Financial Sustainability
WHAT TRUSTEES AND HEADS NEED
TO KNOW
(AND SHOULD BE TALKING ABOUT)
JANUARY 10, 2015
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
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years, including families who did not historically
need assistance
Slow economic recovery
Reduced enrollment/not at capacity
Substantial debt service
Individual 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 Financially Sustainable University
 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.”
Linda Myers Dennison, CPA
independent school sustainability strategist
lpmdennison@gmail.com
The Merry-G0-Round
Tuition
Increases
Beyond CPI
Values
Proposition
Faculty/Staff
Compensation
Linda Myers Dennison, CPA
Increasing
Financial Aid
Increasing
Student
Services
independent school sustainability strategist
lpmdennison@gmail.com
DATA
Linda Myers Dennison, CPA
independent school sustainability strategist
lpmdennison@gmail.com
Tuitions Continue to Rise
 NAIS Average
$50,000
 Median Day Tuition,
9th
12th
and
grade
median: $22,700
$45,000
National Medians Grades 9 and 12
Median Boarding
tuition, 12th grade:
$46,800
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$-
2002
Day
Boarding
$13,795
$27,400
Source: NAIS Facts at a Glance
2013 (CPI
Only)
$17,700
$34,575
2013 Actual
Grades 9&12
$22,700
$46,800
Tuition Increases: CPI versus Reality
Average yearly CPI
increase for the past
12 years is 1.96%.
$25,000
$20,000
$15,000
Axis Title
Think of your school.
Have you had a
tuition increase in any
given year that was
less than 2%?
$10,000
It’s not just about
affordability, but
about managing
expectations.
$5,000
$Grades 1 & 3
Grades 6 & 8
Grades 9 & 12
2002
$10,912
$12,465
$13,795
Source: NAIS and U. S. Dep’t of Labor
2013 (CPI Only)
$13,721
$15,673
$17,700
2013 Actual
$18,212
$20,148
$22,700
NBOA 2013 BUSINESS OFFICER SURVEY
Financial Aid Allocation Trends by Year
2013
2012
2011
2010
2009
survey
survey
survey
survey
survey
More aid awarded to returning students
21.60% 23.30% 23.40% 32.80% 47.80%
More aid awarded to new students
12.50% 13.50% 13.10% 13.30% 13.90%
About the same allocation
62.10% 58.00% 58.80% 50.70% 34.40%
Not sure/no response
3.80%
5.20%
4.70%
3.30%
3.80%
Samples limited to those who were able to provide specific financial aid allocation data.
NBOA 2013 Business Office Survey, Baseline Results
Source: 2013 NBOA Business Office Survey
Strategic Reactions
26.4%
were
Most
popular
going to increase
Strategiesthe average class
size but only 11.7
•Increase
% did.class
average
size
58.8% were
going to decrease
•Increase
planned
salary
teaching
loads
increases but
only 32.3% did
•Increase
employee
contributions
for benefits
Linda Myers Dennison, CPA
independent school sustainability strategist
lpmdennison@gmail.com
Source: 2013 NBOA Business Office Survey
Perceived Financial Health: National
Source: 2013 NBOA Business Office Survey
12.9%
11.9%
Outstanding
24.9%
Much above average
25.6%
Somewhat above average
9.3%
8.3%
Somewhat below average
0.4%
Critical
0.0%
2.2%
1.2%
1.0%
5.0%
Present
Linda Myers Dennison, CPA
27.8%
20.7%
20.3%
Average
Much below average
27.2%
10.0%
15.0%
20.0%
25.0%
30.0%
Expected at end of 13/14 SY
independent school sustainability strategist
lpmdennison@gmail.com
DISCUSSIONS AT YOUR
SCHOOL
Linda Myers Dennison, CPA
independent school sustainability strategist
lpmdennison@gmail.com
Get Started!
 No silver bullet and no one size fits all!
 Purposefully thought provoking
 Intentionally controversial
 Consider the following in the context of your mission
and culture…they MUST be your guideposts!
 All opinions respected
 No sacred cows
Linda Myers Dennison, CPA
independent school sustainability strategist
lpmdennison@gmail.com
NBOA’s Spectrum Project Report:
High Performing Schools
 Summary in Net Assets, Nov/Dec 2014
 Qualitative and Quantitative research study intended
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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
Linda Myers Dennison, CPA
independent school sustainability strategist
lpmdennison@gmail.com
Headline…
“HIGH PERFORMING SCHOOLS:
Focused on Outcomes, But Flexible in Achieving
Them”
Courtesy of NBOA
Linda Myers Dennison, CPA
independent school sustainability strategist
lpmdennison@gmail.com
Common Traits Among High Performing Schools
(courtesy of NBOA)
 Lean
 Fewer students
 Approx. half as many administrative, non-teaching staff
 Collaborative and Focused on Clarity
 Clear expectations
 Strive to build consensus
 Work hard to explain critical matters
 Academically Rigorous
 Guided (not governed) by the Strategic Plan
 Have a strategic plan
 Guide to achieve the outcomes
Linda Myers Dennison, CPA
independent school sustainability strategist
lpmdennison@gmail.com
Traits, continued (courtesy of NBOA)
 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 performance
 Top-Down Decision Making
 Quality, not Quantity, in Budget Training
Linda Myers Dennison, CPA
independent school sustainability strategist
lpmdennison@gmail.com
The Financially Sustainable University
 Liquidity issues arose because we succumbed to the
“Law of More”
 Must reverse the “Law of More” By
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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
Linda Myers Dennison, CPA
independent school sustainability strategist
lpmdennison@gmail.com
Focusing on the Core
 “It is the area where they are clearest about the value
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they add.”
Differentiation point
Identity
Culture
“the strategic anchor”
“In any industry, there are 3 primary paths to
competitive advantage: differentiation (product), low
cost (price) or structural advantage (process).”
Linda Myers Dennison, CPA
independent school sustainability strategist
lpmdennison@gmail.com
Admin, Capital and Innovation
 Reduce support and administrative costs
 Cut from the outside in (build from the inside out)
 Look for economies of scale
 Outsource opportunities?
 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
Linda Myers Dennison, CPA
independent school sustainability strategist
lpmdennison@gmail.com
NAIS & ISM
“New Normal”
 Charge only what people can pay
 Design your program to that revenue number
“Full Steam Ahead”
 Charge what it costs
 CPI + 2 or more when needed
The New Discipline (NAIS)
 Increase
enrollment without increasing
staff
 “Sunset”
an old program for every new one
 Right
size: re-think class size, workload, # of
teacher specialists, assistants, school size
 Devote
1/3rd of each fundraising dollar
raised to endowment
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 alone
 Is a price leader in it’s area (lower)
 Typical student:faculty ratio 16:1
 Can charge average tuition of $7,000
 When 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 college
 Practices highly selective admission
 Typical student/faculty ratio 10:1
 Can charge average tuition $20,000
 When something new is proposed, asks: “what will
this do to my college admissions?”
Process Schools
A PROCESS School:
 Has programmatic uniqueness
 Put students at a variety of academic levels
through curricular and co-curricular program
tailored to student
 Typical student:faculty ratio 8:1
 Can charge average tuition $25,000
 When 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 strategist
lpmdennison@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 9month academic
calendar, considering
enrollment a singleunit sale, ignoring true
environmental
sustainability, and
ignoring virtual
learning--will fail.
BUT AS YOU DISCUSS…
GATHER DATA!!!
WHAT DOES THE
DATA SAY?
DISCUSS FACTS!
Linda Myers Dennison, CPA
independent school sustainability strategist
lpmdennison@gmail.com
Are You Tracking These Financial Indicators?
 Revenue Diversity (NBOA and NAIS)
 The gap
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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
 FTE / Student Ratio
(NBOA and NAIS)
(NBOA and NAIS)
Demographics- An example
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?
Connecticut
New Jersey
New York
Families with one or more children
aged 14-17 and income over
$350,000
2012
projected 2017
6,407
10,330
15,094
25,180
23,290
38,415
Source: NAIS Demographic Center
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?
 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”?
Linda Myers Dennison, CPA
independent school sustainability strategist
lpmdennison@gmail.com
Adaptability in School Culture
 Create a culture that embraces “courageous
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conversations” and depersonalizes conflict
Create common language to discuss sensitive
issues
Create an environment that allows for
experimentation (without recourse)
Distribute leadership
Mobilize the community to generate solutions
Collaboration!
Facilitating Change
 Conversation may start because of constrained
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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 indicator
Encourage “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
Leading the Independent School Way…
• Lead by Example
• Build Teaming through Information and
•
•
•
•
•
•
Communication
Be Inclusive as Appropriate
Understand & Anticipate the Changing
Environment
Explain Issues in English
Give Credit When Due
Don’t Tolerate Discourtesy
Look “Outside” for Solutions
My Contact Information
Linda Dennison
lpmdennison@gmail.com
443.271.2262
Director of Finance and Operations
Indian Creek School
ldennison@indiancreekschool.org
443.343.1111
Linda Myers Dennison, CPA
independent school sustainability strategist
lpmdennison@gmail.com
READ MORE ABOUT IT
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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
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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
 My Colleagues!
 www.nboa.net
 PD, Library, Toolkits, Data, Forums, Net Assets,
Demographics
 www.nais.org
 Library, Demographics, Independent School Magazine
 www.shrm.org
 Harvard Business Review
 Bureau of Labor Statistics (CPI)
 CPA Letter Daily