what trustees and heads need to know (and should be talking about) november 8, 2015 financial...

WHAT TRUSTEES AND HEADS NEED TO KNOW

(AND SHOULD BE TALKING ABOUT)

NOVEMBER 8, 2015

Financial Sustainability

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

THE CHALLENGES

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

Selected National Issues

Drastic increases in demonstrated need in recent years, including families who did not historically need assistance

Slow economic recoveryReduced enrollment/not at capacitySubstantial debt serviceIndividual faculty/staff compensation has not

increased at a sustainable pace…losing ground

Demand for student services continues to increase

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

The Economy

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

NAIS Trendbook 2015-2016Americans feel their personal situation is not

as good as before the Great RecessionHousing/real estate costs increasing at a

faster pace than wages (true for tuitions?)Wealth gap is wideningRegional economies continue to affect

enrollment patterns (stronger economy = stronger admissions)

The Market

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

NAIS Trendbook 2015-2016Increased Competition from:

Charter Schools Specialty Public Schools For Profit Schools Home Schooling Online Programs

Families of all income levels having difficulty affording independent school tuition(s)

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

RESULT: % of children enrolled in

independent schools nationally is declining

The Financially Sustainable University

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

Jeff Denneen and Tom Dreiler with Sterling Partners and Bain and Company

“Institutions have more liabilities, higher debt service, increasing expense without the revenue or cash reserves to back them up.”

“Operated on the assumption that the more they build, spend, diversify and expand, the more they will persist and prosper. But instead, the opposite has happened: institutions have become overleveraged.”

The Merry-G0-Round

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

Tuition Increases

Beyond CPI

Increasing Financial Aid

Increasing Student Services

Faculty/Staff Compensatio

n

Values Proposition

DATA

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

DASL – Day Tuitions

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

Source: NAIS and U. S. Dep’t of Labor

Average yearly CPI increase for the past 12 years is 1.96%.

Think of your school. Have you had a tuition increase in any given year that was less than 2%?

It’s not just about affordability, but about managing expectations.

Tuition Increases: CPI versus Reality

2002 2013 (CPI Only) 2013 Actual

Grades 1 & 3 10912 13721 18212

Grades 6 & 8 12465 15673 20148

Grades 9 & 12 13795 17700 22700

$2,500

$7,500

$12,500

$17,500

$22,500

Axis Title

DASL – Average Financial Aid Grants

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

DASL – Annual % Change

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

DASL – Net Tuition Revenue

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

DISCUSSIONS AT YOUR SCHOOL

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

Get Started!

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

No silver bullet and no one size fits all!Purposefully thought provokingIntentionally controversialConsider the following in the context of your

mission and culture…they MUST be your guideposts!

All opinions respectedNo sacred cows

NBOA’s Spectrum Project Report: High Performing Schools

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

Summary in Net Assets, Nov/Dec 2014Qualitative and Quantitative research study

intended to reveal the “distinct characteristics of high performing independent schools.”

A mix of independent school leaders, NBOA staff and research experts from McKinley Advisors

Phase One: Define independent school financial health

Phase Two: Surveys – 167 NBOA Member Schools

Phase Three: In-depth telephone discussions with 20 schools

Headline…

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

“HIGH PERFORMING SCHOOLS: Focused on Outcomes, But Flexible in

Achieving Them”

Courtesy of NBOA

Common Traits Among High Performing Schools(courtesy of NBOA)

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

Lean Fewer students Approx. half as many administrative, non-teaching

staffCollaborative and Focused on Clarity

Clear expectations Strive to build consensus Work hard to explain critical matters

Academically RigorousGuided (not governed) by the Strategic Plan

Have a strategic plan Guide to achieve the outcomes

Traits, continued (courtesy of NBOA)

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

Debt-Averse Use debt very conservatively

Disciplined Endowment Draw Less likely to have altered in the last 5 years

Focused on Benchmarking Define success and measure it Benchmark against a cohort of a few local schools vs.

national Scrutinize enrollment trends in evaluating

performanceTop-Down Decision MakingQuality, not Quantity, in Budget Training

The Financially Sustainable University

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

Liquidity issues arose because we succumbed to the “Law of More”

Must reverse the “Law of More” By Developing a clear strategy, focused on the core Reducing support and administrative costs Freeing up capital in non-core assets Strategically investing in innovative models

Focusing on the Core

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

“It is the area where they are clearest about the value they add.”

Differentiation pointIdentityCulture“the strategic anchor”

“In any industry, there are 3 primary paths to competitive advantage: differentiation (product), low cost (price) or structural advantage (process).”

Admin, Capital and Innovation

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

Reduce support and administrative costs Cut from the outside in (build from the inside out) Look for economies of scale/outsourcing Perpetual enrollment contracts?

Free up capital in non-core assets Perhaps less of an issue for independent schools i.e. real estate, heavy facilities equipment, etc.

Strategically invest in innovative models ICS: BLinc GDS: Campus Master Plan includes real estate

alternative rev

21st Century Schools (ISM)

Decide whether you are a price, product, or process school (you can’t be all 3!)

Acknowledge that the 20th century “factory” model of education will not prepare students for the 21st century

Design a 21st century school that individualizes learning using technology

Dedicate 2% of your budget to faculty professional development

The “P”s Definitions

A PRICE School:Differentiates itself on price aloneIs a price leader in it’s area (lower)Typical student:faculty ratio 16:1Can charge average tuition of $7,000When something new is proposed, asks:

“what will this do to my price?”

Product Schools

A PRODUCT School:Assures that nearly all graduates will go on

to a selective collegePractices highly selective admissionTypical student/faculty ratio 10:1Can charge average tuition $20,000When something new is proposed, asks:

“what will this do to my college admissions?”

Process Schools

A PROCESS School:Has programmatic uniquenessPut students at a variety of academic levels

through curricular and co-curricular program tailored to student

Typical student:faculty ratio 8:1Can charge average tuition $25,000When something new is proposed, asks:

“does it make our program richer or more valuable to a wider market”

DEBATE THE PROPOSITIONS

Debatable Propositions

Purposely Controversial

Can take a stand: for or against

Can spark new thinking around both long-held beliefs or revolutionary concepts

Can eradicate “cherished theories”: things you believe, but have no evidence to support

RECOMMENDATION: gather data and respectfully debate based on facts

Linda Myers Dennison, CPA independent school sustainability strategistlpmdennison@gmail.com

For example…

1. The value of the smaller class experience is not as great as the cost.

or…

2. Financial aid should only be used in service of mission, not to increase enrollment.

and…

3. The cost of technology exceeds the value it provides.

how about…

4. Schools need to fully fund depreciation in order to ensure the long-term sustainability of their facilities instead of relying on philanthropic donations.

And don’t forget…

5. A school that stays within the 20th century educational paradigm--including keeping a 9-month academic calendar, considering enrollment a single-unit sale, ignoring true environmental sustainability, and ignoring virtual learning--will fail.

GATHER DATA!!! WHAT DOES THE

DATA SAY? DISCUSS FACTS!

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

BUT AS YOU DISCUSS…

Are You Tracking These Financial Indicators?

Revenue Diversity (NBOA and NAIS)

The gap the cost to educate a student at your school and

net tuition as well as Gross Tuition vs. Net Tuition (NBOA Financial Position Survey)

Financial Aid and Tuition Remission as a % of gross tuition revenue (NBOA Business Office Survey, Financial Position Survey and school’s own data)

Expendable Financial Resources: the “reserve” which a school has on hand to cope with a short-term financial shock. Expendable financial resources provide a way for a school to invest in new programs or facilities. (NBOA Financial Position Survey)

Market Demographics (NBOA and NAIS)

FTE / Student Ratio (NBOA and NAIS)

Demographics- An example

2012 projected 2017Connecticut 6,407 10,330 New Jersey 15,094 25,180 New York 23,290 38,415

Families with one or more children aged 14-17 and income over

$350,000

Source: NAIS Demographic Center

You need to know your region.What are the trends in terms of students: Kindergarten bust or Middle School explosion.

What about income levels? Where are the families who are most likely to attend your school?

AND REMEMBER…

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

Adaptability

“Executives today face two competing demands. They must execute in order to meet today’s challenges. And, they must adapt what and how things get done in order to thrive in tomorrow’s world. They must develop ‘next practices’ while excelling at today’s best practices.”

Harvard Business Review July/August 2009

Timeless Principles vs. Daily Practices

“How we deal with change differentiates the top performers from the laggards. But first we must know what should never change. We must grasp the difference between timeless principles and daily practices. Again, most sustainable change is not about change at all but about discerning and conserving what is precious and essential.”

-Harvard Business Review July/August 2009

What Makes Your School Unique?

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

Why Indian Creek? Why now? All constituents: students, faculty, parents…do they

answer the same? Is it mission/culture consonant?How do you define success?

NOT just financial: programmatic, personnel, others ICS: Cohorts, Organizational Learning

Can you change something in your business model and achieve greater “success”?

Adaptability in School Culture

Create a culture that embraces “courageous conversations” and depersonalizes conflict

Create common language to discuss sensitive issues

Create an environment that allows for experimentation (without recourse)

Distribute leadershipMobilize the community to generate

solutionsCollaboration!

Facilitating Change

Conversation may start because of constrained resources

Discuss/identify core mission, values, and timeless principles

Review the school’s current budget to ensure alignment or to discuss realignment and steps required– no sacred cows!

Amount of budget is not a value indicatorEncourage “experiments”Collaborate on results

Something to Consider

“Embrace Disequilibrium. Without urgency, difficult change becomes far less likely. But if people feel too much distress, they will fight, flee, or freeze. The art of leadership in today’s world involves orchestrating the inevitable conflict, chaos, and confusion of change so that the disturbance is productive rather than destructive.”

Harvard Business Review, July/August 2009

My Contact Information

Linda Myers Dennison, CPA independent school sustainability strategist lpmdennison@gmail.com

Linda Dennisonlinda@lpmdennison.com443.271.2262

Associate Head for Finance and OperationsIndian Creek Schoolldennison@indiancreekschool.org443.343.1111

READ MORE ABOUT IT

Trendbook 2015-2016, National Association of Independent Schools, 2015. Future State 2030: The Global Megatrends Shaping Governments: KPMG. Available at

www.kpmg.com/government NBOA’s High Performing Schools, Net Assets, November/December 2014. The Financially Sustainable University, Jeff Denneen and Tom Dreiler, Bain and Company

2012. NBOA’s Report on Independent School Financial Sustainability, a whitepaper

summarizing the discussions, ideas, and follow-up steps from the conference Igniting the Vision, an NBOA PowerPoint presentation summarizing the major points from

the conference Direction? Full Steam Ahead, the ISM and Measuring Success PowerPoint presented at

the conference by Terry Moore, Director of Consultants, ISM (see below for additional slides, “Full Steam Ahead Part 2”)

Debatable Propositions by NBOA—the original six debatable propositions shared at the conference

IAFM Reading Material, a collection of key papers and articles on financial sustainability The New Normal: A Game-Changing Model for Financially Sustainable Schools by Patrick

F. Bassett, President, NAIS. NAIS members can click on the link above, log in, and download the presentation.

Full Steam Ahead Part 2: Cutting-Edge Research and Opinion for Excellent Independent Schools by ISM and Measuring Success. Available for free public download.

Igniting the Vision: What Will Make Your School Financially Sustainable? A presentation summarizing the work of IAFM

READ MORE ABOUT IT

Lipton, Mark. Guiding Growth, How Vision Keeps Companies on Course, Harvard Business School Press, Boston, MA. 2003.

Berry, Leonard L. Discovering the Soul of Service, The Free Press, A Division of Simon & Schuster, Inc. New York City, NY. 1999.

Blanchard, Kenneth and Peale, Norman Vincent. The Power of Ethical Management, William and Morrow Company, Inc. New York City, NY. 1988.

Drucker, Peter F. Managing the Non-Profit Organization, HarperCollins Publisher, Inc. 1990.

Bernardin, John H. (2003) Human Resource Management: An Experiential Approach Third Edition. McGraw Hill Irwin.

George, Bill; Sims, Peter; McLean, Andrew N. and Mayer, Diana (2007) Discovering Your Authentic Leadership. Harvard Business Review, February, 129-138.

George, Bill and Bennis, Warren G. Authentic Leadership: Rediscovering the Secrets of Creating Lasting Value, J-B AHA Press, 2004

My Go To Resources

www.nboa.net PD, Library, Toolkits, Data, Forums, Net Assets,

Demographicswww.nais.org

DASL, Library, Demographics, Independent School Magazine

www.shrm.orgHarvard Business ReviewBureau of Labor Statistics (CPI)CPA Letter Daily