From production companies and artists to event organizers, the entertainment industry is dynamic but also vulnerable to specific financial risks.
The Association of Certified Fraud Examiners (ACFE) has quoted the entertainment and media industry to be particularly at risk of financial fraud. At Fusion CPA, we have seen first hand some of the unique risks and challenges that businesses in this sector face. Our CPAs have worked alongside individuals and entertainment businesses alike, to help safeguard them from some of the ills. In this article, we will explore three of the most common risks that entertainment businesses are most susceptible to.
3 Common risks faced by entertainment businesses
The significant financial risks faced by businesses in the entertainment industry come as a result of various fraudulent activities that include financial mismanagement. Our CPAs look into the risks and provide actionable strategies to help mitigate them effectively.
1. Cash flow volatility
Cash flow can be unpredictable in this industry, especially for businesses that rely on project-based revenue streams. Quiet seasons and delays in payments from clients can impact cash flow. It is important to be aware of this as a volatile cashflow, without any plans in place, can cause financial strain.
To mitigate this risk, it is essential to maintain a robust cash flow management system. Implement budgeting and forecasting practices to anticipate cash needs and plan for contingencies. This can be done by plugging your cashflow reports into your business intelligence software. Your CPA can establish clear patterns and implement strategic financial budgets during low seasons. Additionally, they can also advise you on negotiating favorable payment terms with clients and enforce timely invoicing to optimize cash inflow.
2. Contractual and legal risks
Contracts pose great risk to entertainers as businesses in this industry largely operate on fixed term agreements. This comes with the obvious risks such as misinterpretation of contract terms, intellectual property disputes, and breaches. These can lead to costly litigation and reputational damage, which is something that entertainment businesses should try to minimize.
To mitigate these risks, it is advisable for entertainment businesses to consult with legal and financial experts to negotiate and agree on thoroughly-understood contracts. Our CPAs advise that agreements be as comprehensive as possible and that they clearly outlining the roles, financial scope and deliverables of all parties involved. It may also be beneficial to consider getting insurance coverage for contractual and legal liabilities.
3. Cybersecurity threats
Cybersecurity threats have become a growing concern in this area, as the entertainment industry increasingly relies on digital platforms for distribution and marketing. Hacking attempts, data breaches, and ransomware attacks can compromise sensitive information and disrupt operations.
To safeguard against cybersecurity risks, our CPAs advise investing in robust cybersecurity measures. Implement firewalls, encryption, and multi-factor authentication to protect sensitive data. Regularly update software and conduct cybersecurity training for employees to promote a security-conscious culture within the organization.
Partner with the experts to mitigate risks
Partnering with financial experts, such as CPAs, can be highly beneficial when it comes to safeguarding your business, for the following reasons:
- CPAs bring a wealth of specialized knowledge and expertise in financial management and risk assessment.
- Their in-depth understanding of accounting principles, tax regulations, and financial reporting ensures that entertainment businesses remain compliant with industry standards and legal requirements.
- By collaborating with CPAs, you can gain valuable insights into the financial health and potential risks of your business.
- CPAs play a crucial role in providing objective and unbiased financial advice.
- CPAs can help businesses implement effective internal controls, create contingency plans, and establish risk management protocols to fortify their financial infrastructure.
At Fusion CPA we specialize in providing outsourced bookkeeping, and tax services tailored to the unique needs of the entertainment industry. Our expertise in accounting software implementation and financial advisory can help your business navigate risks and achieve financial success. Contact us today to discover how we can assist you.
______________________________________________________
This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. Articles are based on current or proposed tax rules at the time they are written, and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.
