Strategic Financial Planning

Reengineering to Secure School Stability Part I

Helping to Re-Shape a Schools Future by Re-Shaping its Finances Harry Bloom Rheua Stakely

Definition:Financial Reengineering
A fundamental reconsideration of the financial model of school,
From a long term perspective, To reflect a schools
Core value proposition in light of its market and the institutions within it Desired strategic positioning for long term future success.

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Financial Reengineering
When? *Immediately, in times of crisis *Every other year, to avoid crisis Who Schools in financial trouble
Little schools Big schools

Everyone else!
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Who: Big Schools with Financial Challenges

Total Tuition Prior to Scholarship
Scholarship( 15% of Net Tuition) Net Tuition Income Less Uncollectible Tuition(1% of Net Tuition) State Reimbursements Net Fund Raising Donations/Grants Other Income

Total Income Expenses

Total Salaries

8,346,873 (1,255,297) 7,091,576 (70,916) 280,000 1,150,000 850,000 54,000 9,354,660

630

Enrollment
620 610 600 590 580 570 560 550 540 2005/6 2006/7 Budget 2007/8 Projected 2007/8

6,911,818

Total Salaries/ Salaries related Expenses

Total School Related Expenses Total Office Expenses Total Building Expenses Total Other Expenses Total Flexible Expenses Fixed Expenses Total Rent General Insurance Transportation(Net) Total Fixed Expenses Total OTPS Expenses Total (PS and OTPS)Expenses Net Profit/(Deficit)

8,066,231
289,430 233,810 463,500 187,460 1,174,200

985,857 107,100 199,500 1,292,457 2,466,657 10,532,896 (1,178,236)

Small Schools With Challenges

2007-2008 Budget

SUMMARY
Hard Income Annual Fundraising Grants Total Revenue Expenses Personnel Other than Personnel - Facilities Other than Personnel - Other Total Expenses Operating Surplus (Deficit) - hard income % hard income coverage of expenses Operating Surplus (Deficit) - all income % all income coverage of expenses cost per student Surplus (deficit) per student - all income $1,485,500 $550,000 $101,250 $2,136,750

Enrollment
140 120 100

$1,691,853 $381,252 $224,234 $2,297,339 ($811,839) 64.66% ($160,589) 93.01% $22,745.93 ($1,589.99)

80 60 40 20 0 Act.2005/6 Act.2006/7 Budget 2007/8 Actuall 2007/8 Projected 2008/9

Foundation=Know What Your Schools Positioning Is and Program and Process Performance Implications
Product Leadership Must Be Strong on 1-2 And Ballpark On the 3rd

C
X=Our School A=School A B=School B C=School C U=Unserved Population

U A
Customer Intimacy

B
Operational Excellence
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Financial Planning for the Long Term

Develop a financial plan that mirrors your schools strategic plan Engage in more creative annual budgeting
The norm is incremental budgeting The problem: Incremental budgeting reinforces incremental thinking
Many of schools challenges and opportunities require longer time perspective What is a given in the short term is amenable to change in the longer term
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A Long Term Perspective is Necessary, When

Significantly realigning tuition with cost to approach the cost of education Renegotiating a union contractual obligation so that it better promotes program improvement Renegotiating expensive long term real estate leases when underlying needs shift Building a new building Reducing operating expenses when enrollment declines permanently due to new school start ups or fundamental population shiftsto try to maintain program integrity and quality Making virtuous cycle investments, e.g., in the Arts, Math and Science, Special Needs

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Required Budgeting
Process-driven budgeting, e.g.,
Recruitment process?
Faculty? Student?

Professional development process? Communication process?

Program-driven budgeting
E.g., virtuous cycle investments in Hebrew language or math/science curriculum enhancements
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The Schools Processes

THE WORK OF THE SCHOOL

Recruit Students

Recruit Staff

Teach Students

Develop and Evaluate Teachers Raise Funds Manage Facilities

Develop Curriculum

Manage Finances
Tuition Setting Financial Aid Process Expense Mgt Cash Flow Management

Communicate

What is desired investment posture for each process?

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Taking Control
3-5 Year Investment Posture (Compound Annual Average Growth in Spending)
Strategic Investment Candidate (+8-10%)
Overall Faculty Compensation

Maintenance Candidate (+4-5%)

Reduced Investment Candidate (0-3%)

Target Departmental Compensation (e.g., Hebrew Language, Math and Science)

Overall Process Investment Target Process Investment Total Budget

Tuition Setting Financial Aid Process

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In Summary
Know your schools value proposition Understand the implications of that value proposition for process and program spending Take a long term prospective to financial planning Utilize creative budgeting: Process and Program budgeting to shape a more positive future Respect the Virtuous Cycle wisdom
Note: Please do not miss Part II Session: STRATEGIC FINANCIAL PLANNING:
Dealing with Financial Moments of Truth (2:15pm;Back Bay C) 15

Bio
Harry Bloom President Learning Acceleration, LLC Harry Bloom is an experienced marketing manager and management consultant who has worked for some of the leading corporations and consultancies in the world, including Procter & Gamble, General Electric, McKinsey & Company, and the Computer Sciences Corporation. Mr. Bloom helped the Partnership for Excellence in Jewish Education develop the highly successful Joint Purchasing Initiative which assists hundreds of Jewish day schools in saving money through collaborative purchasing activities. Additionally, he helped design, research and establish the PEJE Knowledge Exchange which codifies and makes easily accessible independent school best practice in Admission, Leadership and Governance, and Fundraising. Mr. Bloom lectures for the Partnership for Excellence in Jewish Education, the Solomon Schechter Day School Association, the Association of Modern Orthodox Day Schools, and Torah Umesorah and is a much-in-demand facilitator of leadership retreats for teams of professional and lay leaders of Jewish non-profit organizations on the topics of governance, fundraising, marketing and student recruitment. Mr. Bloom is an active PEJE coach and is assisting a number of Jewish organizations throughout the U.S. in programmatically strengthening their governance, strategic planning, student recruitment and fundraising operations. Additionally, Mr. Bloom is serving as the Director of Institutional Advancement of South Area Solomon Schechter Day School where he has helped develop a compelling vision, strategic and long range financial plan, directs fundraising and marketing, and led a successful campaign for a new campus. Mr. Bloom has a B.A. and Hebrew Teachers License from Yeshiva University and an MBA from Columbia Universitys School of Business. He is an instructor at the Azrieli Graduate School of Education and Administration at Yeshiva University, where he is a doctoral student.
Contact Information: Email: harry@harrybloom.com Telephone:617-212-4910 Mail: 200 Cotton Street, Suite 18, Newton, MA 02458

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Rheua S. Stakely Consultant 225 Washington Street Marblehead MA 01945 rheua@hotmail.com 781-631-0255 BIO Rheua Stakely is a consultant from Marblehead, MA who specializes in independent school admission, recruitment, attrition, and financial aid. After working in admission and financial aid at Phillips Exeter Academy for 12 years, she formed her own consulting company working with nonprofits, for profits, and management training institutes, as well as schools. Some of her other consulting work includes: board professional development and retreat facilitation, as well as short and long range planning. Over the past 22 years she has worked with more than 350 schools and nonprofits including more than 90 Jewish day schools coast to coast. Rheua is a senior coach for PEJE. In addition, Rheua has plenty of coaching and performing experience as an Outward Bound instructor, a tennis pro, a nationally ranked squash player, and an amateur musician. She also learned much about thinking quickly in difficult situations while climbing the Matterhorn, Mont Blanc, Kilimanjaro, and other mountains around the world.

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