How creative and cultural industries can fund and grow their businesses
Canada’s creative and cultural industries are a vital part of our national identity and heritage. They are also a huge part of the economy, contributing $57 billion to gross domestic product and employing over 670,000 Canadians in 2019, according to Statistics Canada figures.
But creative and cultural industries face significant and unique challenges:
- difficulties accessing financing
- cash flow volatility
- financial and reputational risks related in content creation
- dependence on tax credit programs
- technological disruption
These industries operate in a complex landscape, often navigating tax credits, federal and provincial funding programs, agreements with broadcasters, multiple international contracts and rapidly evolving audience tastes.
Specific industries in this sector face their own unique challenges. The creative and cultural industries encompass a broad range of companies producing film, television, music, video games, sound recording and design, each with their own unique business model and characteristics.
- Media production and production services businesses are often project-oriented, resulting in unpredictable, large fluctuations in revenues from year to year based on production schedules.
- Distribution and publishing companies are more speculative as revenue is closely tied to the popularity or success of content. Theyface significant financial risks as there is no guarantee of a product’s commercial success.
- Rapidly evolving gaming industry businesses depend on scale, strong customer engagement and top talent. Success of games is uncertain and relies on audience response.
- Design and services companies also face unpredictable and volatile revenues given that these companies typically don’t have long-term and exclusive contracts with their clients.
Creative and cultural companies often have large upfront costs for development, production and marketing, but revenues may come only much later after a product comes out. They often work on large projects and can experience volatile cash flow in between contracts.
There is also a risk that content may not resonate with audiences or customers, further exacerbating the financial problems.
These challenges, along with the fact that businesses in this industry tend to have fewer assets to offer as collateral for a loan, make it harder for them to access financing from traditional lenders.
In our work at BDC, we’ve provided financing to dozens of creative-industry entrepreneurs across Canada. We wanted to talk about a couple of solutions we have found to help these creative and cultural entrepreneurs:
- strengthen their financial management
- access to patient and flexible financing
Improving financial management for creative industry companies
Sound cash management is key to the financial health of any business. But the nature of cultural industries — with their lumpy, project-based revenue and cash flow — can make it harder to manage cash flow and prepare budgets and forecasts.
So how can you improve your financial management if you are leading a creative company?
- You can improve your cash flow management and financial forecasts to ensure operations aren’t disrupted during periods of low cash inflow.
- Robust forecasts can allow you to model different scenarios and develop contingencies, which in turn can help you mitigate the risks common to your industry.
- Creating clear, accurate and timely financial records can help secure funding from lenders and investors.
- Solid internal financial reporting can also improve business decision making by giving you data to decide which projects to pursue, how to set prices and what goals to establish as part of your business strategy. It can also boost the profitability and longer-term sustainability of your business, allowing you to continue creating impactful work.
How should you get started? We invite you to visit BDC’s website to see our many free articles, tools and other resources giving information to entrepreneurs on improving your financial management.
It’s also important to ensure your team includes people with financial expertise. Bringing in an outside advisor or coach to improve your financial management may be helpful.
It can also be useful to bring in an expert to help with other aspects of managing the business, such as:
Access patient financing
Creative and cultural businesses typically fund the development, production and distribution of their content up front. This can involve a significant cash outlay well before a product starts generating revenue.
Businesses can apply to traditional lenders for short-term financing, known as production financing or tax credit financing, to help tide them over until they’re able to collect government tax credits.
But longer-term financing can be harder to get for these companies because they may lack collateral, have higher risk profile and experience greater financial volatility. The lack of financing can lead to:
- slower growth
- missed opportunities to take on projects or make a business acquisition
- challenging business transitions
For these reasons, BDC has established a new $30-million financing envelope to accelerate the growth of Canada’s creative and cultural businesses. The program offers loans (not grants or subsidies) that typically start at $2 million and target established, rapidly growing businesses with one of four projects in mind:
- business consolidation
- business transition
- development of original content
- business expansion
We’re looking to provide loans to companies that have:
- an experienced management team with an industry track record
- solid financial reporting
- a proven, sustainable business model
- a history of profitability or profitability expected in the short-term
The envelope launched in January 2023 and will be available until December 2024.
This isn’t the only money or support BDC gives creative and cultural businesses. The new envelope complements our existing financing, Growth & Transition Capital, online small business loans and advisory solutions, as well as online resources and tools. BDC also supports the creative and cultural industries in Canada by partnering with key players of those industries to expand its expertise, to enhance collaboration and implement joint initiatives.
We’re inspired and captivated by the dynamism, originality and imagination of the creative and cultural companies we have had the chance to help up to now. We’re proud to contribute to their financial sustainability and success.
But we also recognize the unique challenges they face and take time to support their important work with a tailored approach. By doing so, we hope to help them continue building a vital engine of economic growth and touching and inspiring Canadians with their creative endeavours.
Contact us to learn more about how we can help your creative and cultural business.