Head’s Network - Women’s Leadership Seminar Finance… what school leaders need to know October 18, 2014

You are a finalist in a Head Search. You are wondering about the financial stability of this school…  What questions would you ask?  What sources of information would you seek?  How would you evaluate the data you receive?  Where do you begin?

Graland Mission Statement Achieve intellectual excellence Build strong character Enrich learning through the arts and athletics And prepare our students to be Engaged citizens and thoughtful leaders.

Graland Strategic Plan  Provide a program that brings the Graland Mission to life  Create a dynamic learning community composed of highly effective teachers, administrators and staff  Foster an inclusive community focused on supporting Graland’s Mission and Guiding Principles  Ensure financial sustainability and maintain campus and facilities that optimize Graland’s program  Implement Board governance practices that serve Graland’s Mission

Basic Assumptions  Finance is a key component in achieving the school’s mission  It is a reflection of the school’s true priorities  The Head must be actively involved in all phases of the budget

The critical question is:  Does the school have or can the school generate the resources needed to meet the mission?  Staffing  Financial Aid  Technology  Plant  Program

Budgeting  Budgeting is the allocation of resources required to achieve the School’s mission Bottoms Up Top Down

Strategic Indicators for Independent Schools  Revenue  Expenses  Budget excess/deficit  Enrollment data  Student/faculty ratio  Debt  Capital projects  Financial aid  Faculty profile  Demographics  Deferred maintenance  Annual Fund  Endowment

Who is Involved? Budget Managers *CFO* Head Finance Committee Board What Happens  Know goals from planning processes and multi-year financial plan  Gather input  Start budget building and prioritizing

Timeframe Oct/Nov Input, define assumptions Dec/Jan Preliminary budget approval for tuition setting Jan/Feb Appointment renewals, contracting, budget setting April/May or Aug/Sept Budget finalization Fiscal year usually July 1-June 30

Operating Income

Operating Expenses

Financial Aid and its sources  FA as a % of tuition income / benchmark  Mission based  Discounting to fill seats  Financial Aid Endowment  Restricted Annual Giving

Faculty  Class sizes  Student/Teacher ratios  Class size studies public school – Tennessee, Texas  Gains with smaller class size early grades  No impact after grade 5  Workload  Student facing hours  Prep hours  Extra Capacity - Schedule

Graland Compensation Philosophy Graland Country Day School commits to attracting, retaining and rewarding high- performing employees – those that demonstrate the qualities of innovation, collaboration, professionalism, leadership and actively contribute to further the mission of the School.

Compensation  Compensation Philosophy to drive decisions  Understand marketplace  National benchmarks  Local benchmarks  Demographics of faculty and staff  Family health insurance coverage  Retirement  Employee childcare

Faculty Salaries Benchmark Faculty Salaries11-12 Lowest Median Highest Graland$36,885$53,438$77,976 NAIS Day School (50 th percentile) $37,743$52,275$76,556 Denver Public Schools (Step 1 with BA): $37,551

THEN A MIRACLE OCCURS

Alumni Program  Part-time Alumni Director$35,000  Alumni Expenses$21,250  Total Investment$56,250  Return on Investment:  Annual Fund – 8% Participation$128,000  Alumni Speakers – 6 Visits$6,000  7 Alumni Kindergarten Students$136,500  Total Return$270,500

What to look for  Are there any unexplained significant trends evident in the historical financial summary  Does the school have reserves?  Does the school have sufficient funds to pay the debt service? Is there a strategic plan to retire the debt?  Cash Flow? Does the school pay this year’s bills with next year’s money?

What to look for continued  Does the school have any standards violations in its accreditation report?  What is the ratio of debt to endowment?  What is in the most recent Management Letter? Is there any “going concern” issue due to unexpected losses, failure to meet loan covenants or mismanagement?

What to look for continued  Are checking accounts reconciled quickly and systematically?  Are vendors paid on a timely basis  Are IRS 990’s filed on time?  Are audits done smoothly and efficiently on a regular schedule  Has the school done financial projections of income and expenses?

Questions?

Balance Sheet Total Assets = Total Liabilities and Total Net Assets OR What you own = What you owe plus what you are worth

Assets  Cash  Accounts Receivable (Tuition and Fees)  Contributions Receivable  Equipment  Property

Liabilities  Accounts payable (your bills)  Accrued Expenses (e.g. salaries and benefits of employees)  Deferred Revenue  Registration Deposits  Notes Payable (Loans, Mortgages, LOC, etc.)

Net Assets  Unrestricted  Temporarily Restricted  Permanently Restricted  Total Net Assets = What you are worth

Almost nothing can be accomplished in one year!

Remember: Just because we are “not for profit,” it does not follow that we are “for loss.”

Financial Forecast-Key Drivers  Operating  Enrollment  Annual Tuition Increase  Financial Aid  Staffing Salary & Benefits  Non-Operating  Annual Fund  Endowment  Capital Expenditures  Debt Service

Drivers and Dynamics in School and Financial Models  Size of school  Dependence on tuition for income  Endowment  Debt  Deferred Maintenance  Salaries and Benefits (labor intensive)

Drivers, continued  Financial Aid and its sources  Endowed Financial Aid  Restricted Annual Giving  FA as % of tuition income  Mission based financial aid v. financial aid as discount to tuition

Other Drivers  Technology  Specialized program needs  Athletics and transportation  And so many more…

Budget vs. Actual Graland Country Day School ENROLLMENT FTE - Instructional 97.8 Student/Teacher Ratio FTE – Admin and Staff 37.6 TUITION AND FEES PER STUDENT 20,16420,188 FINANCIAL AID AS % OF TUITION & FEES 12.6%12.9% SALARIES & BENEFITS AS % OF TOTAL EXP. 73.5%73.2% OPERATING EXPENSES (Excl. Fin. Aid, Cap Campaign & New bldg) Salaries 7,8607,83030 Benefits 2,1162,121(5) All Other 3,6323,648(16) Favorable/ BudgetActual(Unfavorable)

Actual ENDOWMENT Endowment fund, beginning of year39,36338,35944,92352,12660,61466,91374,84766,350 Gift income3542,6834,4465,2602,8231, Realized gains/(losses)(976)(142)1, ,056(3,575) Unrealized gains/(losses)(1,373)1,9551,3462,7052,7239,904(7,986)(9,439) Transfers to/from Operating9912, (3,685)(1,634)(751) Endowment fund, end of year38,35944,92352,12660,61466,91374,84766,35052,765 DEBT Outstanding balance, June 30th18,23816,68416,02215,36914,68718,96518,50317,701 Principal payment - Bond Interest Expense - Bond1,0971, Interest Expense - Loan CAPITAL EXPENDITURES Capital Expenditures - 20 East 92nd Capital Expenditures - Other000009, FACILITIES Property and Equipment, net of depreciation20,77420,21219,66419,03618,47427,04926,94726,448 Year by Year Budget From a school in New York City