What is a Current Ratio and if I am a Race Director why should I care?

DollarThe current ratio is a liquidity ratio that measures a company’s ability to pay off its short-term liabilities with its current assets. In simple terms how much money the registration company has in the bank vs. what they owe races.

It is calculated by dividing current assets (cash and accounts or race payments receivable) on the balance sheet by current liabilities (accounts payable, accrued expenses like payroll and liability for race payments) and the rough rule of thumb is that the ratio should always be a minimum of one. Said another way, current assets should be at least as much as your current liabilities.

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This is important to you because some registration providers collect registration proceeds into their own bank account and then make payments to races from that account. If you do business with a registration company that uses their own bank account you should be sure they have enough money to pay you for your races. A current ratio above one is a liquidity measure that may signal that the registration company will be able to meet their short-term obligations. Some registration providers use the Float in their bank account for other purposes, like funding their own expenses or to handle seasonal variability with their businesses. If the business of a registration provider is declining you could see a slow down in your payments if they need to use the float to fund their operations.

A simple example of this might be a registration company that has collected $1M of race fees each month, but holds onto that money for an extra month. They have $2M of current liabilities – money they owe races for last month and this month. If the company only has $1M of cash on hand, then their Current Ratio is 0.5. In essence, they are using race money to finance their operation. This can be OK as long as revenue remains stable, but declining revenue can catch up with this. For example if they only bring in $800K of race fees this month, they will not be able to pay the full $1M from last month. This is typically what is happening if you see delays in your payments from registration vendors (and we have heard the horror stories of not being paid by some vendors, which is why we are brining this up).

RunSignUp has qualified to become a payment facilitator and processes most of our registrations and payments through sub-merchant accounts that we maintain for our races at Vantiv or Braintree Marketplace.  With these accounts we never handle your money and those registrations proceeds never pass through our bank account or our balance sheet. We do have some races that use a legacy processing option with RunSignUp that do pass through our bank account but these represent a minority of our business and we encourage all of our races to move to a Vantiv or Braintree Marketplace account. Additionally we do not use your money to support our business and we maintain a current ratio that insures this.

Our April 2016 financials show a current ratio for RunSignUp of 1.17. This means we had enough current assets on hand to meet 117% of our current liabilities. Said another way, for every $100 we had not yet paid out to Races and Partners we had $117 in the bank.

If you are not using RunSignUp ask your current registration provider if they are processing your registration proceeds through their own bank account and balance sheet. If they are ask them for their current ratio. If the number is less than one you should have some concerns about whether or not that company is using your money to fund their business.

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