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Your Everyday Pursuit of Financial Health

By Jeffrey Shields posted 06-04-2019 08:02 AM

  

CEO Notebook |

A few tools can help school leaders and the board understand long-term school finances more clearly, talk more productively and act more proactively.

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Jeffrey Shields, FASAE, CAE
NBOA President and CEO

Like many of you, I have been paying close attention to financial and enrollment trends in higher education, particularly small colleges. A recent Inside Higher Ed article, “Cash, Trends and Denial,” caught my eye because it raises some warning flags about the long-term health of educational institutions. The author, consultant David P. Haney, calls attention to the failure of college accreditation to identify several institutions’ financial strain before it became irreversible, or nearly so. Sweet Briar College, for example, was never flagged by its accrediting agency before it almost closed. Among other measures, Hanley suggests accreditors require colleges to track actual cash revenue and expenses and report operational cash positions each year — in other words, more closely, realistically and regularly scrutinize indicators of financial health.

Given the significant time and resources independent schools dedicate to the accreditation process, it’s worth asking, how can these engagements help schools identify and analyze financial indicators that could reveal threats to a school’s long-term stability?

Without question, the financial health of a school lies squarely at the feet of the board of trustees and the school’s leadership team. Given the significant time and resources independent schools dedicate to the accreditation process, however, it’s worth asking, how can these engagements help schools identify and analyze financial indicators that could reveal threats to a school’s long-term stability?

This past winter, I had the opportunity to present to the International Council Advancing Independent School Accreditation (ICAISA), and I can assure you that this group’s leaders clearly understand the importance of helping schools assess both programmatic and financial excellence. We discussed opportunities for NBOA and ICAISA to work more closely together to support our shared purpose, to help schools secure the financial resources necessary to deliver their missions in perpetuity. While these discussions continue, a few tools and resources from NBOA may help you understand, articulate and address your school’s financial future.

Simply entering current year budget figures into the NBOA Long-Range Financial Model enables you to forecast your school’s financial resources 10 years into the future. Its built-in formulas automatically project tuition increases, endowment draws and enrollment numbers, which you can then manipulate to see potential effects on your school’s financial position. A business officer who used the model with her finance committee shared how it helps illustrate the impact of various revenue and expense levers. Most schools can live with any “bad decision” for a year, this business officer said, but the compounding effect of these decisions may have severe and irreversible results over time. In the same vein, a problem can be daunting or even overwhelming when it is staring you in the face, but if you anticipate it five years in advance, you may be able to change course and avoid it. The Long-Range Financial Model helps you see far enough ahead to plan appropriately and avoid harmful decisions.

Earlier this year, NBOA released The NBOA Financial Dashboard and a tool for schools to calculate and analyze their Composite Financial Index (CFI) score in our data platform, Business Intelligence for Independent Schools (BIIS). Both have been developed so that you, your head of school and the board of trustees can jointly monitor your school’s financial progress using a common language and collaborative approach to the benefit of your school and students.

Accreditation reviews and even annual audits provide valuable opportunities for you to take an objective third-party look at your school and its business and finance operations. Ultimately, though, that is your job. These tools have been developed by NBOA to help you do it more easily and effectively. That’s our job!

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Follow NBOA President and CEO Jeff Shields @shieldsNBOA.
From Net Assets NOW, June 4, 2019. Read past issues of CEO Notebook.

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