A Word on Budgeting

“Oh, God, do I have to make a budget?”

“I didn’t get into this business to make budgets.”

“I want to make programs, not budgets!”

These producer questions remind me of the child’s question to her mother: “Do I have to brush all my teeth?” The mother gently responds, “No, honey, only the ones you want to keep.”

Producers always imagine that making budgets is some onerous bureaucratic task invented by management to torture creative minds. But, I have a different explanation. The reason for doing a budget is to avoid forgetting costs that will later rise up and bite you, the producer, in the ass. If somebody is paying to finance your program, you know he/she isn’t going to give you more money when you suddenly “remember” a cost you’d forgotten about in the beginning. When this results in your going over budget, you’re going to be forced to eat the cost, which of course is also true if you’re financing a program yourself. A budget, therefore, is a giant and crucial producer “reminder” device.

Here’s another thing. There is no uniformity of budgets or even of categories of allowable expenses. Different funders have different rules. And the same funders treat different applicants … differently. The big guys, the WGBH’s and NPR’s, PRI’s and APM’s and TV stations, for example, always remember to charge for overhead. Indies routinely don’t, as if the costs for those kinds of expense come from the IF Department: the “Department of Imaginary Funds.” That’s why the big guys get and stay big, and you know what – nobody tells them they can’t charge overhead, which is up to 20+ % of their production budget – in addition to the budget itself. But, guess what. When the little guys DON’T CHARGE OVERHEAD, nobody tells them they should! Same thing with “contingency.” So, if you want to take all of the risk of your production on your own shoulders – “help yourself” and ignore overhead and contingencies in your budgets. (How to charge for both “overhead” and “contingency” is described in detail below.)

So, a budget serves two purposes: it estimates what a project is going to cost and tells you how close you came, and it collects information so you don’t forget anything. Over the years, the budgets I developed for projects kept trying to remember more things. For example, if you have employees, don’t you need desks, computers, telephones and office supplies? Is there a way to standardize what this kind of support costs? And then, could the program count the number of employees and automatically calculate the right level of support? The purpose was to avoid sweeping any cost under the table, and then having it come out and bite you later on.

OK, but how?

“Hey, how do you learn to make a budget?” a young producer once asked me.

“Gee, I don’t know,” I replied. “You just … do it.”

I attended no class and nobody taught me how to make a budget, yet every person I ever talked with about money aided in my process of discovery. It was like learning French, one verb at a time!

I used to make budgets on yellow legal pads, with pencils. There were so many erasures that big holes would appear on the sheets. I got my station to buy its very first computer, an Apple II+ and, using the first spreadsheet program Visicalc, we immediately reduced the time to make a budget from days to a few hours. The company was so impressed it immediately went out and bought another Apple II+! We had entered a new age!

As budgets grew into multi-page templates, including every item we could identify, and adding “contingencies” for things that were unforeseen before production started, and “overhead” for costs that the company provided but couldn’t be itemized … the budgets became more and more realistic. They also got larger. In fact, instead of thanking me for my thoroughness, one of my bosses accused me of developing “only Cadillac budgets.”

Along the way, and without any higher math degrees, I also learned that there is more than one way to calculate things in a budget. Here’s an example:

A B
Total Expenses $1,000,000 $1,000,000
Contingency (5%) $50,000 $50,000
Overhead (20%) $200,000 $210,000
Total $1,250,000 $1,260,000

Which budget is correct? They both are. In “A,” the Overhead of 20% is calculated only on the Total Expenses. But in “B,” the Contingency is added to Total Expenses — it is after all, just more production expense — beforethe Overhead is calculated. B costs $10,000 more than “A.”

Here’s another example. What is the hourly rate that you charge for an employee in a budget. Well, based on a 2,080 hour year (52 x 40 hours), a salary of $40,000 per year is $19.23/hour. But, nobody works 2,080 hours per year. If you are an employee, in addition to salary you get vacation time, holidays, sick leave, etc. By my estimation, your hours are closer to 1,800, which raises your hourly cost to over $23. That’s the true cost of your employee.

A Template

I now use a four page budget template that is very complete, and calculates startup costs as well as two years of production costs. These are the categories of expense that I use:

STARTUP BUDGET: Includes one-time only expenses that won’t recur every year, such as the cost of piloting, rights (registering a title), equipment, new media, furniture, office computers and machines, etc.)

The recurring costs include all of the following:

FULLTIME SALARIES:
Exempt
Non-Exempt
Overtime & Vacation Relief
Part-Time Salaries
Benefits & Taxes
Contractors

CONTENT:
Acquisitions (News spots, produced pieces, commentaries, etc.)
Equipment Rental
Miscellaneous Production (audio tape, music CD’s, etc.)
Studio & Facilities Rent (remote studios, ISDN)
Subscriptions, Wires, Dues & Fees
Transmission: Audio Data Delivery
Travel

SERVICES:
Audience Research
Creative Services
Marketing
Distribution
New Media
Foundation Relations

ADMINISTRATION:
Equipment Purchase
Postage & Shipping
Printing & Duplicating
Recruitment & Relocation
Rent
Supplies
Telephone
Utilities

CONTINGENCY

OVERHEAD

GRAND TOTAL

 

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