Grow financially and educationally stronger all from one simple change to your school budget cycle

I’m sure many of you do this already but, in case the idea has something to offer for a few, I wanted to mention it. I’ve seen it make an incredible difference where it was a change to school budgeting. Two schools where I served and others where I’ve consulted have seen substantial positive changes, both in financial strength and in program quality.

I came to a school where the Board had three CPA’s among the ten members the year before yet a budget deficit which had grown precipitously for each of the last three years. School administrators and Board members all cared very much about the school and their own responsibilities. All were intelligent people. Enrollment was declining slightly, but it wasn’t plunging. And no one had made a conscious decision to run in the red. So what was the matter?

The budget cycle required decisions when decisions didn’t need to be made. That’s right. The problem was that folks needed to quit deciding things long before the decision needed to be made.

In short, this procedural problem was pitting confidence in and commitment to the school’s mission against prudence and rational planning. For a school on the edge of bankruptcy, such a decision might be sickeningly necessary. That’s not where this school was, though it was where it could be going if the direction didn’t change.

In December of one school year, at the time tuition pricing decisions need to be made so that re-registration and new student admissions can begin in January, the price was set but so was the entire budget for the coming year. Staffing levels and compensation increases and program enhancements were all decided in a comprehensive budget.

Deliberations between Board and Administration became honestly and personally painful conflicts between hopeful views about the school’s mission and impact in great conflict with clear financial concerns. Board members were serving because they cared about and believed in that mission. Administrative leaders answered their calling to see the lives of children changed for the good. And those administrators also knew that if you cut program and paid your people poorly, the finances would have a direct and almost immediate effect on how well that mission could be pursued.

So budgets were set amidst soul-searching and personal turmoil by people who really cared about the same things. This wasn’t bean-counters vs. life-changers. And mostly the choice was to believe that some recent financial trend concerns could be remedied by redoubling the personal commitment to excellence while continuing to give financial backing necessary to allow that effort to turn things around. And deficits ensued and grew.

The decisions could have gone pretty much the other way, toward financially conservative conclusions and safety margin additions. In tough local competition for students and for teachers, some teachers had already been lost to substantially better pay in the market and some students had been lost to attractive program improvements in other schools. Decisions for budget cutbacks may well have increased deficits if negative enrollment trends deepened. A downward spiral would come from decisions meant for financial strength.

Premature budget decisions weren’t an abundance of caution but, rather, a Catch-22 trap. Everyone was thinking and trying and committing themselves, but they were working in a cycle which required unrealistic market stability and almost complete trend predictability to work well. That may be obvious to you, but I’m not picking one errant example. I know many schools where similar cycles are set.

Of course, later budget corrections could have been made, but the same conflict of values in hope and prudence would be on the table, albeit with even more emotional intensity. Also, most of those key decisions are desirably grouped within a few months. If enrollment momentum is lagging, the timing of committed enrollments is almost always affected as well. It becomes later and later that you know the answers to your key financial questions.

Make a decision when you need to, and not before. Does that sound passive or avoidant of hard realities? It’s really just the opposite. If you make yourself decide early and guess, you take a rational process and make it a crap shoot, but one with very high stakes for your school.

So, how should it work? Two major decisions and two surrounding realities make a school budget and, in fact, make the fundamental health or sickness of a school financial picture. This is a focus on operating budget. Certainly, major gifts for capital and for operations can change the picture completely, but it’s highly unlikely for a school to receive major gifts if donors see a financial operation which makes no business sense. It certainly looks like they will be throwing good money after bad.

I’ll assume the calendar I’m used to, and you can modify it for your particulars. December needs a pricing decision to allow existing families and new prospects to begin committing in January for the next school year. March needs a compensation decision for contract commitments to be made by school and teacher for the next school year. Between January and March, the enrollment reality should firm up so the March decision can be made with appropriate information. By August, the entire financial picture should firm up so a detailed, programmatically defined line item budget is ready to be adopted and used for operating discipline and reporting accuracy.

This raises a few key questions, but they also have rational answers which can be directed by mission while being accountable to financial disciplines. First, how is the pricing decision made? I won’t detail all the important factors (which remain fairly complex even if you’ve committed to something you might call “cost-based tuition” – which I’m pretty much supportive of but relative to which I find schools not understanding how cost is actually determined by mission, vision and values), but focus on why the budget for next year is not needed – or wanted!

This may be semantics, but they are truly vital semantics. Instead of next year’s budget, you need a set of budget frameworks for next year based on real cost estimates and the key decision parameters of pricing, enrollment and compensation. The stability or fragility of your situation will determine how many scenarios are prudent, but the point is that these frameworks offer possibilities for future decisions which will need to be made.

Today, you decide price, but you do it in light of budgets it makes possible for people, compensation and program. In March, you know class sections for staffing levels and have much greater guidance on compensation levels which fit the registered student population. Faculty and other staff need to start knowing the school’s commitment to them, but they don’t have to know everything just like you don’t know everything at the leadership level.

Contracts can be multi-track based on enrollment targets with final determinations set at August budget adoption time. Desirably, these will all be upside possibilities, but if circumstances don’t allow, it’s still the fair, respectful way to build faculty confidence and loyalty. If I just delay and delay contracts, I’m not building the relationship I want with my faculty. If final pay can’t be determined because the enrollment is still fluid, at least I give my teachers their own ‘budget frameworks’ to work with.

A new position or two could still be ‘on the bubble’ at this time so I can’t proceed to recruitment and hiring as I would wish, but the budget frameworks are in place so that I can hire it as soon as the financial benchmark is achieved, rather than after a brand new Board decision about direction and spending priorities and appropriate safety margins. Those conversations have been carried out when the budget frameworks were being discussed while the December pricing and March compensation decisions were being made.

Does it make sense that this budget cycle process is not delaying a decision because it’s difficult and we don’t want to face it? This principle of deciding when you need to decide and not before is simply appropriate humility about my level of knowledge, prudence about necessary financial disciplines, and bright-burning confidence about the progress of mission and impact in the lives of people.