Understanding Your School’s Financial Structures is Central to Making Sound Academic Program Decisions
If you lead an academic program, you are a financial decision-maker. So, test yourself. Do you know what share of your school's revenue comes from net tuition? How about from an endowment (if your school is lucky enough to have one)? Can you calculate the cost per seat in any given class or program? Can you read your school's statement of financial activities? Do you know what deferred maintenance is waiting on campus? If you can't answer those questions, you are likely making academic program decisions without the information needed to keep your school on solid ground.
Sound academic decisions require understanding the fundamentals of your school's business model and which trade-offs are possible and which are not.
For years, independent school business officers have kept the financial model working by trimming around the edges. They have found savings in places most of us never see, and they have done it without touching the academic program. I don't know how much longer that can last. When the next recession comes, the savings will almost certainly have to come from the largest line in the budget, which is people. The Academic Leaders who understand the numbers before that day will shape what happens to their programs.
Understanding Expenses and Revenue for Independent Schools
The expense side leaves less room than most of us assume. In most independent schools, salaries and benefits make up the largest share of the budget by far. Healthcare costs have risen sharply in recent years, and schools are finding it harder to offer employees good plans at a reasonable price. Inflation has reached schools too, and energy is one of the clearest places to see it. Many campuses carry years of deferred maintenance, repairs to roofs and mechanical systems that have been put off and will eventually come due. These costs are hard to move. When an Academic Leader proposes a new program, the money comes from a budget that is mostly committed before the conversation starts.
The revenue side holds its own surprises. Academic Leaders tend to overestimate how much revenue comes from sources other than tuition. Advancement matters, and an endowment is a real advantage for the schools that have one, but at most independent schools net tuition carries the operating budget. That makes enrollment and tuition discounting academic questions as much as business ones. A program that has stopped drawing families is paid for by everyone else's tuition.
Understanding Tradeoffs as an Academic Leader
Consider a familiar decision. Enrollment in an upper-level elective has dropped to six students, and the teacher who built the course is beloved. Keeping the section running feels like a small kindness, but it carries a salary and benefits and a place in the schedule that another course could use. Keep enough programs alive past their time, and the school has fewer options when it needs to fund what comes next. In the worst case, those choices help push a school toward insolvency.
Calculating cost per seat per course or program is the number that makes this visible. Take what a section costs to run, which is mostly the teacher's salary and benefits for that portion of the teaching load, and divide by the number of students enrolled (in some cases specialized equipment or space needs to be factored in). Run that calculation across your schedule and you will see where small sections cluster and which programs depend on others to carry them. That data helps you ask important questions, ensure that programs are mission and strategy aligned, and make more informed choices.
Expanding your Familiarity with School Finances Starts Now
If your school is in good financial shape, take the time to learn about school finances now. Schools in a downturn make decisions quickly and under pressure. An Academic Leader who is learning the basics of school finances in the middle of a crisis has started too late.
This is why the Association for Academic Leaders works so closely with NBOA. Jennifer Osland, NBOA's Chief Learning Officer, Jeff Shields, NBOA’s President & CEO, and I lead the Independent Schools Financial Bootcamp. The Bootcamp is two days of learning and case studies, with panels of sitting business officers and heads of schools.
Our next Bootcamps are in Los Angeles in January and New York in April. Details and registration are at academicleaders.org/financial-bootcamp.
