A CFO’s Guide to Building a Financially Sustainable Studio
For any game studio to go the distance, it needs a robust financial strategy.
Creativity might be the passion that powers your studio, but if you want to keep making more games, grow your team, and establish a sustainable, lasting operation with a bright future, thinking strategically about cash flow, funding and where to spend your money is critically important. In other words, thinking financially powers your creative potential.
For one, making great games that are played by large audiences almost always costs money. Furthermore, any game company has financial obligations, from paying your staff to respecting tax law. Sure, those things aren’t what many aspiring developers consider when dreaming of a career in games, but again, understanding them – or working with somebody that does – is critical to any studio that wants to succeed.
Kajsa Grafström is somebody that absolutely understands those things. She joined the game industry around 13 years ago, first serving Stardoll (now known as Glorious Games) as an office manager and accounting assistant. Demonstrating a talent for establishing and maintaining impactful financial strategies, she has gone on to serve many more gaming outfits as a freelancing chief financial officer (CFO), with a particular specialty in helping startups. Over that time she’s built up a remarkable knowledge of what game companies need to do to thrive as a financial entity.
But what does a CFO do?
The CFO role can vary from studio to studio, but in general they are responsible for keeping an eye on a company's cash flow (and know the difference between cash flow and balance sheet) so everything continues to function. CFOs also build and maintain financial plans, make sure laws and obligations are met, advise on how budgets are spent, and identify financial strengths and weaknesses so as to inform studio’s decisions. Most won’t get involved in the likes of game design – but they can be absolutely essential in making sure your games get made.
In other words, CFOs have a lot of highly specialised knowledge that can prove invaluable to startups and emerging teams.
Of course, if your studio is new, you might not have the budget to hire that CFO that will help you with that budget. It can feel like something of a catch-22.
“Being aware of your finances and planning can be very helpful in building a successful company,” Kajsa confirms. “I think that it's a good idea to take help if you don't have the experience. You don't have to hire a CFO to start with, but maybe just buy a couple of hours and get help with setting up a budget and a plan. Or maybe there is a gaming cluster or incubator near to where you have your company that can help out with these services.”
In short, getting things right as early as possible can do tremendous things in establishing a sustainable, lasting studio. On that point, Kajsa has a wealth of advice to share.
“If you start a company or corporation, you need to know that there are requirements and laws that you need to follow,” Kajsa advises. “Make sure you know what they are and follow them. Finance can be a tool to help your company grow, and financial planning can be something you base decisions on. Make sure you understand the real cost of, for example, an employee when you plan to recruit more people. Salary is just the start. There’ll also be social fees, insurance and other less obvious or immediate costs. Also, in startups cash flow is often the most important metric you look at. From as early as possible you want to know and be aware of your runway; how long your existing money will last.”
Don't fear the financial plan!
On an encouraging note, Kajsa is quick to highlight that plotting out a budget when getting started needn't be too complicated. If your studio is in its earliest days, there’s no need for an abundance of meticulous detail – and at the very start there might not even be enough certainty around your business’ structure of long term future to meaningfully deliver that detail.
“A good way to start is to look at the costs you have,” she recommends. “This is something that is certain and pretty easy to predict and control. When you start there are probably salaries, maybe rent for an office, licences and hardware purchases. The costs are much easier to predict than the revenue. I would suggest you look at the budget monthly and then follow up on a monthly basis to see if you spent more or less than expected. When you have made a monthly budget you can easily calculate how much financing you need.”
From there you can start to think not just about the money you have, but how much you’ll need as your studio continues to trade and – ideally – expand. With growth comes more potential revenue, but also more potential costs. Of course, the point may also come when you look to secure investment or other external funding as part of that journey. When that time comes, investors will want to see a well considered, realistic runway plotted out ahead of you, both in terms of what you plan to do, and how much money you'll need to sink into those goals.
“You should always look at your planning and make sure you have enough to make it to a place where you have something new to show in the next financing round,” says Kajsa. “Many investors want to see KPIs and/or a proof of concept before investing.”
As such, don’t think of your runway as a budget that simply funds survival. You need to consider developing the likes of proof of concepts that give investors a working taste of your vision and ambition. So budget in the costs of pushing your studio to do those things, rather than simply getting by.
“Furthermore, if you have to raise money again and you have not reached your milestones you can end up in the situation where you have to raise money on a lower valuation meaning you have to give away a bigger part of your company.”
The revenue question
As alluded to above, the hardest thing for a business to predict when developing a financial strategy can be revenue – and particularly startups. But that is about as key as it gets when you start to think about longer term financial planning.
“It is very hard to predict revenues, especially if it's your first game,” Kajsa states in agreement. “You can look at similar games and see what revenue they have. Be aware of the marketing spend behind that game, though; they might have higher budgets than you. What you can do is look at what you can do to increase the revenue. Looking at release dates or campaigns, planning for marketing campaigns and looking if you have room for that in your budget can really help drive revenue.”
If all of this sounds a bit intimidating, you’re not alone. If you come from the creative side of things, lacking confidence around these purebred financial considerations is fairly common. But rest assured every successful game company – large and small – has made it through establishing and understanding a financial plan. Kajsa points out that in the early days your bank or accounting firm may be able to provide enough core fundamental guidance. There are also lots of great resources online, like from the Elite Game Developer blog.
However, at a point you’ll almost certainly need a part-time or full time CFO.
Helpfully, Kajsa has identified three scenarios that might mean it's time to invest in a CFO. The word ‘invest’ is key here. Don’t consider money spent on a permanent or freelance CFO as money lost. It might be the best money you ever spent in terms of growing, maintaining and strategically deploying the rest of your funding.
So, when is it the time to hire that CFO?
- When you start to generate revenue
When that revenue starts to come in, somebody with experience in planning and ultimately using that money can prove powerfully helpful. Should you invest, expand, recruit and so on? And how might those decisions play out over the long term? A good CFO will excel (pun intended!) in helping you make those vital decisions. - Approaching an investment round
A CFO can guide you through much of the preparation, decision making and strategy of an investment round. And – if you succeed – they’ll prove invaluable in making sure you meet new investors’ requirements, and can help with the likes of monthly reporting and board meeting preparation. - When business growth gains momentum
As your studio’s growth builds, establishing routines and a financial rhythm can be key to maintaining that growth, and keeping things sustainable while offering staff a reliable working opportunity. Whatsmore, growth without financial guidance might soon stop growing.
Here we’ve provided an overview of the fundamental concepts and key considerations, informed by Kajsa's incredible knowledge. You’ll want to do plenty more research. Fortunately, the game industry is a friendly and collaborative place, on the whole. Speak to other studios. Make time for the biz dev and financial content at conferences. Or simply use Google and find some guides online to get things started.
And remember, if you give financial strategizing a little of the attention you normally devote to design and development, you may well find you’ll have a lot more successful years of design and development ahead of you.
If you have any questions or want to connect with Kajsa directly, you can find her on LinkedIn. Thanks Kajsa!