Throughout this year, you will see the voices of many SAIS board members in this spot as the organization transitions to new leadership. Our November news comes from Doug Norry, head of Triangle Day School (TDS), a PK-8 school serving 320 students in Durham, NC. He also teaches math and coaches basketball at TDS. Doug joined the SAIS Board of Trustees earlier this year.
What do time and money have in common? They are a school’s scarcest, most precious (non-human) resources. This is why one can learn a lot about a school’s priorities by analyzing its schedule and budget. Malcolm Gladwell brought this point into focus in an episode of his Revisionist History podcast, Food Fight, when he contrasted two liberal arts colleges: Bowdoin provides a world-class dining experience; Vassar doubled its number of students receiving Pell grants by investing heavily in financial aid. Because educational leaders at all levels face these types of tradeoffs, the annual budget functions as a school’s “foundational strategic document.”
The budgeting process should be an iterative one, with shared ownership among the head, the CFO, and the board’s finance committee. Trustees set tuition and (in aggregate terms) financial aid, which along with enrollment, largely determine a school’s revenue. In advance of this, the head should lead a transparent, inclusive process. Math teachers should be asked about their “needs and wants” in a department meeting, so that the chair can propose a budget to the CFO. In our case at Triangle Day School (TDS), once the budget is finalized, nearly every dollar is assigned to one of nine “spenders.” These leaders are provided with budget v. actual reporting throughout the year, so they can effectively manage costs without year-end surprises.
I came to TDS with little to no formal financial training. Here are eight things I’ve learned over the past eleven years:
#1 – Context matters.
Upon my arrival in July 2014, I asked our CFO (who also served as director of facilities) about our maintenance person. She informed me that we could not afford one. When I asked who opened campus each morning, she smiled and told me that it was my responsibility. Eleven months later, owing to some mid-year enrollment gains, we finished the year with a $90,000 surplus. I remember barging into her office to inform her that, in fact, we could have afforded a maintenance person.
In retrospect, she was right. The school was only three years removed from a challenging period that saw an unplanned leadership change, a significant decline in enrollment, and faculty being forced to accept a five percent cut in pay. Cash reserves were dangerously low, and we spent that year responding to requests with three questions: Do we need it? Do we really need it? Can we live without it?
Ten years later, our reserves are comfortably within the board-mandated range of three to six months of operating expenses. Now our approach is shaped by a different set of three questions: Will it help us deliver our mission? Will it benefit our students and teachers? Is it a wise investment in the future of our school?
#2 – Keep it simple.
As a small school without an endowment, we strive for simplicity in budgeting and accounting. We use a cash budget, which, I would argue, offers a clear picture of our finances at any given moment. Of course, we appear flush after receiving tuition from our one-installment payers in July, but this doesn’t change our strategy or behavior, so I see no danger in this type of recording.
#3 – Be conservative, but also realistic.
Budgets should be on the conservative side of accurate. We plan for a surplus each year, with the amount depending on our existing cash reserves. We also fund a PPRRSM (Provision for Plant Replacement, Renewal and Special Maintenance) account to address capital needs and expenditures. This is typically three to four percent of our operating budget. Another idea is to include a small contingency for unanticipated expenses that are out of your control (legal costs, system repairs etc.)
#4 – Call your bank.
In today’s rate environment, if your funds are parked in a zero-interest checking account, you’re passing up a significant opportunity for auxiliary revenue. A few weeks ago, I called our banker to inquire about a higher interest rate on our money market account. By day’s end, our rate had increased by 75 basis points. In my experience, banks need to be nudged in this direction.
#5 – Going green can save you green.
Switching to LED lights, imploring teachers and the janitorial staff to turn off lights when rooms are empty, sharing with teachers how many photocopies they have made in hopes that they’ll make fewer – these “green” initiatives have a positive impact on the bottom line.
#6 – Use data, up to a point.
I teach math and love numbers, so I’m grateful for the metrics and tools provided by organizations such as NAIS. I also understand that each school has its own history, culture, and challenges. As one example, our discount rate (comparing net and gross tuition revenue) is significantly less than the national median (source: DASL). TDS was founded thirty-three years ago as a school with low tuition and zero financial aid. This has changed steadily over the past fifteen years, but, for better and for worse, we are still well below the average.
#7 – Don’t punish the responsible ones.
Several years ago, I taught at a well-resourced school in the Midwest. In May, the librarian asked me if I needed any books or materials. He confessed that he had $6,000 remaining in his budget, and he knew from experience that the CFO would reduce it the following year if the money was not spent. While I understand this logic, this does not encourage responsible stewardship.
#8 – Lead by example.
After graduating college thirty years ago, two of my friends secured jobs with management consulting firms. For months at a time, they spent three to four days per week on site at various companies across the country, and they always reveled in their bottomless expense accounts. By contrast, schools are non-profits. Particularly when it comes to choices that directly involve me, I try to spend my school’s money as if it were my own. My wife, who describes me as pathologically frugal, would likely roll her eyes upon reading this, but we all need to do our part as stewards of our schools’ finite resources.
Last week, I attended a session at the SAIS Annual Conference on the Sustainability of Small Schools. It’s clear that all schools – and small schools in particular – face tough choices when it comes to finances and budgeting. These moments call for leaders to prioritize those items (and people) that are most core to the students’ experience. Conventional wisdom dictates that most expenses come in the form of fixed costs. In challenging times, it can be instructive to flip this wisdom on its end and assume that there’s “no such thing as a fixed cost.” Hyperbole? To be sure. Mortgages and utility bills need to be paid on time, and someone has to teach second grade. That said, I find this lens – of putting everything on the proverbial table – to be helpful when facing difficult financial decisions.
Doug NorryHead of SchoolTriangle Day SchoolDurham, NC