First, John August effectively lays out how the money can flow for screenwriting and why to manage those dollars smartly in his Money 101 For Screenwriters post. For example (and remember, the numbers he's throwing around are a lot more than you can expect to see here in Canada)...
We’re used to getting paychecks that have all of the taxes and expenses taken out. Maybe you’re bringing home $850 per week. The math is relatively straightforward: you know how much you need for rent, food, utilities and whatnot. And next week, you’ll get another check.
Screenwriting is nothing like that. You get paid in chunks, from which you have to pay taxes and percentages to all the people working for you. The money shrinks at an alarming rate. Worse, you have limited ability to predict when you’ll get paid again.
As an example, let’s say you and your writing partner sell a spec script to a studio for $100,000. That seems like pretty good money. But how much of it do you get to keep? Let’s run the numbers.
Purchase price: $100,000
Agent (10%): -10,000
Manager (10%): -10,000
Lawyer (5%): -5,000
WGA (1.5%) -1,500
Partner (50%) 36,750
Gross before taxes: $36,750
Out of all that money, you have less than $37K, and that’s before you’ve paid a penny of taxes. So don’t buy your fractional Net Jet just yet.
I spend an entire 3 hour class on this kind of stuff when I'm teaching, including what deductions to try to claim, but Mr. August does a great job of summing up a lot of the major points in one post. Go read him now.
And for a Canadian perspective, Alex Epstein at Complications Ensue discusses how the economic downturn may or may not impact the entertainment business, but he also lays out a great overview of what is needed (money-wise) to finance a project here in Canada (primarily TV series, but a lot of what he's saying can be applied to the movie business) in his You Know You're Not Going Out Tonight... post.
Unless you're a studio, you don't start with the money to make a movie. You start with a script, a director, and a cast. You sell your package of bankable elements to distributors in the various territories. (I'm making these numbers up; I haven't been in foreign sales for a decade.) The contract with the British distrib gives you a "minimum guarantee" (m.g.) of X number of dollars. Say Great Britain comes in for 15%, and Germany for 20%, and Japan for 15%. Say you wind up with 70% of your budget presold. Often a foreign film won't be able to presell the US market for any kind of reasonable price. How do you make your movie?
You take those contracts to a bank. They "discount" your contracts (as they would in the rag trade), and give you cash for your contracts (taking a small fee). That leaves you with a 30%+ "gap."
Now you need "gap financing" to "bridge the gap." Gap financing costs more than discounting, because it's riskier. What if the movie stinks? The presold territories have to pay anyway -- their contracts don't promise a good movie, only a movie based on the script, starring the stars, and directed by the director. But you'll have trouble selling the unsold territories. So the bank is going to want to see territories worth, say, twice as much as the bridge money it's fronting.
In years when credit is loose, banks love gap financing. They charge a lot for it. Charging for financing is their business. But now that credit is tight, banks are wary of gap financing. They might only gap 10%, and they might demand, say, three times the gap in territories. They'll make less money, but they won't get left holding the bag.
Alex goes on to speculate why he doesn't think the credit crunch will affect making TV in Canada all that much, and I'm still mulling over what he said and whether I agree or not...but that will be another post another time.
At any rate, newbies go read. And thank your lucky stars you've got this kind of insider insight at your fingertips.