With the fall semester now underway and enrollment census complete, some colleges are facing the stark reality that net tuition revenue will fall short of budget expectations. While some institutions will adjust and reforecast their revenue expectations, others will be left wondering if there is enough cash to get the institution through the fall semester and the academic year.

Responsible leadership requires chief executives (i.e., college or university presidents or chancellors) and chief financial officers (CFOs) to take a hard look at the institution’s liquidity and cash reserves needed to meet expenses and fulfill the institution’s mission. It is the latter that is the most essential to meet. We, as leaders, must ensure that the institution has sufficient cash to meet its academic and co-curricular requirements. Too often, leaders of financially challenged institutions make survival decisions without fully understanding or even considering how those decisions impact the institution’s mission. Cutting budgets to survive is essential, but leaders must also ensure that these decisions also can create a thriving, mission-driven experience for their faculty, staff, students and alumni. Surviving is not the same as thriving.

Chief executives and CFOs must take account their cash and cashflow and map out their obligations for not only the current fiscal year, but the summer months that lie ahead as well. As we all know, colleges and universities typically have two key tuition revenue months within the calendar year – August/September and December/January. Beyond these key periods, understanding the burn rate of the institution (i.e., how much cash does the institution need monthly to fulfill its financial obligations) is important. However, we should not forget the financial needs of the following summer, as institutions need to meet payroll and other expenses before the next round of fall revenue becomes available. In developing a cashflow model, it is prudent to realistically plan out for at least the next 18 months, if not for at least the next three years. There should be no optimism in your cash model – the institution simply cannot afford it.

The realization of a realistic cash position requires several strategies beyond the cashflow model and budget forecast. It may also be time to make any necessary reductions in cost, aiming to minimize the impact on the mission and/or the student experience. Frank conversations with the Board of Trustees, banking partners, lenders, and campus affiliates will be necessary. Campus affiliates, such as those providing dining and residence halls, will need assurance that you will pay your obligations in a timely manner – if not, this is also the time to navigate a payment plan that works for both the institution and affiliate.

The most challenging of these conversations is with the Board of Trustees. As trustees, they have a fiduciary responsibility that extends beyond the Board room. This fiduciary responsibility requires each trustee to fully understand the financial challenges that are confronting the institution. As chief executives and CFOs contemplate how best to inform the Board, there are three essential steps in the conversation:

• Honesty
• Transparency
• Information

You must be completely honest about the financial challenges present and future. Be transparent about the issues being faced and the cash position of the institution – ensuring that sufficient funds to meet the institution’s payroll, benefits and other key obligations are able to be met. And you should create a cash flow model that all trustees will understand, regardless of their financial acumen.

As leaders, you must be prepared to address the question “How much longer do we have?” It is this question that keeps many chief executives and CFOs up at night as they consider their options. We are all aware of these sleepless nights, although in the morning you will need to be prepared to make hard decisions and ensure the institution continues to move forward. Once your Board is fully aware of the challenges being faced, start working with your other key financial partners, such as your bank. Make sure that you understand your banking and debt covenants and explore the possibility of extending your line of credit – specifically for the burn months in your cashflow model.

Liquidity matters and your ability to navigate your institution’s cashflow model will help ensure that you have a viable plan to confront your most significant problem – to survive and thrive, to merge, or to close in an orderly manner.

To learn more about SPH Consulting Group and how we can help your organization, contact office@sphconsultinggroup.com.

Writer: Joseph L. Chillo, LP.D, Senior Consultant, SPH Consulting Group

© SPH Consulting Group 2024