Brexit

Brexit - What does that mean for the Creative Industries

The Opportunities and Threats associated with it.

Brexit

March 15, 2019

Roxburgh Financial Services bulletin

Funding Difficulties within the Creative Industries

The Creative Industries Council is a "joint forum between the creative industries and government", produced a report in June 2018, titled 'Access to Finance'. This is one of many reports highlighting the difficulties facing by creative companies to develop and grow due to the lack of capital availability. This report was on the heels of the governments 'Creative Industries Sector Deal', based on the 'Building our Industrial strategy' green paper.

The main conclusions from this report, as summarized by Tim Davie and Caroline Norbury, the co-chairs for the council, was that companies are ambitious but are undercapitalise and rely on informal sources of financing, i.e. family and friends.

From the sample size of 575 businesses, it was determined that 65% of them were small firms, trading less than five years, with 75% of them ambitiously expecting to grow within the next 12 months. Most of them were innovative in some form (80%). Half of these businesses were run by people under the age of 45 and 29% run by women.

Most of them were heavy uses of finance, with 22% of them relying on three or more forms of finance but 72% of them said they did not have enough finance, with half of them asking for less than £25,000 per year to run their businesses.

Astoundingly, only 38% of them had business plans in place; that equates to 218 businesses out of 575 who had a business plan.

The report summarized that there was room for improvement with the report raising "a number of compelling questions" and with the conclusion that most did not have the management skills to grow and sustain their businesses.

Then there is Brexit, which will, once the deal or no deal is done, will close the doors to one of our biggest markets, Europe. This will lead to a swift loss  in inward investment, making EIS and Tax Credit schemes less attractive to investors. It has been suggested by Dr. Nick Redfern from the University of  Warwick, that up to 75% of the entire film and television industry in the UK, will disappear.

Source: CIC June 2018

Case Studio - Halo VFX studios

It was reported on the BECTU website* on February the 26th 2019, visual effects company Halo VFX, based in Soho went bust owning £53,000 in back pay to four of it's members.

The company had worked on high profile pictures such as "Curfew", "Bohemian Rhapsody" and "A Discovery of Witches". BECUTU's response was to demand a meeting with the directors of the company, all five of them, and as Paul Evans, the assistant national secretary said, "it's not acceptable for VFX artists... to go unpaid for their hard work and talent."


While Roxburgh Financial Services agrees with that, let's look closer at the company.


The company is a young company formed on the 18th of February 2016 with five directors. One of the company directors leaves the company in August 2018. The company only places in 'micro accounts' on the 17th of November 2017, already showing a liability of £247,593 with only £6,602 in prepayments and income. Anthony Batty LLP is bought in as Insolvency administrators in December 2018.

In our view as RFS, (Roxburgh Financial Services), Halo VFX did not have enough finance to start with nor did it have a contingency to begin with and got into trouble very quick.

It seems likely that the directors did not have any business experience to begin with, nor a marketing strategy or budget to bring in help especially during the early development stages. It is sad because just when the company was making an impact, they have have to close the doors.

Source: Companies House 2019

Comment

The failure of Halo VFX is a perfect example of an innovative company, ambitious but lacking the necessary business skills or experience to make a true success of their enterprise. Further, the training needed usually comes from funding through the BFI, over 80%! 1

Most creative companies are ambiguous when it comes to financing. It boils down to a lack of education and skillset in this area.

Example, 53% of the CIC survey ask for less than £25,000 per year, per project. According to RFS research the real figure should be around £75,000 per project, factoring in marketing, market research and a healthy contingency. 2

This report also highlights another long recurring theme, one of 'just talking about it', 'raising awareness' but not doing anything about it. Brexit will be the final nail in the coffin to the entire industry.

Roxburgh will fill this gap, providing investment advice for creatives and investors alike, so both can understand each other, see the opportunities and make a difference.

1. CIC Access to Finance 2018

2. RFS Research 2018