This might be the most important step in deciding if you should put on a race, and how you will structure your organization if you decide to move forward.
Budget
If you are an experienced Race Director, you already have this all taken care of- before you committed to putting on a race. If you have already committed to putting on an event, hopefully you already covered this area. One of the very first steps I take, when creating any type/distance of race, is to make a sample budget. In the initial budget, always over estimate costs and under estimate income. No race director ever said, "I'm so upset I over estimated by costs, now what shall I do with all this extra money?". But I can assure you many, many RDs have said, "Everything cost a lot more than I thought it would, now we are out of money and in trouble!"
Costs are pretty straight forward once you get a few quotes for each item. If you are new to race directing, spend the extra time getting several quotes for each item. Along with quotes, ask other RDs about the vendors performance or reputation. You need very reliable and timely vendors to put on a successful event. If you get a vendor who is known to be late or not provide what was contracted, it certainly won't be worth the few $s you saved by going with the lowest bidder.
Now that you have all your costs filled in, next comes the tough part, income. How are you going to pay all those bills? Race income only comes in a few forms, entry fees, sponsorships and donations. My technique is to work backwards through these so that the last thing I'm figuring is how much to charge for entry fees. Therefore, I first look at donations. Is your local city, running club, an individual or a charity going to donate (or grant) any money to your race. A donation (or grant) is money given without the expectation of advertising or any other return. Believe it or not, this actually happens. Maybe someone wants to see a race like yours in the local area and is willing to make a donation to make that happen. This is much more likely if you are a non-profit, but we will cover that later.
Next are sponsorships. This is an item that can really make a race. I'm not saying that not having sponsors will break your race, but it sure is nice to have at least a few. Entire books have been written on sponsorships and we will cover it in some detail in later blogs. If you want to leave sponsorship income at zero for now, I think that's s good plan as it adds a little more cushion. If you already have some pretty firm sponsorship offers, then definitely add them in as income.
Now comes the toughest part of the budget. Race entry income. I worked backwards so that now I can look at the remaining difference between expenses and projected income from donations and sponsors. If you are putting on a 5K, you have a relatively narrow band of pricing to work within, unless you have that idea that allows you to charge $99 for a 5K. Usually it takes a few years of selling out your race before you want to venture too far out of the average entry price for similar runs in your area. Identify the average entry fee for those similar events and put together some estimated entry fees based off of those. Now determine how many runners you need, at that entry fee, to break even.
This should be a major fork in your decision tree to decide if you want to put on a race or not. If you need way more runners than any other similar race is attracting, it is very unlikely that your race will attract more in its first year and, therefore, you don't have a viable race idea. On the other hand, if you can break even with a low (realistic) estimate of the number of runners then you have the green light to continue race planning.
Bottom line: Assume everything will cost money (and more than you think), you won't get as many cash sponsors as you hope and you will get fewer runners than you are dreaming of. Unless you have a bank full of money to give away, this will keep you out of trouble. If you do have a bank full of money to put on races, send me a message!
Crowdfunding
Since I was the first person ever to successfully crowdfund a marathon or half marathon, I would be remiss not to include some information on this funding option.
So you have already done all the budget calculations suggested and you have determined you need $50,000 worth of entry fees to break even. But you are not sure your event can attract that many runners. You have a few choices, 1) abandon the idea of putting on a race and go back to surfing the Internet. Which probably doesn't appeal to you since you are actually reading this blog. 2) Risk the total amount of your fixed expenses and hope that you get enough runners. This is an option if you are putting on a race with $10,000 in expenses, but it's a whole different story when you are talking about a race with $100,000 in fixed expenses. 3) Find a way to determine if enough runners are willing to commit to your race, while risking very little up front. Option 3 is how I decided on crowdfunding the Destin Marathon and Half Marathon.
I thought by now most people were familiar with crowdfunding, but I quickly found out there is a large part of the population that is not familiar with the concept. For ton's of information on our crowdfunding campaign, please check out our Destin Marathon blogs on the subject.
Business Structure
Now that you are fairly certain you can make ends meet money wise, you need to decide on your business structure. At this point I would highly recommend investing $100 or so in spending an hour with a business accountant you really trust. I'm going to give you the broad overview of a few relatively easy business structures but there are too many tax variables to cover everyone's situation.
Option 1- Have your race fall under an existing charity or business. In this case the existing entity takes on all responsibility for the financial setup of the race. You can have them file Doing Business As or Fictitious Name paperwork listing the name of your race if you want a separate bank account with the name of your race on it. I would suggest this to keep your race finances separate from that of the larger entity. This is probably the most simple option, but requires an existing organization to piggyback on.
Option 2- Start your own 501(c)3 charity. A lot of people throw around the term "non-profit" and attach it to organizations who are not actually IRS designated non-profits. Just because you don't intend to make any money from your event, doesn't make you a non-profit; that would make you a not-for-profit or simply an individual. An IRS certified non-profit not only doesn't have to pay federal income tax, they can also give donors a tax write off for any donation they make. Now you are thinking, "This sounds awesome, what is the catch?" The catch is the government still has to get paid to apply for 501(c)3 non-profit status and if you bring in more the $50,000 in gross income you still have to do a LOT of tax paperwork at the end of the year.
Option 3- Setup an Limited Liability Company (LLC) for your race. This structure is just a way for you to add a layer of protection between your event finances and your personal finances. In the unlikely event someone sues your race, they will be going after the assets of the race, not your house, car and retirement fund. This is fairly simple to setup through the IRS and your State government websites. You really don't need to pay a third party to help you with this process. Once you are all registered with the IRS and your state, then you can open a bank account under your LLCs name and you are off to the races! (Pun intended)
Option 4- Use your personal bank account. This is NOT an option unless you want someone who trips in your race and breaks their arm to own your house, your car and your retirement. DO NOT have your personal bank account as the business structure for your race. Period.
If you are not totally freaked out yet, please join our mailing list by signing up on the right hand side and we will send you each new blog when we post it.
If you are an experienced Race Director, you already have this all taken care of- before you committed to putting on a race. If you have already committed to putting on an event, hopefully you already covered this area. One of the very first steps I take, when creating any type/distance of race, is to make a sample budget. In the initial budget, always over estimate costs and under estimate income. No race director ever said, "I'm so upset I over estimated by costs, now what shall I do with all this extra money?". But I can assure you many, many RDs have said, "Everything cost a lot more than I thought it would, now we are out of money and in trouble!"
Costs are pretty straight forward once you get a few quotes for each item. If you are new to race directing, spend the extra time getting several quotes for each item. Along with quotes, ask other RDs about the vendors performance or reputation. You need very reliable and timely vendors to put on a successful event. If you get a vendor who is known to be late or not provide what was contracted, it certainly won't be worth the few $s you saved by going with the lowest bidder.
Now that you have all your costs filled in, next comes the tough part, income. How are you going to pay all those bills? Race income only comes in a few forms, entry fees, sponsorships and donations. My technique is to work backwards through these so that the last thing I'm figuring is how much to charge for entry fees. Therefore, I first look at donations. Is your local city, running club, an individual or a charity going to donate (or grant) any money to your race. A donation (or grant) is money given without the expectation of advertising or any other return. Believe it or not, this actually happens. Maybe someone wants to see a race like yours in the local area and is willing to make a donation to make that happen. This is much more likely if you are a non-profit, but we will cover that later.
Next are sponsorships. This is an item that can really make a race. I'm not saying that not having sponsors will break your race, but it sure is nice to have at least a few. Entire books have been written on sponsorships and we will cover it in some detail in later blogs. If you want to leave sponsorship income at zero for now, I think that's s good plan as it adds a little more cushion. If you already have some pretty firm sponsorship offers, then definitely add them in as income.
Now comes the toughest part of the budget. Race entry income. I worked backwards so that now I can look at the remaining difference between expenses and projected income from donations and sponsors. If you are putting on a 5K, you have a relatively narrow band of pricing to work within, unless you have that idea that allows you to charge $99 for a 5K. Usually it takes a few years of selling out your race before you want to venture too far out of the average entry price for similar runs in your area. Identify the average entry fee for those similar events and put together some estimated entry fees based off of those. Now determine how many runners you need, at that entry fee, to break even.
This should be a major fork in your decision tree to decide if you want to put on a race or not. If you need way more runners than any other similar race is attracting, it is very unlikely that your race will attract more in its first year and, therefore, you don't have a viable race idea. On the other hand, if you can break even with a low (realistic) estimate of the number of runners then you have the green light to continue race planning.
Bottom line: Assume everything will cost money (and more than you think), you won't get as many cash sponsors as you hope and you will get fewer runners than you are dreaming of. Unless you have a bank full of money to give away, this will keep you out of trouble. If you do have a bank full of money to put on races, send me a message!
Crowdfunding
Since I was the first person ever to successfully crowdfund a marathon or half marathon, I would be remiss not to include some information on this funding option.
So you have already done all the budget calculations suggested and you have determined you need $50,000 worth of entry fees to break even. But you are not sure your event can attract that many runners. You have a few choices, 1) abandon the idea of putting on a race and go back to surfing the Internet. Which probably doesn't appeal to you since you are actually reading this blog. 2) Risk the total amount of your fixed expenses and hope that you get enough runners. This is an option if you are putting on a race with $10,000 in expenses, but it's a whole different story when you are talking about a race with $100,000 in fixed expenses. 3) Find a way to determine if enough runners are willing to commit to your race, while risking very little up front. Option 3 is how I decided on crowdfunding the Destin Marathon and Half Marathon.
I thought by now most people were familiar with crowdfunding, but I quickly found out there is a large part of the population that is not familiar with the concept. For ton's of information on our crowdfunding campaign, please check out our Destin Marathon blogs on the subject.
Business Structure
Now that you are fairly certain you can make ends meet money wise, you need to decide on your business structure. At this point I would highly recommend investing $100 or so in spending an hour with a business accountant you really trust. I'm going to give you the broad overview of a few relatively easy business structures but there are too many tax variables to cover everyone's situation.
Option 1- Have your race fall under an existing charity or business. In this case the existing entity takes on all responsibility for the financial setup of the race. You can have them file Doing Business As or Fictitious Name paperwork listing the name of your race if you want a separate bank account with the name of your race on it. I would suggest this to keep your race finances separate from that of the larger entity. This is probably the most simple option, but requires an existing organization to piggyback on.
Option 2- Start your own 501(c)3 charity. A lot of people throw around the term "non-profit" and attach it to organizations who are not actually IRS designated non-profits. Just because you don't intend to make any money from your event, doesn't make you a non-profit; that would make you a not-for-profit or simply an individual. An IRS certified non-profit not only doesn't have to pay federal income tax, they can also give donors a tax write off for any donation they make. Now you are thinking, "This sounds awesome, what is the catch?" The catch is the government still has to get paid to apply for 501(c)3 non-profit status and if you bring in more the $50,000 in gross income you still have to do a LOT of tax paperwork at the end of the year.
Option 3- Setup an Limited Liability Company (LLC) for your race. This structure is just a way for you to add a layer of protection between your event finances and your personal finances. In the unlikely event someone sues your race, they will be going after the assets of the race, not your house, car and retirement fund. This is fairly simple to setup through the IRS and your State government websites. You really don't need to pay a third party to help you with this process. Once you are all registered with the IRS and your state, then you can open a bank account under your LLCs name and you are off to the races! (Pun intended)
Option 4- Use your personal bank account. This is NOT an option unless you want someone who trips in your race and breaks their arm to own your house, your car and your retirement. DO NOT have your personal bank account as the business structure for your race. Period.
If you are not totally freaked out yet, please join our mailing list by signing up on the right hand side and we will send you each new blog when we post it.
