The closing of RaceIt in November may prove to be the canary in the mine for registration companies in the declining race registration business. There are now rumors of another failing registration company, and there could be more coming. The real harm comes to the races, with a number of fairly large races being owed hundreds of thousands of dollars.
So how does a race determine if the vendor is financially sound – ask a simple question:
What is your current ratio?
We wrote about current ratios in the spring when we started getting information that there was a coming consolidation. It is a simple calculation of Current Assets divided by Current Liabilities. Registration companies are mostly pretty simple in this respect – they have money in their bank account and divide that by the money they owe employees, races, partners. affiliates and short term loans. If this falls below 1, then they will need financing. And there are a decreasing number of places to source the financing, and less willingness for banks to extend lines of credit against falling transaction volume.
You want to get a couple of data point for this. For example, the RunSignUp Current Ratio was 1.80 at the end of November and 1.02 at the end of December. We distribute our employee profit sharing bonus at the end of the year, and December is the worst revenue month in the race registration business so we lose money in the month as well. Here is a month by month look at our numbers in 2017. We like to run fairly close to 1 because we want to keep investing in our growth rather than hold the money in our bank, although we account for the seasonal dips in July and December as well as our big costs of putting on our Symposium and the profit sharing bonus at year end.
This is a fair question to ask a company. Some may not want you to see their revenue or expenses or net profit as they might view that as strategic and confidential information that might fall into competitor’s hands.
This is a valid question even if you have your own merchant account and receive the money directly from Stripe or Braintree or Vantiv. The reason is if the vendor is not financially stable, they may not be able to keep their servers up and running, and there is a risk of losing your data and potentially missing registrations while you scramble for a new vendor. We helped hundreds of races move to RunSignUp from RaceIt and a number of them were scrambling.
As a race director, you have a fiduciary responsibility to the benefactors of your race to make sure they receive the funds generated from your event. And you have the right to this information. Likewise, registration companies have a right and obligation to view your financial information as well, as you can read about in the companion blog about why we ask for financial information.