Financial Management |
Article by Elizabeth Dabney
From the July/August 2021 Net Assets magazine
The published tuition price at independent schools is often less than the cost to educate each student, creating a gap and leading schools to start the year at a financial deficit. The gap increases when schools discount tuition through financial aid, merit scholarships or tuition remission.
Based on data from Business Intelligence for Independent Schools (BIIS), the median gap per student, or the difference between total operating expenses per student and net tuition and fees per student, was $4,315 in 2019-20. The median gap per student at schools with boarding ($13,942) was more than three times higher than the median at day schools ($3,580).
Beginning this summer, your school will enter data in NAIS’s Data and Analysis for School Leadership (DASL) that will feed reporting in both DASL and NBOA’s Business Intelligence for Independent Schools (BIIS). BIIS/DASL financial operations data collection will take place October 26 through November 19. Read more about the partnership here.
To mitigate the risk the gap places on the budget, schools usually plan to fill the gap through strategies such as annual fundraising, drawing from endowment or using income from auxiliary programs like summer programs or facility rentals. However, these revenue sources do not always fill the gap. In fact, median annual giving per student was $1,255 in 2019-20, which covers less than one-third of the gap.
In analyzing BIIS data on the gap, I identified NBOA member schools that have been successfully making progress in closing the gap.
I interviewed Elizabeth Rogers, senior financial controller at Rochambeau, The French International School (a PK-12 day school in Maryland); Nancy Greene, vice president of finance and operations/chief financial officer, at Pine Crest School (a PK-12 day school in Florida); and Dr. Randy Bertin, head of school, and Paul Silva, chief financial officer at Cushing Academy (a 9-12 boarding/day school in Massachusetts) to learn more about their schools’ efforts to close the gap.
What I found most interesting was that none of these schools focused on filling the gap. They concentrated their efforts on closing the gap through strategic and intentional fiscal management that was not just the responsibility of the business office.
Some of their other lessons learned about closing the gap include:
Practice patience. Closing the gap requires time, commitment and a sustained effort, so patience, focus and discipline are important when doing this work. It is crucial for school leaders to drive efforts to close the gap and model these qualities.
Make a plan and stick to it. Closing the gap is not simply a matter of managing the budget. These schools were deliberate in their work to close the gap and put rules in place to help them stay on course.
One school set specific guardrails around the budget that could not be violated. For example, an increase in net tuition revenue had to be equal to, or exceed, an increase in expenses. Any deviation from the guardrails required a board-level conversation. This school also set three clear financial goals that were tracked over time, such as having positive net income from operations.
Another school developed a business plan that helped it see how implementing a new program would affect the school’s enrollment, savings and expenses. Following this plan helped them make decisions about when and how to put new ideas into place in a cost-effective way.
Manage expenses with an eye toward closing the gap. The key to managing expenses at one school was implementing a formal process to preapprove expenditures. Even if the expenses were accounted for in the budget, this step meant that everyone was being mindful of what they were spending and living within the budget. However, these schools caution that expenses should not just be cut. Rather, a balance should be sought between closing the gap and continuing to invest in the quality of the school’s program and facilities, ensuring that there is continuing demand from families to attend the school and keep enrollment robust.
Take a team approach. Being a good steward of the school’s financial assets is everyone’s job. While the head of school, business officer and business office staff play a vital role in financial management, these schools made sure that all faculty and staff understood that they, too, had a role to play in closing the gap. From the facilities department to academic areas to the board of trustees, everyone is tasked with making informed financial decisions.
Provide communication, transparency and education. To help everyone make informed financial decisions, these schools recommend that board members, faculty and staff all receive regular financial updates and information. One school gives faculty and staff financial presentations that are similar to those given to the board. The head of school and business officer provide updates on admissions, enrollment, fundraising, budget forecasting and the importance of sticking to the financial plan.
For these schools, closing the gap has been more than just a strategy to ensure financial sustainability — it has provided the freedom to use financial resources in new ways. Instead of relying on annual giving to fill the gap, these dollars can be used enhance programming and enrich the student experience. Freed up funds can be put toward reinvesting in faculty and staff with new professional development opportunities or tackling deferred maintenance.
Closing the gap provides schools with stronger financial footing, leading to benefits such as having a fiscal cushion during a difficult pandemic year or obtaining better financing to build a new campus. Most importantly, these schools can advance their missions in more meaningful and long-lasting ways.
Download a PDF of this article.
Projections: Tuition Discounting in Unprecedented Times (Jun 2021)
NBOA Schools Netting 82 Cents on Sticker Price (Jun 2021)
Time To Vet a Reset? (Mar/Apr 2021)
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