A few weeks ago, I offered the chance to weigh-in on what I’m providing here at DirtyMouth with a survey. (You can still fill it out here.) One of the things that you wanted were resources that deal with the finances of running a race team. Today, I’m providing a budgeting worksheet specifically designed for you – it’s one of the things that really changed our game over the last few years and I hope it’ll help you do the same.
With budgeting, you can go as simple or complex as you’d like.
Obviously, the deeper you dig into your expenses and earnings, the better you can make decisions about your team. You can estimate how many races you can afford to run, what tracks and series races are worth the tow, and many other things like how many people you can afford to bring to the track with you, how much sponsorship you need to close the gap, etc. You can also see whether you’re making or losing money, and the more detail you go into the more you can see what parts of your program need adjustments.
One suggestion: the earlier you start keeping track of what’s coming in and going out, the more accurate your calculations will become and the better off you’ll be. This means keeping track of everything you spend (receipts are great, and necessary for your tax preparer), and everything you make. I suggest making a photocopy on 8×11 of every receipt (and check!) you receive and putting them in a binder, then stashing the originals in a box. They’ll be easier to reference in the binder and you can highlight and write notes if needed without messing up the original.
Another suggestion is not to sweat the details if you’re just getting started. Don’t read through this entire post before you get to that section of the budget sheet – there’s a lot of information here and you might get confused or frustrated before you even start. And that won’t get you anywhere. Just like on the track, apply the gas when you’re comfortable and the brake when you need to get through the turns. Leave the really complicated calculations to hone your numbers as you get more comfortable in the seat of your finances.
I’m also doing something a little bit different this week. I’m asking for your email address in exchange for this resource. Why? First, if you’re already a subscriber you’ve already received this in your inbox. If not, I guarantee that if you find this valuable, you’ll also benefit from the other resources that I create. I do my best to provide as much value as possible for free, and being on my email list ensures that I can reach you when social networks aren’t running at full capacity. Keep in mind that you can unsubscribe at any time.
How to calculate hard costs:
Let’s use your engine program as an example of how to calculate hard costs. This will give you an idea of how to factor in the purchase price and cost of maintenance for a component that you use every night but don’t necessarily have to hand over cash for. You can apply this to your parts and chassis costs, even your hauler.
I consider these as ‘overhead’ in the business sense of the word because they have to exist for you to race and they’re always there, even if you don’t use them. In fact, the more you race, they less they cost per race. Once you figure out your projected income, too, you’ll know whether you’re making more money or losing more money by racing more.
You should be pretty clear on how many nights you can run an engine between rebuilds, and the average cost of getting your motor freshened each time. There’s a line item for rebuilds on the sheet – if you can get 20 nights out of an engine rebuilt and it costs $8,000 each time you take it to the builder, you know that it costs you $8,000 divided by 20 nights to get $400 per night.
To take it a step further: Just like every other purchase, you can also factor in the hard costs of an engine. For example, if you run your engines for two years, paid $30,000 for it originally and estimate that you’ll be able to sell it for $18,000 when you’re done, you have a hard cost of $6,000 per year. You can then divide that by the average number of nights you run per year. If it’s 30 nights, you have an estimated hard cost of $200 per night. If you’re hard on engines and know that you blow one up every year, divide the average cost of repairs you’ve experienced in the past by the average number of nights you run per year. And God bless you, because I would also have to factor in the cost of a wig after pulling all my hair out.
How to calculate variable costs:
These calculations are a little bit more straightforward. If you change your oil every two nights, just divide what you spend per oil change by two. If you make a Costco trip every month for provisions like paper towels, cookies (look for my trailer at a racetrack near you!), batteries for your Raceiver, and sprays like Windex, divide the costs by the number of races per month. Same goes for fuel, tear-offs, Mudd-Off, and brake and parts cleaner. Even pit passes can be calculated this way – the average cost of a pass and the average number of people you bring with you.
Tires can also fall into this category, but I personally prefer not to apply a straight tires per night formula to this. Our team knows generally how many nights at each type of track they can get out of a tire, so we write those numbers by hand onto our schedule, add them up and increase that number by 20% (I’d rather overestimate and be able to buy an extra tire here and there). Then I divide that by the number of nights we run. It’s a little bit more accurate, but if you’re only running one or two tracks, a straight calculation will do.
Parts and components are a really tricky part of the maintenance and nightly costs that we face. Like most racers, we just try to carry over any extra money we can and set that aside that money for the inevitable wreck or failure. What I suggest, though, is going deeper. If you track your results season to season, you can calculate the average number of DNF’s, and the average cost of each. For example, most sprint car teams will experience at least one flip every season. We know that this will likely destroy a wing, bend a wheel, destroy a tire that may have been usable, etc. The deeper you go, the more accurate your spreadsheet will be.
Oh boy. This one can be all over the map. You can do this with simple math by calculating your average finish over the previous season. Let’s say that’s sixth place. Look at what the track you run at or the series you follow pays for sixth place and you’ve got your average nightly earnings. If you kept track of what you earned last season, you can also just average that over the number of nights you ran. This will produce two different numbers.
You can also do this by track if your performance varies greatly from to another (or, let’s say, you’re more likely to be collected by a lap car at a specific track). If you’re significantly better this year than last, you may want to increase your average finish by 10%. You can also treat DNF’s differently – I calculate how many of those we have on average per season and take that into account. I don’t count tow money because it’s negligible but you can do that if you’d like.
For example, here are a few different scenarios that give you an idea of how the numbers change.
By track: Just starting off this year, our team has an average overall finish of 2.75. Let’s say the average pay for third place is $700. I’d estimate our average earnings at $700 per race. But, I could also do it by track. At one, our average finish is 1.5, so I can either choose that average as first or second place. But there’s a big difference. So I average the first and second place payouts. Let’s say that’s $1,125 for that track. At the other track, our average finish is fourth. We haven’t finished fourth this year and tracks near us don’t release full payout information, but I know from year’s past that might be $550. If you average $1,125 and $550, you’ll get $837.50. That’s higher than our original $700 estimate. To complicate things further, we can actually average what we’ve made so far per year in case there was a higher paying show or bonus thrown in. If you use our sample numbers above, the average pay was $912.50. I usually pick the lowest number, because I’m conservative and I’d rather have money leftover.
So you can see, the more tracks or series you run with, the more payout variables you have. You can also see that concentrating on the tracks where you have the higher pay or higher performance can weight your average significantly. ISN’T BUDGETING FUN?!
Also, you may or may not have a driver expense. If you’re part of a owner/operator team, the driver probably doesn’t get paid anything separate (or at all). But if you own a team in which the driver and/or mechanic gets paid a percentage of the winnings, you can use the variable cost calculator on the spreadsheet.
Marketing, Apparel, and Sponsorship
These are more numbers that might apply to you. Personally, I look at hard, overhead costs the same way I look at sponsorship – it’s one cost or piece of income that’s applied once a year. I usually just apply the income to those costs directly and call it a day. But if your sponsor gives you money or support every time you race, then that’s income that should be factored in by the race.
Apparel is a little bit different, too. I know how many shirts we sell on average per night, and I know the costs of my apparel per piece. This isn’t a straightforward calculation like you might think since there are sales tax, promotional and sponsorship considerations to make here – I’ll probably cover how to get this number in another post. If I sell 10 shirts per night and make a profit of $6.50 per shirt, we earn $65.00 per night. This number, of course, is higher when the shirts debut and lower as you sell out of sizes. It also tends to be higher at touring series races and higher at local tracks at the beginning.
God Speed, ladies and gents! I hope this helps you get started in managing your racing money. This will eventually be a great decision-making tool for your race team. If you need help or have questions, please post them below so everyone can benefit from the answer as well. And don’t worry, there is no question too simple – ask away!!