Managing or owning stakes in entertainment-related businesses means being part of a vibrant, dynamic industry, but also a complicated one from an accounting standpoint.
The unique financial challenges of entertainment accounting include the wide variety of activities involved, from budgeting, tax compliance and planning to financial reporting, not to mention the complexity of managing all of this across various regions and multiple countries. Without the right accounting software, managing the financial health of a business in the entertainment industry is anything but glamorous.
The key pillars of accounting for entertainment companies
Successful financial management of an entertainment enterprise involves adeptly handling several key tasks:
Financial reporting
Accurate financial reporting is essential for all businesses, but entertainment companies face heightened demands due to the industry’s rapid decision-making. For example, if an opportunity arises to produce a movie starring a high-profile actor, delays in financial analysis could result in lost opportunities.
Entertainment projects often involve multiple stakeholders, including investors, crew members, local governments and regulatory bodies like the IRS. Transparent and accurate financial reporting builds trust and credibility.
Finance teams must ensure meticulous expense tracking, revenue recognition and asset valuation from the start. This is especially important for entertainment companies operating across multiple currencies and accounting standards such as CAAP or IFRS. Legacy accounting systems like older versions of QuickBooks or Sage 50, which require separate databases with separate logins for each entity within an organization, make it time-consuming and tedious to compile these complex financial statements.
Tax credits and incentives
Entertainment is an economic stimulator, creating jobs and boosting local economies. As a result, many regions offer attractive tax incentives. For instance, the Ohio Motion Picture Tax Credit provides a refundable tax credit that equals 30% of in-state expenditures for eligible productions, which include films, music videos, sound recordings and other projects spending $300,000 or more in the state.
Tax credits and incentive programs can help production companies reduce their tax burden and improve cash flow, but taking advantage of these requires navigating specific requirements and producing in-depth documentation. Required documentation for the Ohio Motion Picture Tax Credit, for example, includes a signed Tax Disclosure Form, a production budget and documentation of a company’s financial ability to undertake the project – all items that hinge upon best accounting practices such as impeccable financial record keeping.
While Gravity Software does not directly maximize tax credits, it offers tools that help companies manage the financial organization needed to qualify for them. Features such as multi-entity accounting, detailed reporting, and audit-ready documentation simplify the process of meeting compliance requirements and compiling the necessary records for tax incentive programs.
Budgeting and forecasting
The entertainment industry’s volatility makes effective budgeting and forecasting essential. A project that seems promising today might fall out of favor tomorrow.
Reliable budgets and forecasts require a comprehensive understanding of current and historical financial data. With Gravity Software’s budgeting tools and business intelligence integrations, companies can generate detailed financial insights, identify cost-saving opportunities, and allocate resources effectively. These features empower decision-makers to adapt to changing industry trends while preparing for potential downturns.
Intellectual property valuation
While entertainment companies may own tangible assets like recording equipment, their true value often lies in intangible assets such as copyrights and trademarks. Proper intellectual property (IP) valuation is crucial for financial reporting, tax planning, and securing loans or investments.
This is particularly relevant as family offices and private equity firms increasingly invest in music catalogs and other entertainment-related IP assets. Accurate IP valuation ensures companies can capitalize on these opportunities while providing transparency to investors.
Along with contributing to the wholesale depiction of financial position and performance, which needs to be accurate for both regulatory and reputation-based reasons, IP valuation influences future investment decisions. Imagine a family office whose music catalog investment, based on inaccurate valuation, seems to be rapidly declining in value. That family is likely to see their investment as an experiment gone wrong and may not put more funds into the entertainment industry. But in doing so, they might miss out on future opportunities to build sustainable wealth.
Gravity Software’s fixed asset management tools simplify the process of tracking and valuing both physical and intangible assets, ensuring accurate reporting and compliance.
Watch the video to see how one family office uses it to more easily manage fixed assets, automate bank book reconciliation and more.
Cash management challenges
No business can thrive without effective cash management, which entails forecasting cash inflows and outflows, managing accounts receivable as well as vendor payments and industry-specific payments such as royalties, and ensuring your business has adequate cash reserves on hand.
For an entertainment company, cash management can be particularly challenging owing to the potential for irregular income streams. Changing consumer preferences, a lyricist with writer’s block, writers' strikes or lower than expected box office sales can all hamper a company's ability to generate revenue. Royalty payments, over-budget film costs or contract negotiations that don't work in their favor can all affect companies on the cash outflow side.
But effective cash management is the only way to meet current obligations while maintaining enough cash on hand to invest in new projects when opportunities arise.
Why Gravity Software is the best accounting solution for entertainment companies
Managing an entertainment company’s finances requires more than traditional accounting solutions. Gravity Software offers industry-specific tools designed to tackle challenges unique to entertainment businesses.
Key features of Gravity Software
- Multi-entity accounting: Manage projects independently while streamlining intercompany transactions and consolidating financial reports seamlessly.
- Multi-currency functionality: Automates foreign exchange rates and currency conversions, ensuring compliance across borders.
- Fixed asset and IP management: Tracks physical and intangible assets without needing separate software solutions.
- Automated revenue recognition: Simplifies complex revenue streams.
- AI-powered accounts payable: Increases efficiency by automating invoice processing and payment approvals.
- Advanced budgeting tools: Facilitates detailed expense tracking and robust cash management.
- Microsoft Power BI integration: Generates visually compelling data visualizations and dashboards for easy stakeholder access.
The Gravity Software advantage for entertainment companies
Gravity Software is a cloud-based accounting solution built on the Microsoft Power Platform, making it accessible from anywhere, whether you’re in an office, on a production set, or out on tour. Its user-friendly interface, automation features, and scalability ensure it grows with your business, allowing you to focus on creative pursuits rather than accounting headaches.
Discover how Gravity Software empowers accounting entertainment companies
Whether you’re a CFO of an entertainment company, a professional accountant, or a family office investing in entertainment assets, Gravity Software delivers the tools and features needed to succeed.
Learn how Gravity Software can help you simplify multi-entity accounting, manage IP valuations, and navigate the complexities of entertainment accounting.
Schedule a free demo today and transform your approach to entertainment accounting.
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