Strategic Budgeting

It’s the middle of January, and you’re frantically preparing for Catholic Schools Week, the pinnacle marketing effort of Catholic schools across the country, or perhaps for Christian Schools Month next month.  But there are other forces at work – in the business office.

The budget year has a process right in the middle of it called forecasting.  It takes a look at the first six months of the year and the funds that were spent, and forecasts how much money will be saved or lost if the next six months are like the previous six months.  Unfortunately, for most schools, the most difficult month to collect tuition funds is January, when all the holiday bills start coming due.  The second half of the year is also the time that most schools expend dollars on marketing efforts for the coming school year.  Forecasting hopes that the second half of the year will be a lot like the first; however, with potential lower revenue and potential higher expenditures, by the time April comes along, many schools are making other kinds of plans…to merge or close.

This is also the time when your school’s administration and board is going to start budgeting for the coming 14-15 school year.  It was said that 5 years ago (the 09-10 school year) would be one of the most difficult years we’ve ever known due to our nation’s and the world’s economic situation.  It seems to me that the same thing has been said about every year since.  There is some good news, though, but we’ll save that for another day.

Unprecedented times call for unprecedented measures, so here’s some radical thinking to ponder. Most likely, you’re operating your school year on revenues that are received during that same year. Tuition capture is most important because it pays the bills for the year. When revenue falls short, the amount of debt needs to be dealt with (or accumulates to the point that the school closes).  The lifeblood of any business is cash flow…enough money coming in to meet the due financial obligations.  If there is no cash flow, and credit or an influx of funding cannot be obtained, the business dies.  Whether you like it or not, if your school charges tuition, it is a business, proven by this simple principle.

If cash to meet obligations is essential to your existence, perhaps consider a model that generates your revenue the year before you use it!  It will make for some easier budgeting and rational decision based on facts rather than hope. You could do this over 5 years by adding 20% of your budget to your current year, and for the next four years. Don’t use the increase in funds – just put it on the side, and put the additional 20% on the side for the next four years. If you’re operating on a subsidy model, this will increase tuition by 40% – which is very scary. However, if there is an education piece around it, understanding can be generated. You can also consider moving your subsidy to financial aid based on need rather than an across the board reduction in the cost of education.  You might also want to consider a very long-term approach, and increase tuition 10% per year over the next 10 years, and put the additional 10% generated on the side every year for year 11.  Such thinking also demonstrates that there is a vision for the school, and planning is being put in place for continued success, rather than just hoping the school will be open next year.

Granted, this is a major shift in thinking from what all schools have been used to for the past 100+ years, but our economic circumstances have also changed. Schools must also examine actions in Development, Retention, Enrollment, Asset Management and Marketing strategies to see if they are effective, how they can be improved, and perhaps implement new initiatives to reach enrollment and revenue goals. If you’ve never done this type of analysis before, well…you have some homework to do.

© Michael V. Ziemski, SchoolAdvancement, 2009-2014 (Original Publication Date: 20090112)