In North Carolina, out of the 46 schools that opened for operation, but then closed, 35 (or 80%) of those schools closed due to financial reasons. I guarantee that all of these schools had a written budget and knew they were responsible for the fiscal oversight. The perceived cause of these financial issues might have been noted as low enrollment, fiscal noncompliance, or excessive debt. In reality, the root of their problem was poor execution of a written plan. Cash is the oxygen to any successful business, and charter schools are a business. If the organization does not adjust spending in a timely manner, the school will run out of oxygen and eventually suffocate.
If you are not preparing on the front end, you will be repairing on the back end. - John Maxwell
This charter school finances tip sheet was researched and written in collaboration with charter school financial service provider Acadia NorthStar and the team at Leaders Building Leaders. Acadia NorthStar has operated for nearly two decades mastering the financial accounting and data reporting systems that keep charter schools financially healthy and charter school auditors happy.
Issue #1: Ensure Your Actual ADM Meets Your Budget. On average, public charter schools in their first year of existence only enroll 75-80% of their projected enrollment. It is the founding board and leaders’ responsibility to fill every seat that is budgeted for. Schools should be budgeting based upon a realistic enrollment, not on a projection of their initial three years.
Even if you enroll 95% of your projections, 5% of your money is already gone!
It’s important to note that state funding is based on average daily membership (ADM) of your first 20 school days and not enrollment alone. For instance, if a child is enrolled on Day 1 but doesn’t physically show up until Day 6, then the school will only be funded at 75% (15 day of membership / 20 school days) of the total for that child.
Question to ask your team:
LBL Resources: Secure 100% Enrollment Checklist
Issue #2: Ignoring Cash Flow: Cash is your oxygen; without it, you will be reaching for any pocket of air to survive. Or in most cases, money. Many public charter schools’ founding leaders make poor decisions to ensure their school opens on time with the basic resources. When they do this, they tend to forget that:
These are all “failing forward” mistakes; remember that your top two expenses will be your people and your facility. Be sure that you have allocated those funds; then begin negotiating timelines for big purchases, such as furniture and books. Download LBL’s cash flow template.
Issue #3: Overzealous Facility Financial Planning: There are two factors that should drive your thinking about financial and facilities planning:
Additional Cost Prohibitive Items to Consider:
Schools that spend less than 55% on their instruction and more than 15% on their facility have limited flexibility. Remember, you can always be innovative when it comes to hiring and programming, but you cannot always find a purpose for an extra 2,000 square feet of unused, yet costly, facility space.
Issue #4 Falling Victim to the Impulse Buy and Not Doing Your Homework. As a new school there will be many companies eager to offer you the latest and greatest innovations: A top-of-the-line 3-D printer, an employee management subscription, a new textbook series, and the list goes on and on. Just remember, the old adage “if it sounds too good to be true, it probably is” still applies. Before entering into any purchase or lease agreement, ask yourself:
When considering purchases the first question should always be: Did I plan for this purchase in my budget? If the answer is “no” then you should first review the budget to determine if a purchase is possible. If the current budget is unable to accommodate the purchase then make a note to incorporate it into next year’s budget during your planning sessions.
Issue #5 Third Party Vendors (How do you know you need them?): There are only three reasons you should be hiring a third party vendor:
If you do hire a third party vendor, keep reading.
Issue #6 Bad Third Party Contracts: In one year, LBL and Acadia collaboratively helped a school that was struggling with financial oversight and cash flow pay off over $500,000 in accumulated debt. Our first step was to act like a forensic scientist, analyzing their budget and monthly income statements. We identified that the school was spending over $10,000 a month on their website, phone, and a “living wall” for their lobby. None of these contracts improved student learning or teacher working conditions. The time and effort it took me to negotiate out of those agreements was financially costly and energy consuming. When working with a third party vendor, you should have the following questions answered:
Issue #7 Not Planning on Retirement: One faulty assumption I hear many founding charter leaders make is that they need to be in the State Retirement in order to hire quality teachers. Little do they know that the costs to the employer to be a member of the State Retirement System is creeping close to 20% and not showing signs of slowing down. This is a huge expense to an independent charter school with very little return. Charter schools can create their own retirement plan, and with the right planning, they can provide their employees twice the investment.
Here are two examples: Remember, State Employees Contribute 6% of their salary.
Example #1: Charter Employees contribute 3% of their salary; the school matches the 3%, providing the employees the same 6% investment without full contribution. This is a 3% raise for the employees and a 17% savings for the school that the school can use to invest in other school initiatives.
Example #2: Charter Employees contribute 6% of their salary (as they do now as a State Employee); the school matches 6%, resulting in a 12% investment towards employees’ retirement at no extra cost to the employees and a greater than 10% savings for the school that the school can use to invest in other school initiatives.
Issue #8 Poor Fiscal Oversight: The number one reason why charter schools close is mismanagement of a school’s finances. There should be multiple members of the finance committee and management team conducting monthly deep dives into the school’s financial history, practices, and future planning until the school is on more viable ground.
This document was written collaboratively between Leaders Building Leaders, a charter school improvement and leadership development company and Acadia NorthStar, a charter school financial services provider. Learn more about the services offered by Acadia NorthStar by emailing Sarah Crain-McCracken at [email protected], going to https://acadianorthstar.com/ or calling (828) 287-7897.
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