Finance and Operations for Everyone

Liz Katz

​​One of the things that makes it challenging for educators to understand the business operations of an independent school is how distant they are from the realities of budgeting. Almost all administrators begin in the classroom—a spot where they have no perspective on revenue, and only the barest acquaintance with expenses. Classroom teachers’ experience with budgets has typically started and ended with individual purchases, which inevitably means that when they move into academic leadership they’re missing key insights into business operations.

In some ways, the business model is straightforward in schools, with a single major driver of revenue:  tuition. In 2019-2020, tuition accounted for 75% of revenue in independent schools. (The remaining 25% comes from sources such as fundraising, endowment draw funds, and auxiliary programming). When you look at these numbers, it’s clear that the only way to substantially increase revenues has to do with tuition, whether that’s raising the cost for enrollment, or increasing the number of enrolled students. Both options, however, come with limits—as schools increase the cost of tuition, the number of families that are able to pay dwindles. Students, as well, are a finite resource, with U.S. birth rates dropping steadily for over thirty years.
 
Schools also have an overwhelming primary expense:  salary and benefits for faculty and staff. 64% of schools’ expenses were dedicated to faculty and staff costs. (No other expense category comes close, with maintenance and instructional costs each comprising less than 8%.) Again, because this one sector of the budget is so overwhelming, it’s hard to impact overall spending without addressing this expense. At the same time, no one wants to minimize expenses by laying colleagues off, cutting benefits, or slashing salaries. With increasing inflation and cost of living, even keeping salaries and benefits flat can feel like a cut in take-home pay.
 
From a pedagogical perspective, a classroom is a microcosm of a school. From the financial perspective, however, there’s almost no common ground between the budget of a single classroom and the budget of the institution. Far too many schools aren’t explicit about this disjunction, and that makes it easy for educators to misunderstand financial operations. All too often, that misunderstanding can sow distrust of administrators who need to make decisions based on financial realities. Breaking down the misconceptions about school finances can help Academic Leaders communicate the reasons behind budget-driven decisions. It’s time for every educator to understand how schools operate beyond the walls of the classroom.​​