Days,  take a virtual tour of one of our animation studios, check out what our students think of our course, and see why we're ranked in the top 12 creative universities in the UK. Find out why we're giving free laptops to all our students, and why we give all our students free access to videos at Lynda.com. Also, see what financial assistance might be available to you. Learn which is better for animation, a PC or a Mac? Get hold of a copy of a map so you can find your way around campus, and learn about motion capture at Bucks. And find out about how our online video tutorials work.

How Do You Handle a Difficult Client?

Every freelancer occasionally has to be deal with a difficult client. In fact, in happens all the time. Talk to any freelancer, especially after a few drinks, and they will gladly tell you stories to make your hair stand on end. Clients, even the good ones, drive everyone crazy. Tricky clients are so common that there are websites such as are clientsfromhell.net, dedicated entirely to horror stories written by freelancers about having to deal with hard-to-please clients. So, if you are starting off on your career, how do you handle a difficult client?

If it’s a film, the next stage is a storyboard animatic, usually edited together with sound and music, and a style guide, so the client knows exactly what they’re going to get. Show them samples of other films and agree a style for their project. Once you start animation it will too late to change this, so make sure you are agreed in advance.

All good freelancers deliver on time. Photo: Wikipedia

It goes without saying that you must deliver the job on time and on budget. Clients don't care how busy you are with other things - they want their work done on time, when you promised it, for the price that was agreed. They don't care if other clients are keeping you busy, or your dog is ill, or your broadband went down, or your hard drive died. Make sure you back up your work, and if you run out of time, work through the night to get it done. Do what it takes to deliver on time and be reliable. The best clients are repeat clients - they will come back for more work because they trust you.

One of the hardest things about client projects is learning to take client notes with good grace. On every job, clients will give you notes which you don’t agree with. Try not to disagree openly with the client. The best response to a dumb idea is to say "that's a great idea, why don't we try this..." and try to steer them in a less silly direction. Sometimes though you just have to do what you are told and make the best of it. Make it look as good as you can. Contrary to popular belief, you can polish a turd.

Finally, be positive. Clients want to feel that you are as excited about the project as they are. Even if you've just done an all-nighter and you feel like screaming at their latest ridiculous changes that they should have told you about weeks ago, be upbeat and optimistic. Make them feel good about working with you - remember that they are taking a risk by using your services for the first time.

---Alex 

For more practical advice on freelance careers, check out this post on your first client project, read out our post on Portfolio Careers, and read this piece on Survival as a Freelancer. Learn the nuts and bolts of freelance life by reading our guide to invoicing clients, and our guide to freelancers and taxes.  For more on careers in general, check out our guide to animation careers here, and also take a look at this map of digital studios - a great place to start your search for work in the business. Finally see our article on the jobs page at awn.com

How do you start a small animation business?

Our new animation collaboration at Bucks

One of the most common questions asked by prospective students at our university open days is "how many of your graduates find work in the industry?". After all, it's all very well to train animators and digital artists to do excellent work, it's quite another to turn that knowledge into a successful career.

In media production of any kind, jobs for life are nowadays almost non-existent. Even highly successful artists tend to be freelancers of one kind or another. But there is another way of dealing with the perpetual uncertainty of finding paid work in the arts - and that is to start your own business. So how, exactly, might you go about doing that?

Like any endeavor, you will probably want to start small and gradually get bigger, slowly making a name for yourself and taking on new clients as you go along, building a brand and a reputation. Remember that starting a business is very different from being an employee. Come 6pm on friday night most employees tend to down tools and stop working, seldom thinking about work until monday morning. Small business owners aren't like that - the shop is always open. After all, it's your business, and you will likely want it to succeed very badly indeed. Below are five steps to think through if you want to set up your own business, to help make sure you make a success of it.

Begin by having something to sell

1.  Start by identifying the kind of work you want to do

Ask yourself what kind of service you want to offer. If you are in the business of making short films, make sure you understand the full pipeline of animation production, from development through to pre-production, production and post. You might think that this only really applies to big projects, but even small films need to go through the right processes, else they tend to get stuck. Watch this film on how animated films get made and, best of all, make your own short film - this is the very best way to learn how it really gets done in practice.


2. Build your team

You may well not have all the skills needed to make short films. As an animator, you may want to team up with a designer (unless you are good at this yourself) and, if you are making 3D films, you will need expertise in modeling, rigging, texturing and lighting. By now you will be beginning to realise that to make short 3D films requires general expertise - this is where 3D generalists come into their own.

Again, if you are making films, you will also need to appoint an editor, a director, a designer - and a producer to manage the process. The smaller the project, and the smaller the budget, the more likely it is you will need to wear some of all of these hats yourself. If you have enough general skills, you go can go into business alone. But remember the old proverb: "If you want to go fast, go alone. If you want to go far, go together".

What's in a name? Even Pixar started small...

3. Create a working name

Of course, your working name can simply be your name on the door. But a good business name helps people remember you and suggest that you might be more than just a one man band. If your company name is a good one, you may will find that it helps you define what exactly it is that your business is setting out to do.

As your plan grows, and things begin to take shape, the perfect name may come to you, but don't let that hinder you from getting started. You can always change it later. Create a name that you can use while you plan things out, and don't mind too much if you change it later on.

Watch out for conflict

4. Choose your team wisely

Be careful who you go into business with. Even your best friend may not be a great business partner. 
Ask yourself if the other person complements your strengths and/or your weaknesses? Do both of you bring the same set of the same skills to the table? Ideally you want to be in business with someone with complementary skills to yourself. Overall, do you and your team see eye to eye on the big picture? Of course, there will always be arguments, but make sure you agree on the big picture, on the real purpose of your business.


5. Create a business plan

A business plan will helps to define what you think you need to launch your business. Inside the business plan you (which could be a single page of A4) will summarise what it is that you are trying to do in a single document.  In brief, your business plan should consist of the following elements:

1. The Business concept. This describes the business, what the product is and who or what the market is for its products. What will be sold, who will buy it, and why is what you are offering better than the existing competition? If you are competing on price, how will you be cheaper than others?
2. Financial overview. Here you include the financial points of the business. What are your likely sales over the first year? What is the cost of doing business? Estimate the likely income and the likely expenses. Is it profit left over enough to make it all worthwhile?
3. Finance - requirements. This sets out what capital is needed to start the business, and to expand. If the business is just you and a laptop, you may not need any starting capital. If you need premises, you may need money to rent an office. This section should set out in detail how the capital will be used, and how much is required. Is the money being put in equity (ie a stake of the business, or is it a loan? If the latter, when will it be repaid, and on what terms
4. Define the company's legal status. This sets out all the relevant information about the company, its legal form of operation, when it was formed, and who are the the principal owners and key personnel. Perhaps your business is just an informal grouping of friends? Or perhaps you actually want to set up a company or a partnership? Remember that someone will have to invoice clients, so a company bank account might be a good idea.
5. Goals and milestones. This sets out any developments within the company that are essential to the success of the business. Have you done any marketing, or tried to find out who exactly might want to buy your product? Are you looking to develop any new technology? Do you intend to open a physical presence in an office building? Are there any contracts that need to be in place?

Enterprise at Bucks - helping students launch small businesses

Don't feel like your business plan has to be perfect. You can always do a rough draft, and then work at it with some external help. Don't forget that advice on careers and entrepreneurship is available at Bucks. Contact Enterprise at Bucks for assistance and support. There is also an excellent Wikipedia page about business plans here, and this page at smallbusiness.co.uk has some great resources on starting up a small business.

---Alex

(Editor's Note: For more practical advice on freelance careers, check out this post on your first client project, read out our post on Portfolio Careers, and read this piece on Survival as a Freelancer. Learn the nuts and bolts of freelance life by reading our guide to invoicing clients, and our guide to freelancers and taxes.  For more on careers in general, check out our guide to animation careers here, and also take a look at this map of digital studios - a great place to start your search for work in the business. Finally see our article on the jobs page at awn.com )