6 min read
Dec 12, 2023
If you skip these finance best practices, you may be dooming your gaming business
In the gaming world, creativity and innovation often steal the spotlight. But behind every successful game lies a backbone of solid financial management. Whether you're an indie developer, part of a mid-size gaming company, or a gaming enterprise mastering the art of finance is as crucial as your next big game idea. Let's explore why.
Unifying Financial Data
Imagine having all your financial data scattered across different platforms and spreadsheets. The time lost in compiling reports and the risk of errors can be substantial. By unifying all your financial data into one platform, you not only save valuable time but also reduce the likelihood of mistakes that could cost your business dearly. This integration helps you to see the full financial picture with ease and make more informed decisions. Seek out a tool like Sanlo Financial Analytics that allows you to integrate all of your bank, platform, and ad network accounts into one dashboard without having to perform any further maintenance. The data should refresh daily without you having to do anything.
Tracking Cash Flow
Understanding where your money comes from and where it goes is fundamental. It's about more than just knowing your total revenue and expenses; it's about tracking the flow of cash in detail, ideally on a daily level. Categorizing your expenses lets you analyze your spending patterns. Are you investing too much in certain areas? Could you allocate resources more effectively? These insights are crucial for fine-tuning your financial strategy. Look for tool that give you this cash flow daily detail, ideally with automated categorization so you can instantly visualize where money is coming and going.
Understanding Net Income and Burn Rate
Your net income, or in some cases, net burn (when expenses exceed income), directly impacts your cash balance. Keeping a close eye on these metrics helps you gauge the health of your business. They serve as key indicators of whether you’re moving towards profitability or if you need to pivot your financial strategy. Understand your net income / net burn is also key to understanding your runway and projecting future cash flows.
Calculating and Extending Runway
In a recent interview, Jen Donahoe, Managing Principal at JadeInferno Consulting and respected gaming industry veteran, emphasizes, "I work with quite a few gaming companies and my counsel to them is number one, let’s make sure we understand the runway. How much runway do we have and how do we control cost? This is crucial especially when looking to activate things like IP licensing, which can be very expensive. You have to be sure your P&L can handle things like the guaranteed minimum that you’re going to have to pay the IP holder." Calculating your financial runway – how long you can operate with your current cash reserves – is vital. Strategies to extend this runway, such as cost control and efficient resource allocation, can make the difference between a game studio's success and failure.
Ryan Filsinger, Founder & CEO of Iron Fox Games shared a candid moment with us: “Recently, one of our big contracts wasn’t renewed. At that moment, we were doing the math and we saw that eventually we were going to run out of money, especially because we were bootstrapping and didn’t raise a funding round. This lit a fire under us to aggressively pursue business development to secure any and every contract opportunity we could find that matched our core skill sets. As a bootstrapped company, it’s super important for us to understand our runway and control our budget.” This real-world example underlines the importance of financial management, especially for bootstrapped companies.
Using Financial Data for Strategic Decisions
Your financial data isn't just a record of where your business has been; it's a roadmap for where it can go. This data can inform critical decisions, like when to seek financing or invest in new projects and R&D. A automated, data-driven approach ensures that such decisions are not just based on gut feelings but on solid financial ground.
Financial management might not be as glamorous as game design, but it's just as important. Integrating your financial data, tracking cash flow, understanding your net income/burn, calculating your runway, and using financial data for strategic decisions are not just best practices; they're your safeguards against the unpredictable nature of the gaming industry.
As game creators, your passion fuels your projects. But let sound financial management be the rudder that steers your business to enduring success.