A business plan is a concept that many startups consider unnecessary or just nice to have. It’s often seen as an annoying extra bit of admin that just takes you away from the fun of making games. The reality is that no matter the size of your business or the grandeur of your ambitions, this is a vital document that will stand you in good stead for the future. Thinking about what you want to accomplish helps you stay focused, but it will still allow you to change course along the way if you need to. After all, you can only plan your route if you know your destination.
Our plan was to write great games
In 1986 we decided to turn our hobby into a business. We had already published several games, but few had made a lot of money. Our goal was to make more money than our father during our gap year, so that we didn’t have to go to college and could continue writing computer games. Back then, there were no college courses related to games or even computer graphics.
We signed up for the government’s Business Allowance scheme, which would pay us £70 a week for the first year, but with conditions. We had to take university classes once a week to learn how to run a business. We attended with skepticism, wondering what they could teach us, given that they knew nothing about games. In fact, it turned out that they didn’t know anything about computers either.
“If all you want to do is make games, we recommend working full-time at an established game studio”
Double-entry bookkeeping was on point for recording our expenses and (hopefully) our invoices, but the modules on writing a business plan (including cash flow forecasting) seemed pretty useless. There was no benchmark for our business, and cash flow seemed utopian since sales were impossible to predict.
We did what was asked of us, however, and soon realized that, unlike schoolwork, there were no right and wrong answers, and that it was useful to ensure that we had considered everything. We made reasonably informed predictions and it turned out to be an extremely useful exercise. We still have the plan – it’s not great, but it’s a fun and nostalgic read. We even did a six-month update to reflect on how things had gone.
A plan is better than no plan
If you’re seriously considering starting your own studio, you need a business plan. It’s going to take some work to prepare, but nothing compared to the work you’ll do afterwards running a business and writing games. This will help you discuss, in a structured way, all the things you need to think about. Pretty soon you’ll realize there’s a lot of work that doesn’t make the game, but that’s what it means to be an indie developer. If all you want to do is make games, we recommend working full-time at an established game studio. You’ll learn a lot by being in the industry, and if you start a business later, you’ll be more likely to succeed.
Have a plan and write it down
Remember that there are no right and wrong answers. You simply capture all the key information and your plans and forecasts. You’re not aiming for a literary prize – keep everything clear and concise, date each document, give it a title, and add the names of authors and contributors.
Your business name should be unique and reflect the personality you want to project in the short, medium and long term. We’ve seen some weird names that might be appropriate during the start-up phase, but wouldn’t work if you have the success you’re aiming for. Google your proposed name to make sure it’s not too close to someone else’s name, especially if they trade in a similar industry. Secure the domain with .com if possible. Failing that, go with .co.uk, or .net, or even .tv or .games, as long as the company that owns the .com isn’t in a gaming-related business.
Start with the overall business vision, keeping it concise and timeless. Maybe include a mission statement. It’s not written in stone and can be updated later if your business pivots. Outline your background, why you’re doing this, the people involved, the team’s experience, and the skills they each bring to the business. Agree who is responsible for each area of the business.
Include a SWOT analysis to identify your strengths and weaknesses, the opportunities available to you, and the threats you face.
Things to clarify
Not all of the following will appear in the business plan, but it is important to be clear and record these points, either in the plan or in the board minutes:
Recognize what each founder brings in terms of money, equipment, and intellectual property, and whether these are loaned or donated.
Agree on each person’s ownership of the business and the compensation they will receive. Agree on how pay changes should be agreed down the line and what happens if someone wants to leave. Having this discussion at this point removes the emotion if it actually happens and ensures a fair resolution. You should also consider and decide how you would approach the situation if one of your team members is not doing their best, for whatever reason.
“Determine how you will vote on important decisions and what actually constitutes an important decision”
It’s a good idea to also determine how you will vote on important decisions and what actually constitutes an important decision. We suggest this is any engagement that may cost or generate more than £10,000, but that’s all you need. The default in the case of a public limited company is that the vote is proportional to the ownership of shares.
Will it be a sole proprietorship, partnership or limited liability company? It is generally advisable to start as a limited liability company. Although this incurs a setup fee, it has several legal advantages and will allow you to take a start-up investment and (if you are in the UK and eligible) you can claim video game tax relief (VGTR). Whatever you decide, you will need a separate bank account and you will need to agree on the necessary permissions to withdraw money.
It is good practice to enroll an accountant and an attorney (attorney) at the start. Most firms have fair rates for start-ups and can provide helpful advice in many areas. It’s ideal if they’ve worked with gaming companies before, as they’ll understand your business better. You will need to collect and save all receipts in a software package such as Xero or Quickbooks – which accountant you choose will likely have a preference.
Clear business objectives
Your business plan should include short-term (less than three months), medium-term (within the first year), and long-term (either three or five years) goals. Allow for some flexibility; for example, after two projects, you might want to consider self-publishing. Save alternatives; these are not commitments, just a record of the thoughts you had when setting up the business.
Cash flow is king
Include a cash flow forecast for at least one year. Use a spreadsheet with months at the top and categories at the bottom left.
“As you grow your business and your games, you’ll find things change, and that’s great”
The top section is traditionally made up of revenue rows and should include sales and royalties broken down by game, with an “other” row for revenue not related to specific games – for example, the sale of old equipment. Predicting sales of games you haven’t yet made will be difficult, but it’s important to give it a try. This will force you to discuss your predictions and goals. We suggest that you err on the side of pessimism.
The next section should cover all your expected costs, including salaries/wages, contractors, taxes and pensions. These will likely be nil until you anticipate that there will be enough revenue to cover them. If you’re taking office space, add rent and associated utilities. Other expenses include public relations and marketing, hardware (PCs, development kits, servers, etc.), software (tools/engine), insurance, repairs, travel, accommodation, expenses event, subscriptions, memberships and consumables (paper, ink, batteries, coffee, milk, etc.), legal, financial and bank charges. If you plan to hire staff, it is also useful to break down recruitment costs. Register the introduced share capital and any administrator or other loans.
The most important thing to keep in mind is the projected bank balance. And you really don’t want it to dip into the red, which will almost certainly require cash injections early in the life of the business. Cash flow is of vital importance to a business of any description. Even if you can correctly predict that your revenue will exceed your costs, the timing of money can cause serious problems.
The main reason independent developers often start using editors is to provide money for development and to take care of PR, marketing, localization, quality assurance, and submissions. This is useful for the expertise they bring as well as for the finances.
Ask for advice
Show your plan and cash flow forecast to people you trust and respect, and get their feedback. A non-executive director with serious work experience can also be helpful in advising you, although the final decision is obviously yours. It’s your business.
“No plan survives first contact with the enemy”
As you grow your business and games, you’ll find things change, and that’s great. It’s a good idea to update your plan every three months. Reflect on what you did versus what you planned to do, update the numbers, and adjust your strategy and plans for the future.
I hope that in a few years, you too will look back on that first business plan and see how it paved the way for your business success.