Financially Sustainable Schools Six Steps to Re-engineering Your School’s Financial Future

1. Financially Sustainable Schools Six Steps to Re-engineering Your School’s Financial Future Corey McIntyre, NAIS Chief Financial Officer

2. Your Financial Challenges ?

3. Independent School Goals Sustainable, Excellent, and Affordable? • NAIS school tuitions increasing faster than cost of living • Average of CPI +3% 1995 - 2005 • Parents demand highest quality • Improve quality = add cost • Add cost = raise tuition • Accessibility threatened • John Maynard Keynes: “Animal Spirits” of uninformed optimism or pessimism

4. Cost Disease Model – W. Baumol1 1 1966 William Baumol, William Bowen. Performing Arts: Economic Dilemma

5. Group Problem-Solving Approaches

6. Data-driven Decision Making • 19th century Rx: Leeches • Pierre-Charles-Alexandre Louis (1830) • Mortality Rates for Treatment of pneumonia77 patients: • Leeches used early: 44% • Leeches used late: 25%

7. RIGOROUS ANALYSIS & INFORMED DEBATE DATA & Other Sources STRATEGY FEEDBACK

8. Truth “Truth never damages a cause that is just.” Mahatma Ghandi

9. The Six Steps • Trend analysis • Ratio analysis • Ten financial planning assumptions • Data markers of school success • Re-engineering strategies • Projecting alternative & preferred financial futures

10. Step 1: Trend Analysis Where have you come from, where are you going? • Key questions: • 5 and 10 year trends • Projection of trends into future • Defining benchmark group • External trends • Tasks: • Run your numbers • Compare to others • Collect environmental data

11. Core Sample Trends * Dollars adjusted for inflation.

12. National Admissions Trends

13. % of Filers Income Range Source: School and Student Service for Financial Aid (SSS) processing system data Shifting Aid Applicant Pool

14. Sample Trend Analysis • NAIS Trends understood • What about your school • Extending StatsOnline with Excel

15. Long Term Trends • Annual giving average up 24% 2002 to 2005 Average gift and participation rates: • Current parents $1,000 63% • Trustees 5,150 93% • Alumni 358 16% • Grandparents 705 0.3%

16. Sample NAIS School

18. Step 2: Ratio Analysis Snapshot of ratios vs. benchmarks • Key questions • Establishing benchmark measures • Understanding differences • Strengths/weaknesses • Tasks • Run reports - Online Financing Schools Calculator • Pursue resulting lines of inquiry

22. Honor success with caution “Even if you're on the right track, you'll get run over if you just sit there.” Will Rodgers 1879-1935

23. Data-informed questions • Tuition and financial aid lower than peers • Charging too little? • Charge more and increase the number of students receiving aid and the aid amounts? • Annual giving per and special events income lower than peers • Opportunity? • “Other income" better than peers • Why? Can this continue? • Salaries and benefits expenses competitive even with smaller budget • How. Can this continue?

24. Data-informed questions • Higher student per faculty ratio than your benchmark schools. • Sustainable? How do you know? • Efficient student to teacher ratios and lower average salaries. • Why? Younger faculty? Clever scheduling? Faculty morale and recruiting time-bomb? • Lower student to administrator ratios • Why? Advantage or inefficiency? • Annual giving participation for parents and trustees favorable, but average gifts are lower. Why? Improving? • Alumni participation rate is extremely low. Opportunity?

25. Data-informed questions • Admissions funnel less competitive; student attrition is slightly higher. • External and internal surveying and marketing needs? • Non-compensation expense per student (i.e., program and instruction-related budgets) is nearly 25 percent lower. Concern or strength? • Endowment per student is significantly lower. Improvable?

26. Step 3: Ten Financial Planning Options Objective assessment of your position on ten key continua • Key questions: • Where do you fit in the market? • Where to want to be? • What fits your mission and inherent strengths and opportunities? • Tasks: • Study, interpret and debate all of the above

27. Ten Planning Assumptions • Class size • Facilities, equipment & technology • Debt • Giving • Alternative revenue streams • Market position and pricing • Affordability • Tuition dependency • Staff salaries • Program and staff

28. Market Position and Pricing • Factors to understand: • Demand, demographics, family incomes • Attrition, signs of pushback on price • Mission imperative relative to tuitions • Pricing strategy options: • Higher: 5% and above • Moderate: 3 to 5% • Low: Less and 3%

29. Affordability *Minimum income to pay tuition at amount listed. Assumptions: Using SSS Methodology for a family of four, two parents, two children, parents age 45, both work, no assets - parent or student, DC state/other taxes, no COLA

30. Selected Planning Assumptions • Faculty salaries • Market trend, future expectations • Competition from public schools • Climate advantage • Attrition, age of faculty • Hiring practices • Class size • Scheduling options • Faculty load • False perceptions and sacred cows

31. Selected Planning Assumptions • Facilities, equipment, technology • Age, deferred maintenance • Maintenance cost • Technology integration • Giving • Capacity • Friend raising, seed planting • Expectations and objections

32. Step 4: Ten Data Markers of Success Define numerical markers to measure progress toward goals. • Key questions: • Measures of educational success • Alignment of budget to those measures • Proxies from successful schools • Tasks: • Determine where you stand relative to markers • Define your basic assumptions

33. NAIS Data Marker Guidance • Use to provide context • Indicators that inform, not goals themselves • Understand inter-relationships • Learn to reconcile adjust accordingly • Mission • Location • Endowment • Market position • Avoid ratio envy

34. Ten Data Markers of Success • Market demand • Greater than 2.5 applications per opening • Annual attrition • < 7% day students; < 10% boarding • Giving • Parents: > 65% participation, $1,000 average gift • Alumni: > 20% participation, $300 average gift • Trustees: > 95% participation, $5,000 average gift

35. Ten Data Markers of Success • Competitive faculty salaries • Affordable tuition, moderate increases • Financial aid 20% to 25% students receiving aid Average award 50% of tuition • Students ratios > 10:1 to faculty > 6:1 total staff

36. Ten Data Markers of Success • Professional development and technology > 1% of budget for professional development > 2% for technology • Value of endowment > $25,000 per day student > $250,000 per boarding student • Student outcomes > 95% matriculate to college > 95% graduate from college, less than 6 years

37. Step 5: Re-engineering Strategies Develop plans to pursue the objectives you have set • Key questions • Priorities, biggest vulnerabilities • Communication strategies • Tasks • Team or task force formation • Entrepreneurial opportunities

38. Possible Strategies • Grow enrollment (without growing staff) • Capitalize upon intellectual property • Full utilization of physical assets • Enhanced fundraising to build endowment • Increase “productivity” • Moderate the arms race for new facilities • Sunset programs. Undertake periodic “sacred cow” hunts.

39. Revenue Enhancement • Grow enrollment (without growing staff) • Capitalize upon intellectual property • Calvert School (MD): curriculum for home-schoolers (net $1.5m/yr). Now one version of website in Russian. • Elmwood Franklin (NY): Achieve! Storefront Tutorials (projected $100K/yr.) • St. Richard's School (Indianapolis): auxiliary education center for tutoring, technology, adult education, testing preparation (SAT), GED

40. Revenue Enhancement • Capitalize upon intellectual property (con’t) • The Norman Howard School (NY) -- EnCompass: Resources for Learning, struggling learner assessment, coaching, tutoring, college LD assessment & guidance; training/consultation for schools; community workshops and seminars. • San Francisco School (CA): Kids Battle the Grown-Ups trivia game co-authored by 6th graders. Net $70K royalties so far. 2nd game, Kids Rule, now carried by Wal-Mart and Toys “R” Us.

41. Revenue Enhancement • Full utilization of physical assets: • Lake Forest Academy (IL): Outsourcing to Sodexho weddings ($500K/yr); sale of adjoining property to high-end developer for endowment • Shattuck-St. Mary’s (MN): Building a golf course on adjacent property and selling lots (Net $2M in first year). Also rentals of ropes course for corporate outings. • Many schools: adult ed in evening; sports clubs during class time & weekends (See the “Money” issue of Independent School-Fall 2003.) • Georgetown Prep (MD): Luxury apartments on 3 acres of leased property (Income = $1.3M year on 99-yr lease.) • Hilton Head Prep (SC): Women's wellness Retreat (Summer Session for Moms and their teenage daughters); also: homeschoolers can take one course at the school for 1/5th tuition.

42. 2006 Non-Tuition Revenue Survey • Key Findings • Most common: summer programs (78%), auctions (72%), and extended day programs (63%) • Least common: adult learning (5%), intellectual property (1%) and franchising (0.6%) • 36% cited auctions as most significant source of income • Only 2% exhibited net loss from operating the program(s) • 75% cited “operations” as the program financed by the revenue; 2nd most frequent was “financial aid” (23%) • Full report www.nais.org. More research to follow.

43. Revenue Enhancement • Enhanced fundraising to build endowment • Serious deferred giving programs: e.g., most boarding schools. • Grow endowment via a combination of allocating to endowment 1/3rd of all capital campaign, annual giving, and special event proceeds to endowment and/or a commitment of 1-3% of annual budget contribution to endowment.

44. Step 6: Projecting Preferred Scenarios Project financial alternatives; quantify impact of various strategies. • Key questions: • Impact of plans to bottom line • Likely, possible, and preferred financial futures • Decisions required to reach preferred financial future • Tasks: • Run numbers using NAIS Financing Schools Calculator

45. Step 6: Projecting Preferred Scenarios Different assumptions for different projection runs: • First: Change nothing. Last five years' budgetary trends for the next five years. • Second: Reflecting all your goals from step 4 (Data markers of success) • Third: Balancing and making choices

46. Sample NAIS School, Anywhere, USA

48. Sample NAIS School, Anywhere, USA