At this time of year, I have often feel very much like Sgt. Schultz of Hogan’s Heroes when he said “Nothing-I know nothing!” The excitement of the end of another school year and graduation easily fades to the pressure of: What will next year look like financially?
For Heads of School, Boards, and Finance Committees, the ongoing angst over budgets and enrollment can be daunting and produce a series of pressure points. If only during the budget and tuition setting process, God would verbally tell us what enrollment for the next year would be, it would be so much easier. Unfortunately, I don’t recall any scripture that instructs us that service in God’s kingdom work will be easy. How then should we proactively and thoughtfully proceed through what can be a difficult and confusing budget process? An effective budget process considers far more than numbers on a spread sheet Following are several thoughts that I hope will help.
STICK TO THE MISSION. Unfortunately, there are far too many institutions that have strayed from their mission for the hope of economic gain, only to find that all that glitters is not gold. Very few schools that stray from their mission every return to the God honoring principals that were the basis for the founding of the school even with a balanced budget.
BE GOOD STEWARDS. Take every opportunity to thank God for all he has provided, and to seek his direction for the best way to utilize the resources that He has entrusted to us. Good stewardship should be applied not only to finances, but to facilities, faculty, and community relationships as well.
KNOW THE NUMBERS.
The impact of re-enrollment and new enrollment are of critical importance. The budgeting process, in great part, depends on how many students are expected for the coming year. The following chart is an example that may help you as you analyze your expected enrollment.
Depending on how you are structured, it may also help do prepare similar calculations for each division of your school – i.e. Elementary, Middle, and High School.
Significant costs and income such as personnel costs, overhead expenses and annual fund giving are key factors for any school budget. Decision makers should keep each of those in mind as they budget. It is amazing to watch how these variables are all closely tied to enrollment. When enrollment is strong, personnel and overhead costs are more easily covered, and annual fund donations are usually higher, because of a larger donor base. The opposite is also true when enrollment is weak.
Granting of tuition assistance is typically a very delicate balancing act. It can be a key in allowing mission-fit students, who would otherwise not be able to afford tuition, to attend school. These tuition assistance students often provide critical numbers that improve the quality of various school programs. However, good stewardship requires that assistance grants be given judiciously. Caution should be exercised over the granting of tuition to any student, whenever there is an open seat. Many schools experienced problems and some had to close after the Great Recession of 2008-2009, because they lost many full pay students, while retaining virtually all of the tuition assistance students. Each school should determine a tuition assistance policy that fits with its mission, and then follow it intentionally.
HAVE A CONTINGENCY PLAN. Knowing the numbers and documenting a budget won’t result in a budget being achieved; however, they are a valuable tool to help understand the impact when actual results vary from budget. Therefore, when budgets are being prayed over and set, a review should be made based on: What if? For example, if enrollment is 10% less than the budget, what adjustments will need to be made? If enrollment is at budget, but annual fund giving is not at the expected level, how will we proceed? If there is a large unexpected repair, how will it be paid for?
Many contingencies can be covered by the funding of reserves. Even though it requires ongoing discipline, building cash reserves of up to 10% of the budget are a sign of good stewardship. Such reserves will cover many contingencies that would cause schools without reserves to struggle.
BE STRATEGIC. Hopefully, your school has a strategic plan that is being implemented over a number of years. It is important that the budget provides for the strategic initiatives in the plan. It is also a very good idea for the budget to go beyond one year. Even though tuition is typically set for only one year at a time, the budget process should provide a look beyond one year, to assure that the strategic plan will be provided for.
KEEP THE PROGRAM STRONG. Even though this article primarily relates to budget matters, one of the primary determinates of the budget, is a strong school program that families feel is worth investing in for the benefit of their children. Therefore, even in difficult financial times, keep in mind that you can’t cut your way to prosperity. Yes, there are times when programs need to be right-sized based on enrollment; however, indiscriminate cutting will likely result in a weak program that will not justify the tuition, resulting in even less enrollment.
CAREFULLY CONSIDER BUILDING PROGRAMS. Building new facilities can be a sign of a great program that is experiencing growth. However, many schools have experienced myriad problems because they entered into a building program that wasn’t justified by current or projected enrollment and/or without a solid capital raising plan. The result is that a significant portion of the budget is required for debt service and overhead on facilities. Please be careful of the “if we build it they will come” mentality. Prior to any building program there is a need to spend a significant time in prayer and seeking wise counsel.
BMSG is dedicated to helping schools break the reactionary, annual budgeting cycle. We have all heard that Jesus talked often and directly about money because He knew of the struggle that takes place between our head, heart and wallets. Funding a Christian school is not an easy task but a worthy one. Please let us know if we can help you develop a process which represents effective stewardship for your school and your school families.
- Dave Morris, CPA
BMSG Specialty Associate – Budget and Finance