Knowing how to write a good race budget and how to correctly account for your event sales and purchases is critical if you are to avoid costly mistakes and big headaches down the line.
In this detailed article we’ll help you understand how to best approach your race budgeting and how to maintain sound budgeting discipline throughout the event planning process.
At the end of the article, you’ll also be able to download our free race budgeting template together with instructions on how to use it to build your own race budget.
Before you begin
There are some important principles to keep in mind before you start writing your race budget:
- Understand how your legal structure will affect your accounting. Depending on whether you are organising your event under a non-profit, charity or private company, your accounting for certain costs and for your bottom line may change. Make sure you are clear about your the correct way to account for costs, revenues, sponsorship and profits before you begin. If in doubt, consult your accountant first.
- Be honest with yourself. You want to make your race work, so you may be tempted into making some optimistic assumptions about your race budget! It’s understandable. But do try to be honest with yourself when estimating costs and revenues. Make a point of updating both as you go along, even if they don’t always turn out favourably.
- Aim for transparency. Obscuring or mis-attributing items on your plan is the top of a slippery slope that ends in disaster. Make sure what’s in your head goes in your plan and account for even the most obvious budget item in the right way (see our discussion below on in-kind sponsorship for an example of good vs poor budget transparency).
- Understand how you will make money. Your participants will want their money’s worth, which means you’ll be spending a big chunk of their entry fee on swag and other essentials like first aid cover. Perhaps you plan to subsidise part of your costs through sponsorship. Whatever the plan make sure you know how you plan to make money from your race and how many participants you will need at a minimum to do so.
With these in mind, let’s take a more detailed look at some important issues that come up during the budgeting process.
Approaching uncertain quantities in your budget prudently is key to avoiding catastrophe. If you are planning a new race – or even if you’re not – you should be particularly careful about estimating things like participation, which can radically influence the economics of your race.
Our approach to managing uncertainty is, perhaps controversially, going for realistic estimates. This means that, wherever possible, your first objective should be to bake into your plan your best realistic estimate for all variables.
We think it is important to try to aim for a realistic rather than a conservative plan (where you exaggerate all costs and discount all revenues) in order to avoid false negatives. A false negative is a situation where a race will appear uneconomic when in reality it isn’t. False negatives are very common when a very conservative approach to budgeting is adopted. And we believe being conservative for the sake of “getting a pleasant surprise down the line” is simply poor budgeting practice.
If you cannot be confident enough to provide realistic estimates for your numbers, only then you should consider erring on the side of caution and being conservative.
The higher the impact of a parameter in your plan and the higher the uncertainty around it (e.g. participation), the more inclined you should be to provide reasonably conservative estimates for it. That is simply because false positives (a race appearing to make economic sense when it doesn’t) are potentially more dangerous than false negatives.
Estimates vs Actuals
One of the best habits you can pick up when writing a race budget is distinguishing estimated from actual numbers in your plan.
An estimated number is your educated guess of what an item will cost you or make for your race. An estimated number becomes an actual number when the cost of an item is confirmed, for example, by obtaining a binding quote from a supplier. This principle applies equally to revenue and cost items.
Our preferred method for managing estimated vs actual numbers in our plan is colour-coding. We use yellow or amber fill colours for estimated numbers and green for actuals (see our Race Budget Template in the Resources section at the bottom).
It’s important to spend some time thinking through your race participation forecasts. Estimating numbers of participants, even for long-running events, can be particularly tricky and can really lead to disaster if not approached with great seriousness.
The best way to practically manage the uncertainty around participation in your event is to conduct a scenario analysis for your budget. This simply means playing around with the number of participants in your plan and seeing what happens.
Two particular exercises can greatly inform your understanding of your race’s economics:
- Min/max analysis
What do your race economics look like at your most optimistic and most pessimistic predictions for participation? Are the numbers skewed in one direction? Is the worst-case scenario close to something you can leave with? Is the best-case scenario barely OK? These are questions you want to be able to answer with the help of budget scenario analysis.
- Breakeven analysis
At what level of participation does your event break even? This is a key figure and one you would want to be able to calculate and re-calculate throughout the budgeting process. Reaching that level of registrations can then provide a great psychological boost – you cannot lose money from that point on.
Most inexperienced race organisers will overestimate the amount of cash they can generate for their events through sponsorships. There are many reasons for this: poor transparency on sponsorship deals, difficulty of benchmarking against other events etc.
Because sponsorship amounts can dramatically shift the overall profitability of a race, you should be very very careful about your assumptions around cash sponsorship. Going back to our earlier advice, we suggest that you include cash sponsorship revenue in your budget plan, but you discount it sufficiently to reflect the probability of parts of it never materialising. You can do this by simply multiplying amounts you expect to receive with a number less than one (the probability that these sponsorships com through).
For example, let’s assume you are in discussions with a title sponsor for your event and you hope to receive £10,000 for the sponsorship. Do add the £10,000 revenue item in your plan. But until you actually sign the agreement multiply it down to perhaps 20% of that. That way, you will only see a probability-adjusted £2,000 flowing down from this prospect to your bottom line.
Remember when we said you need to be transparent in your budget? Well, in-kind sponsorship is a good example where things often break down on this front.
When adding in-kind sponsorship into your race budget, you should try to avoid simply deleting cost items that are provided by an in-kind sponsor. Instead, you should try to add offsetting revenue items for the goods being provided by the sponsor.
This can be a bit confusing, so let’s look at an example.
Say you know a local sponsor has committed to covering the costs of your participant T-shirts. And let’s assume that the cost of buying the T-shirts yourself, if the sponsor doesn’t come through is £1,000. Instead of writing down your T-shirts cost item from £1,000 to £0, keep it at £1,000 and then add next to it a “Sponsored amount” column with a value of -£1,000. This column represents the offsetting benefit of your in-kind sponsorship.
Managing in-kind sponsorship on your race budget through offsets gets you three different views of your budget all in one place:
- Your net position (whatever is not covered by sponsorship for that item) across any cost item row. Simply add the cost column and the “Sponsored amount” column and there you have it
- Your individual and aggregate sponsor contributions through the sum of the “Sponsored amount” column.
- Your potential liability across any budget item in the event that a particular sponsor falls through.
That way you have full budget transparency and can get different answers out of your budget depending on the questions you care to ask.
We take this exact same approach in our Race Budget Template which you can find in the Resources section below.
Taxes & other frictional costs
Many many budgets, business plans and dreams have come undone on the point of taxes. Don’t let that be you.
You should always be on the lookout for taxes and hidden charges whenever estimating costs and revenues. On the revenue side, be sure to include VAT and other sales taxes that may be deductible from your gross race income. On the costs side, make sure you always understand whether quotes are given to you on a gross or net (of tax) basis. And don’t forget those hidden bank charges when setting up bank payments!
For taxes, commissions (e.g. registration commissions from your registrations platform) and other costs tied to specific revenue items our suggestions is to add these as negative line items in the relevant revenue category. For example, add a 4%-of-revenue deduction under your gross revenue from entry fees to account for registration commission. This is often a better way to represent these amounts rather than setting them up as standalone cost items.
Lastly, a brief comment on volunteers: volunteers cost money. They cost money to recruit (advertising and manpower), to train (revenue hire and travel expenses), to deploy (ditto) and, very importantly, to keep happy (swag and a glass of wine don’t hurt). So don’t forget about these costs when setting up your race budget!
If you are early enough in your plans and do not know whether support from volunteers will materialise, play it safe. Start off by using in your budget the cost of hiring someone to do the job you expect your volunteers to cover. Then when you get the volunteers you need, decrease or adjust these costs accordingly.
SEE ALSO: How to Find, Train & Retain Volunteers
Are you ready to build your race budget plan? We have put together a great template you can use to build a flexible race budget from the bottom up.
To download our Race Budget Template, click here. And to download our instructions to the Race Budget Template (highly recommended; includes cost/revenue item checklist and other very important information), click here.
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