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A game studio asks a funder to back a team that is paid in lumps, loses money for two years and bets part of its time on a title nobody has bought yet. Before anyone signs, the questions are blunt. How much money covers the gap between milestone payments? How many projects must be running at once? What happens when a publisher cancels, or a game sells a tenth of what you hoped?
In this article we'll walk through a complete sample plan for a game development studio in Richmond, Virginia, one branch of computer programming. A plan for a custom-software shop would look different. We'll cover the executive summary, the SWOT analysis and, most of all, the financials.
What you'll take away:
- The executive summary: see how to put a milestone-paid studio and its own game on one page, so a reader gets the ask and the risks in a minute
- The market and competitor table: learn how to describe the alternatives a publisher has without naming firms you cannot source
- The capacity table: check that billable hours support the revenue you forecast, year by year
- The first twelve months, milestone by milestone: spot the months that lose money and size your reserve against them
- The profit, cash flow and balance sheet: follow how hiring pace, pay raises and a self-published title change the numbers
- The downside case: have an answer ready for "what if revenue is 20% short?", along with the steps the founder takes
If you're setting up a studio, read this before you write your own. The studio is fictional, so take what fits and change the rest.
In this plan
Want a computer programming business plan you can edit for your own business? Get the computer programming business plan template and build it in the Toolkit.
Executive Summary
Gaming Futures is a game development studio that opens in Richmond, Virginia on January 1, 2027. It builds games for publishers under fixed-price, milestone-paid contracts, takes on porting and art jobs billed by the hour, and from its second year puts a small team on one title of its own. Founder Tessa Marlowe is studio director and owns 55%. Two private investors own the other 45%.
The studio raises $800,000: $120,000 of Tessa's savings, $530,000 from the two investors and a $150,000 bank term loan. Most of it, $690,000, stays in the account as a reserve, because a studio paid in milestones can go six weeks between invoices while a team of six draws salaries. Equipment and the studio build-out take $65,000. Legal work, licenses and the launch campaign take $45,000.
| Year 1 | Year 2 | Year 3 | |
|---|---|---|---|
| Revenue | $727,000 | $1,150,000 | $1,930,000 |
| Net income after start-up costs | ($164,461) | ($140,263) | $75,437 |
| Closing cash | $489,150 | $294,314 | $240,444 |
One publisher contract is signed when the doors open, and its $56,000 kickoff payment lands in January. A second, worth $520,000, is expected to sign in August. Years 1 and 2 lose money. In Year 2 the studio hires ahead of its contract work and loses billable time to its own game. Profit starts in Year 3. In Year 5 the studio earns $247,844 on $2,810,000 of revenue, a net margin of 8.8%.
That margin depends on the studio's own game. If the game earned nothing and its costs were still spent, the studio would lose money in Years 3 and 4 and earn a 3.6% margin in Year 5, which is ordinary for a services studio. The title is what lifts the margin past 8%, and the plan treats it as the least certain line in the model.
A second run takes 20% off every revenue line. With slower hiring, one planned hire dropped, a pay cut for Tessa, a cancelled office move and no distributions, closing cash stays above zero in all five years. Year 4 is the narrow point, and the studio would be a single late milestone payment away from trouble.
The Studio
Legal name: Gaming Futures, Inc., a Virginia corporation (taxed as a C corporation, because there are outside shareholders). Owners: Tessa Marlowe 55%; two private investors 45% together. Premises: a leased studio in Richmond, 2,200 square feet. Start date: January 1, 2027. Stage: pre-launch. One publisher contract is signed and a second is in negotiation.
Three lines of revenue
| Line | How it earns | Share of Year 1 | Share of Year 5 |
|---|---|---|---|
| Milestone-paid contract development | Fixed-price statements of work, paid when a publisher accepts each milestone | 59% | 56% |
| Porting, co-development and art services | Hourly or monthly billing to publishers and other studios | 41% | 35% |
| Self-published title | Net receipts after the store's share of each sale | 0% | 9% |
Where Gaming Futures sits
The studio is a game developer, not a custom-software shop and not a mobile-app house. Its customers are publishers and other studios, its output is playable software with art, audio and design in it, and its deliverables are signed off milestone by milestone against a game design document. Engineering that serves a single business's internal systems, and apps sold through a phone store on a subscription, are outside its scope.
Targets
- Nine engagements signed during 2027, the signed contract included: two development contracts and seven service jobs.
- A vertical slice of the studio's own game, approved by the studio's board, by the end of 2028.
- The game on sale in September 2029.
- Profit after tax from Year 3 and the first owner distribution in 2029.
Contracts and who owns the work
Publisher agreements normally assign the finished game, its art and its code to the publisher, while the studio keeps its own tools and engine code. The U.S. Copyright Office's circular on works made for hire describes when commissioned work counts as made for hire, and written agreements set the terms. Gaming Futures has counsel draft its standard schedule on that basis and confirms terms contract by contract. The studio's own title stays wholly owned by Gaming Futures.
What Publishers Buy and Who Else Sells It
Why publishers hire outside teams
A publisher with a release calendar and a fixed internal headcount has peaks it cannot staff. It places a port, an art package or a co-developed section with an outside team, and pays on milestones so that its money follows delivered work. The plan does not size this market with a statistic: no dated primary source was used for one. The studio's Year 1 forecast rests on its own pipeline of named conversations, set out under the sales plan below.
Richmond as a base
Richmond typically offers lower office rents and lower salaries than the coastal hubs where many publishers sit, and it is within driving distance of Washington, DC and North Carolina's Research Triangle. Salaries in this plan are set for a mid-Atlantic city and are not drawn from a published wage survey. A hire in Richmond competes with remote offers from studios elsewhere, so the plan builds in 3% pay raises each year.
Who a publisher could call instead
| Alternative | What it offers | Why a publisher picks it | Where Gaming Futures differs |
|---|---|---|---|
| Publisher-owned internal studios | Capacity inside the company | Control, shared tools | Takes overflow work with a flexible start date |
| Mid-size external development studios | Full game builds, often with a longer record | Track record, larger teams | Smaller team, a named lead on each project, and a quote within days |
| Offshore and nearshore art and porting houses | Low hourly rates | Price | Same time zone and a studio a producer can visit |
| Freelance collectives | Flexible individual experts | Cost, speed | One contract, one accountable team, one set of security controls |
None of these rows names a firm, because providers change their offers often. The table describes categories and is not a ranking.
SWOT
| Strengths | Weaknesses |
|---|---|
| A director with shipped titles and a named lead programmer | Two publishers at launch means high concentration |
| Core team of three in place from day one | Pay lumps in milestones, so cash is uneven |
| Capital to carry six weeks between invoices | No brand with publishers yet |
| Opportunities | Threats |
|---|---|
| Publishers with overflow work and no spare headcount | A publisher cancels or cuts a title mid-project |
| Repeat work once a milestone ships on time | Fixed prices punish a bad estimate |
| An own game that earns outside the contract cycle | Most self-published games sell few copies |
Who Signs the Statement of Work
The producer or studio head at a mid-size publisher
The buyer is usually an external development manager or a producer with a budget line and a ship date. This person is judged on a game that releases on time. They hire a studio they believe will tell them early when a milestone is slipping.
The other studio
A second group of customers is a development studio that has taken on too much itself and needs a port, an art package or extra programmers for a quarter. These engagements are smaller, billed by the hour or month, and they make up the porting and art services line.
What they check
A publisher asks for a showreel of shipped work, references from earlier producers, a plan for source control and build access, and proof that pre-release builds are protected. Gaming Futures answers the last point with named access controls, a written security policy and an NDA with every employee.
How they pay
Contracts pay a kickoff share on signing, then a payment for each accepted milestone, usually prototype, vertical slice, alpha, beta and gold. Invoices are approved by the publisher's producer and paid after an approval period, which the plan sets at 45 days on average. Porting and art work bills monthly on shorter terms.
Why they leave
A missed milestone, a cancelled title, a publisher bringing the work in-house or a price war on art. Losing a project is a normal event in this trade. The downside case in the financial plan tests a 20% shortfall, and its note covers a cancelled project. In Year 1 the two publishers account for 59% of revenue.
From First Meeting to Signed Milestones
The path
- An introduction, from a conference meeting, a previous colleague or an outbound note.
- An NDA and a capability deck with a reel.
- A scoping call, then a small paid or unpaid prototype for a larger contract.
- A statement of work with a fixed price per milestone, a kickoff payment and a change-order clause.
- Kickoff and a production plan that names the lead, the team and the review dates.
The Year 1 funnel
The plan expects about 70 introductions, 22 proposals or prototypes and 9 signed engagements, two of them development contracts and seven service jobs. About two proposals in five convert, and a development contract takes three to five months from first meeting to signature.
Pricing
Development work is quoted as a fixed price for each milestone, built from the hours the team estimates and a margin for the studio's risk. Service work is billed hourly or on a monthly retainer. The plan's revenue works out to an average yield of $152 per billed hour after direct costs in Year 1, falling to $148 in Year 5; the capacity table under the operating plan shows how. The yield rests on a team of mid-level and senior hires and sits at the upper end of what this kind of work earns. A publisher paying fixed milestones does not pay by the hour, so the real yield depends on estimating accuracy, and overruns are the studio's cost. The rates are for the model and need testing against live bids.
Terms the studio tries to hold
A kickoff payment of 10% to 15%, a limit on unpaid revision rounds in each milestone, a cancellation clause that pays for work done plus a share of the remaining milestone, and the right to name the project in the studio's portfolio after release.
Getting Seen by Publishers
What the Year 1 budget buys
Year 1 marketing is $52,000 of running cost, 7% of revenue, plus $28,000 of launch spend funded from the raise. The $80,000 together spread over nine signed engagements is about $8,900 each. The ratio of marketing to revenue falls to 3% by Year 3 and 2% by Year 5, as repeat publishers carry more of the pipeline.
| Channel | Year 1 spend | What it is meant to do |
|---|---|---|
| Pitch prototypes built at the studio's expense | $14,000 | Show a playable idea to two or three publishers a quarter |
| Publisher outreach by a part-time business-development contractor | $14,000 | Warm introductions to external development managers |
| Showreel, case studies and website | $5,000 | Keep proof of shipped work current |
| Local meetups, university visits and game jams | $8,000 | Recruiting and goodwill with the Richmond community |
| Targeted professional-network ads and a quarterly newsletter | $7,000 | Stay in front of producers between meetings |
| Awards entries and trade press | $4,000 | Third-party credit for finished work |
| Running marketing, Year 1 | $52,000 | |
| Launch: reel, site, booth share, press kit (from the raise) | $28,000 | Opening credentials for a studio with no website |
Conference attendance sits in the operating costs, at $18,000 for travel and publisher visits in Year 1. Only a few of the 22 proposals need a full prototype, so most cost staff time instead of cash.
Milestones
- January 2027: Project A, a $540,000 co-development contract, kicks off with a $56,000 payment.
- April 2027: the prototype milestone on Project A pays $80,000.
- July 2027: the vertical slice pays $102,000.
- September 2027: Project B, signed in August, pays a $78,000 kickoff.
- December 2027: the alpha on Project A pays $114,000, and the studio books $154,000 in the month, its best of the year.
Inside the Studio
The Richmond office
The studio leases 2,200 square feet at about $25 per square foot per year, which comes to $55,000 in Year 1 with building costs folded in. Desks, a meeting room and a device lab fit that space until the team reaches 12 or 13 people. In Year 4 the studio moves to roughly 3,600 square feet at $96,000 a year. Rents vary by building and by year.
How a milestone is built
Every project runs in two- or three-week sprints against the milestone plan. The producer tracks hours against the quoted estimate, the team builds on a shared build server, and QA tests every candidate build before it goes to the publisher. A milestone goes out with a build, a notes document and a list of known issues.
Tools and security
The studio licenses a commercial engine, version control, an issue tracker, a build service and art applications. Software costs $26,000 in Year 1 and reach $52,000 by Year 5; engine, middleware and asset licenses are a separate $12,000 to $24,000. Pre-release builds from publishers sit in access-controlled repositories, devices are encrypted and staff sign NDAs, because a leak can cost a studio its publisher relationships.
Console and store access
Console platform holders approve developers and set their own fees and terms. The $41,000 equipment budget includes three console development kits at an estimated $2,500 each; the studio confirms the current program terms before ordering. Releasing on a PC store involves a per-product fee. Steam's published fee is $100 per product, recoupable once the product reaches $1,000 of adjusted gross revenue.
Who does the work
Production staff are scheduled at 1,450 billable hours a year each, 1,300 for QA and 540 for Tessa, whose time goes mostly to selling and reviewing. The producer is not billed. Scheduled hours grow from 5,252 in Year 1 to 17,790 in Year 5.
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Scheduled production hours | 5,252 | 9,119 | 12,778 | 15,857 | 17,790 |
| Hours on the studio's own game and its updates | 0 | 1,450 | 870 | 870 | 0 |
| Billing utilization | 85% | 88% | 90% | 90% | 90% |
| Billed hours | 4,465 | 6,749 | 10,717 | 13,488 | 16,011 |
Utilization starts lower because a young studio has bench time between milestones.
Insurance
Coverage includes technology errors and omissions, cyber, general liability, workers' compensation and a key-person policy on Tessa. The plan budgets $14,000 in Year 1 and $24,000 in Year 5, estimates to be replaced by broker quotes.
The studio's own game
From month 14 two people, a gameplay programmer and an environment artist, spend about 40% of their time on the studio's own game, and the designer joins them when hired in month 17. That costs about 1,450 billable hours in Year 2 and 870 in Year 3. At roughly $150 an hour it is about $350,000 of billable work not done before launch, plus another 870 hours in Year 4 on patches and a console port. Outside spend on music and audio, localization, ratings, external QA, console certification and the launch campaign adds $185,000 over Years 2 to 5, $90,000 of it in Year 3.
The game launches in September 2029 at $19.99. After discounts and refunds the plan counts an average of $16.00 a copy, and the store keeps 30%, a share that varies by store and program, leaving $11.20 a copy. That turns into about 62,500 copies over the 28 months through the end of Year 5. Most self-published games sell far fewer. The downside case cuts this line by 20% as well, and the note after the financial tables sets out what happens if it earns nothing.
Leadership and Gaps
Tessa Marlowe, founder and studio director
Tessa has 12 years in console and PC development, the last seven as a lead designer and then a director at a mid-size studio in the mid-Atlantic. She has shipped four titles and run a team of 25 through two milestone-paid projects. Her $120,000 investment is those years of savings, and she draws a $120,000 salary from month one.
Where the team is thin
Three gaps stand out. Tessa has never run a company's finances, so a part-time bookkeeper starts in month 2 and an outside accountant reviews each quarter. She has no experience of a publisher cancelling a contract in the middle of production, so the cancellation clause sits in every statement of work. Tessa and the lead programmer are the only two who can estimate a milestone, which makes the producer hired in month 22 the first step toward spreading that skill.
If the lead programmer leaves
The lead programmer is the second key-person risk after Tessa. The engine architecture lives in a documented repository, so another programmer can pick up the code, and a second senior programmer joins in month 48.
Outside help
Counsel drafts the master services agreement and the work-for-hire schedule. A fractional accountant reviews the books each quarter. Two advisors with publishing and finance experience sit on an informal board and meet the studio each quarter.
Owners and the bank
Tessa owns 55% and the two investors 45%, all in common shares. The $150,000 term loan carries Tessa's personal guarantee and a lien on the studio's equipment, with quarterly financial reporting to the bank. Owner distributions follow the share split, 55% to Tessa and 45% to the investors. The investors' route to a return beyond $157,500 of distributions is a sale or buy-back of the studio, which the plan does not model.
Studio Finances: Five Years of Milestones and Payroll
The forecast covers five years: 2027 month by month, then one figure for each later year. A single model feeds every table, and the figures behind it come first, so any number can be traced to where it started.
What launch costs and who pays for it
| Use of funds | Amount |
|---|---|
| Workstations, monitors, test devices and three console dev kits | $41,000 |
| Studio build-out and furniture | $24,000 |
| Legal: entity, IP assignments, publisher agreement review | $14,000 |
| Business licenses and platform developer accounts | $3,000 |
| Launch: showreel, website, trade-show booth share, press kit | $28,000 |
| Cash reserve for the gap between milestone payments | $690,000 |
| Total uses | $800,000 |
| Source of funds | Amount |
|---|---|
| Tessa Marlowe's savings | $120,000 |
| Two private investors (common shares) | $530,000 |
| Bank small business term loan | $150,000 |
| Total sources | $800,000 |
Tessa puts in $120,000 and two private investors $530,000, so equity is $650,000 of the $800,000, or 81%. The other $150,000 is a seven-year bank term loan at 11%, interest only for the first six months, backed by Tessa's personal guarantee and a lien on the studio's equipment. The rate is a planning figure and not a quoted lending rate. The loan costs $16,316 in interest in Year 1. Tessa and the investors take it to avoid selling a larger share of the studio, and it opens a relationship for equipment finance later. The $690,000 reserve dwarfs the $65,000 equipment budget, on purpose. Cash from operations is negative in each of the first three years, and the reserve is also what keeps the 20% shortfall case above zero.
Figures behind the forecast
- Contract development in Year 1 is five payments from two publisher projects. Project A, a $540,000 co-development contract, pays $56,000 at kickoff in January, $80,000 in April, $102,000 in July and $114,000 in December, which is $352,000 of the contract; $188,000 follows in 2028. Project B, a $520,000 contract signed in August, pays a $78,000 kickoff in September. Together that is $430,000. Years 2 to 5 grow to $700,000, $1,090,000, $1,340,000 and $1,560,000 as the team gets bigger and repeat publishers return. Projects A and B carry about $630,000 of Year 2.
- Porting, co-development and art services bill monthly, from $8,000 in February to $40,000 in December, which comes to $297,000 for the year. The line reaches $990,000 by Year 5.
- Production staff are scheduled at 1,450 billable hours a year each, 1,300 for QA and 540 for Tessa. Billing utilization is 85% in Year 1, 88% in Year 2 and 90% after that. Billed hours then come to 4,465, 6,749, 10,717, 13,488 and 16,011. Dividing each year's contract and services revenue, less direct costs, by those hours gives a yield of $152, $159, $155, $150 and $148 an hour. That sits at the upper end for work of this kind and rests on a team of mid-level and senior hires. Fixed-price milestones are not hourly, so the yield is a planning figure to test against bids.
- Direct costs run at 6.8% of revenue in every year, the share set by the Year 1 mix: subcontracted audio, music, localization and external QA on publisher projects, billed to the publisher at cost plus a small margin. Costs specific to the studio's own game sit in a separate line: $20,000 in Year 2 for concept art and audio prototypes, $90,000 in Year 3 (music and audio $30,000, localization $12,000, external QA and ratings $13,000, console certification and port preparation $10,000, launch campaign $25,000), $50,000 in Year 4 and $25,000 in Year 5.
- The studio's own game takes two people at 40% of their time from month 14 and three once the designer joins in month 17, about 1,450 hours in Year 2 and 870 in Year 3 before launch, then two people at 30% for 870 hours in Year 4 on patches and a console port. Those hours are removed from billed time. Sales start in September 2029 at $19.99. The plan counts $16.00 a copy after discounts and refunds and a 30% store share, or $11.20 net, which gives about 13,400 copies in Year 3, 25,900 in Year 4 and 23,200 in Year 5. Store terms differ, and many self-published games sell far fewer copies.
- Receivables average 45 days because publishers pay after they approve each milestone. Payables average 20 days. The bad debt allowance rises from $3,000 to $10,000 a year.
- Payroll carries a 27% load for payroll taxes, health coverage, workers' compensation and a retirement match; the part-time bookkeeper's load is 15%. Salaries are planning figures for a mid-Atlantic city, from $72,000 to $120,000 for full-time roles at launch. Raises of 3% a year begin in Year 2 and appear as a separate line, so the personnel table shows launch-year pay.
- Rent is $25 per square foot per year on 2,200 square feet, or $55,000 in Year 1. The studio moves in Year 4 to about 3,600 square feet at $96,000. Software subscriptions rise from $26,000 to $52,000, engine and asset licenses from $12,000 to $24,000, and insurance from $14,000 to $24,000.
- The model taxes the studio as a C corporation: 21% federal and 6% Virginia, the rate the Virginia Department of Taxation lists for corporations. Losses from Years 1 and 2 are carried forward and cover all of Year 3, so the first tax bill is in Year 4. Federal law limits how much of a loss carryforward can be used in a year, and start-up costs are only partly deductible when paid, so a real tax bill could come earlier. Rates can change; confirm with a tax advisor.
- Owner distributions are $30,000 in Year 3, $120,000 in Year 4 and $200,000 in Year 5, split 55% and 45% between Tessa and the investors. The loan runs its full term. The investors receive $157,500 of their $530,000 by Year 5, so the rest of their return depends on a later sale or buy-back of the studio. The plan models neither.
Revenue by line of work
| Revenue stream | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Milestone-paid contract development for publishers | $430,000 | $700,000 | $1,090,000 | $1,340,000 | $1,560,000 |
| Porting, co-development and art services | $297,000 | $450,000 | $690,000 | $830,000 | $990,000 |
| Self-published title: net receipts after platform share | $0 | $0 | $150,000 | $290,000 | $260,000 |
| Total revenue | $727,000 | $1,150,000 | $1,930,000 | $2,460,000 | $2,810,000 |
| Growth on prior year | – | 58% | 68% | 27% | 14% |
Contract development is the largest line every year, from 59% of revenue in Year 1 to 56% in Year 5. Services give the studio something to bill in the months between milestones. The studio's own game adds 8% of Year 3 revenue and 9% of Year 5. Growth of 68% in Year 3 comes from the three hires made during Year 2 reaching a full year, and from the end of the own-game work that took time away from billing in Year 2.
The first twelve months, milestone by milestone
| Month | Milestone-paid contract development for publishers | Porting, co-development and art services | Self-published title: net receipts after platform share | Total revenue | EBITDA |
|---|---|---|---|---|---|
| Jan 2027 | $56,000 | $0 | $0 | $56,000 | ($11,728) |
| Feb 2027 | $0 | $8,000 | $0 | $8,000 | ($56,477) |
| Mar 2027 | $0 | $14,000 | $0 | $14,000 | ($50,883) |
| Apr 2027 | $80,000 | $18,000 | $0 | $98,000 | $27,426 |
| May 2027 | $0 | $22,000 | $0 | $22,000 | ($43,425) |
| Jun 2027 | $0 | $26,000 | $0 | $26,000 | ($39,696) |
| Jul 2027 | $102,000 | $29,000 | $0 | $131,000 | $58,191 |
| Aug 2027 | $0 | $32,000 | $0 | $32,000 | ($34,103) |
| Sep 2027 | $78,000 | $34,000 | $0 | $112,000 | $40,478 |
| Oct 2027 | $0 | $36,000 | $0 | $36,000 | ($30,374) |
| Nov 2027 | $0 | $38,000 | $0 | $38,000 | ($28,509) |
| Dec 2027 | $114,000 | $40,000 | $0 | $154,000 | $79,633 |
Revenue arrives in lumps. EBITDA is positive only in April, July, September and December, the months with a milestone payment, and negative in the other eight. The raise absorbs those eight months, and closing cash at the end of December is $489,150.
Who is on payroll, and from when
| Role | Annual wage | Starts | Year 1 end | Year 2 end | Year 3 end | Year 4 end | Year 5 end |
|---|---|---|---|---|---|---|---|
| Founder and studio director | $120,000 | Month 1 | 1 | 1 | 1 | 1 | 1 |
| Lead programmer | $112,000 | Month 1 | 1 | 1 | 1 | 1 | 1 |
| 3D artist | $78,000 | Month 1 | 1 | 1 | 1 | 1 | 1 |
| Bookkeeper | $32,000 | Month 2 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 |
| Gameplay programmer | $92,000 | Month 4 | 1 | 1 | 1 | 1 | 1 |
| Environment artist | $76,000 | Month 8 | 1 | 1 | 1 | 1 | 1 |
| Second gameplay programmer | $92,000 | Month 12 | 1 | 1 | 1 | 1 | 1 |
| Producer | $88,000 | Month 22 | – | 1 | 1 | 1 | 1 |
| Game designer | $84,000 | Month 17 | – | 1 | 1 | 1 | 1 |
| Tools and porting programmer | $96,000 | Month 22 | – | 1 | 1 | 1 | 1 |
| Animator | $80,000 | Month 27 | – | – | 1 | 1 | 1 |
| QA lead | $72,000 | Month 30 | – | – | 1 | 1 | 1 |
| Online and systems programmer | $108,000 | Month 36 | – | – | 1 | 1 | 1 |
| Second environment artist | $78,000 | Month 42 | – | – | – | 1 | 1 |
| Second senior programmer | $116,000 | Month 48 | – | – | – | 1 | 1 |
| Total payroll incl. on-costs | $565,017 | $890,240 | $1,250,497 | $1,501,322 | $1,677,640 |
Three people start on day one: Tessa, the lead programmer and a 3D artist. A part-time bookkeeper joins in month 2 and a gameplay programmer in month 4, once the first milestone is in sight. An environment artist follows in month 8 and a second gameplay programmer in month 12. During Year 2 the designer arrives in month 17, and a producer and a tools and porting programmer in month 22. Year 3 adds an animator in month 27, a QA lead in month 30 and an online programmer in month 36. Year 4 adds a second environment artist in month 42 and a second senior programmer in month 48. That brings the studio to 6 full-time staff at the end of Year 1, 9 at the end of Year 2, 12 at the end of Year 3 and 14 in Years 4 and 5, plus the half-time bookkeeper. Tessa's $120,000 sits in the payroll line, so every profit figure is after she has been paid.
Profit and loss
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Revenue | $727,000 | $1,150,000 | $1,930,000 | $2,460,000 | $2,810,000 |
| Direct costs (subcontracted art, audio and QA; ratings and localization fees) | ($49,250) | ($77,906) | ($130,746) | ($166,651) | ($190,361) |
| Gross profit | $677,750 | $1,072,094 | $1,799,254 | $2,293,349 | $2,619,639 |
| Payroll incl. on-costs | ($565,017) | ($890,240) | ($1,250,497) | ($1,501,322) | ($1,677,640) |
| Rent | ($55,000) | ($57,000) | ($59,000) | ($96,000) | ($99,000) |
| Utilities | ($7,200) | ($7,500) | ($7,800) | ($11,000) | ($11,400) |
| Marketing | ($52,000) | ($56,000) | ($60,000) | ($62,000) | ($64,000) |
| Insurance | ($14,000) | ($16,500) | ($19,000) | ($22,000) | ($24,000) |
| Professional fees | ($9,000) | ($10,000) | ($11,000) | ($12,000) | ($13,000) |
| Software subscriptions | ($26,000) | ($34,000) | ($42,000) | ($48,000) | ($52,000) |
| Engine, middleware and asset licenses | ($12,000) | ($16,000) | ($20,000) | ($22,000) | ($24,000) |
| Conferences, travel and publisher visits | ($18,000) | ($22,000) | ($26,000) | ($28,000) | ($30,000) |
| Recruiting, training and phones | ($6,000) | ($9,000) | ($11,000) | ($12,000) | ($12,000) |
| Equipment replacement and new-hire kit | $0 | ($14,000) | ($18,000) | ($24,000) | ($22,000) |
| Own-game costs: music, audio, localization, ratings, console certification, external QA | $0 | ($20,000) | ($90,000) | ($50,000) | ($25,000) |
| Bad debt allowance | ($3,000) | ($5,000) | ($7,000) | ($9,000) | ($10,000) |
| Annual pay raises (3% a year) | $0 | ($26,707) | ($76,155) | ($139,213) | ($210,559) |
| EBITDA | ($89,467) | ($111,853) | $101,802 | $256,815 | $345,040 |
| Depreciation | ($13,679) | ($13,679) | ($13,679) | ($13,679) | ($3,429) |
| Interest | ($16,316) | ($14,732) | ($12,687) | ($10,405) | ($7,860) |
| Income tax | $0 | $0 | $0 | ($12,469) | ($85,908) |
| Net income before start-up costs | ($119,461) | ($140,263) | $75,437 | $220,261 | $247,844 |
| Start-up costs expensed at opening (legal, licensing, launch marketing) | ($45,000) | $0 | $0 | $0 | $0 |
| Net income after start-up costs | ($164,461) | ($140,263) | $75,437 | $220,261 | $247,844 |
Year 1 loses $119,461 before start-up costs and $164,461 after them. Year 2 loses $140,263 because three hires arrive while the own-game work pulls staff off billable projects. Year 3 earns $75,437, a 3.9% net margin, after $90,000 of own-game costs. Year 4 reaches 9.0% even with a first tax charge and the move to the larger office. Year 5 settles at 8.8% as accumulated pay raises reach $210,559 a year and own-game receipts slip from $290,000 to $260,000. The game carries that margin. If it earned nothing and its costs were still spent, the studio would lose $64,402 in Year 3 and $37,623 in Year 4 and earn $91,365 in Year 5, a margin of 3.6%. Contract work alone does not reach 8% at these wages.
Cash movements
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Cash from operations | ($237,714) | ($177,165) | ($4,154) | $170,565 | $209,421 |
| Workstations, dev kits and build-out | ($65,000) | $0 | $0 | $0 | $0 |
| Funding received | $800,000 | $0 | $0 | $0 | $0 |
| Loan principal repaid | ($8,136) | ($17,671) | ($19,716) | ($21,998) | ($24,543) |
| Owner distributions | $0 | $0 | ($30,000) | ($120,000) | ($200,000) |
| Net change in cash | $489,150 | ($194,836) | ($53,870) | $28,567 | ($15,122) |
| Closing cash | $489,150 | $294,314 | $240,444 | $269,011 | $253,889 |
Closing cash is positive in all five years. Year 3 is the lowest year-end, at $240,444, after operations drain $4,154 while receivables grow and $30,000 goes out in distributions. Distributions total $350,000 across Years 3 to 5, while the loan repays $92,064 of principal over the five years.
Balance sheet
| At year end | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Cash | $489,150 | $294,314 | $240,444 | $269,011 | $253,889 |
| Accounts receivable | $89,630 | $141,781 | $237,945 | $303,288 | $346,438 |
| Workstations, dev kits and build-out (net) | $51,321 | $37,643 | $23,964 | $10,286 | $6,857 |
| Total assets | $630,102 | $473,738 | $502,354 | $582,585 | $607,185 |
| Accounts payable (subcontractors and licenses) | $2,699 | $4,269 | $7,164 | $9,132 | $10,431 |
| Bank term loan | $141,864 | $124,193 | $104,477 | $82,479 | $57,936 |
| Paid-in capital | $650,000 | $650,000 | $650,000 | $650,000 | $650,000 |
| Retained earnings | ($164,461) | ($304,724) | ($259,287) | ($159,026) | ($111,182) |
| Total liabilities and equity | $630,102 | $473,738 | $502,354 | $582,585 | $607,185 |
Margins, break-even and debt cover
| Measure | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| EBITDA margin | -12.3% | -9.7% | 5.3% | 10.4% | 12.3% |
| Net margin (before start-up costs) | -16.4% | -12.2% | 3.9% | 9.0% | 8.8% |
| Payroll incl. pay raises as share of revenue | 78% | 80% | 69% | 67% | 67% |
| Revenue per full-time equivalent at year end | $111,846 | $121,053 | $154,400 | $169,655 | $193,793 |
| Average monthly revenue | $60,583 | $95,833 | $160,833 | $205,000 | $234,167 |
| Monthly revenue needed to cover operating costs | $68,581 | $105,832 | $151,733 | $182,044 | $203,324 |
| Debt service cover (EBITDA / interest + principal) | -3.7x | -3.5x | 3.1x | 7.9x | 10.6x |
Average monthly revenue falls short of the level needed to cover operating costs in Year 1 ($60,583 against $68,581) and Year 2 ($95,833 against $105,832). Year 3 is the first to clear it ($160,833 against $151,733). Debt service cover is negative in Years 1 and 2, at -3.7x and -3.5x, then 3.1x in Year 3 and above 7x after that. A lender would see two years of covenant pressure, which the equity reserve is there to absorb.
When the pipeline runs 20% dry
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|
| Revenue | $581,600 | $920,000 | $1,544,000 | $1,968,000 | $2,248,000 |
| Net income before start-up costs | ($207,997) | ($188,975) | ($27,576) | $4,985 | $69,147 |
| Net income after start-up costs | ($252,997) | ($188,975) | ($27,576) | $4,985 | $69,147 |
| Closing cash | $418,000 | $184,568 | $76,339 | $22,304 | $36,855 |
Every revenue line runs 20% below the base case in all five years, including the studio's own game. Tessa's response has eight parts: the bookkeeper starts two months late, every hire from month 13 on starts six months later, the second senior programmer is dropped, marketing falls 20%, her salary falls 20%, spending on the own game falls 40%, the larger office is cancelled and distributions stop. With those steps the lowest year-end cash is $22,304, in Year 4, and the studio earns a profit from Year 4. Equity at the end of Year 1 is $397,003. The margin for error is thin: one milestone paid a month late in Year 4 would take cash close to zero, and Tessa would have to ask the investors or the bank for a bridge if that happened. A flat 20% haircut also understates a lost project. If a publisher cancelled Project A after kickoff, Year 1 revenue would fall by up to $296,000, or 41%, and the 20% case would not cover it. The later years look stronger than the base case on cash only because distributions are withheld. Without the cuts the same shortfall would exhaust cash in Year 2.
Sources
- Virginia Department of Taxation, Corporation income tax: the corporate rate is 6% of Virginia taxable income.
- Steam, Steam Direct onboarding: a $100 fee per product, recoupable once a product reaches $1,000 of adjusted gross revenue.
- U.S. Copyright Office, Circular 30, Works Made for Hire: background on commissioned work and written agreements.
- Federal corporate rate of 21%: set by statute; confirm current law with a tax advisor.
- Salaries, rents, insurance costs, hourly yields and the 30% store share are planning figures for the model and have no source. Each needs confirming against quotes and current platform terms.
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