Last Tuesday, Senior Manager Emily Cook presented a webinar on Key Financial Metrics for Private Schools. The following top 3 metrics relate to operations and building cash reserves:
Metric #1 – Student capacity – based on the number of students that can be instructed under the school’s current infrastructure.
Determine the school’s ideal enrollment based on the facility and program offerings. Create tuition rates based on grade and programs offered. If you have “seats” available then the school is under-capacity. You can add money to the bottom line by filling up every available seat.
Metric #2 – Cost to Educate / Tuition GAP – we know that tuition does not always cover the total cost to educate a student. To determine the costs of educating your students use this formula to calculate the tuition gap
a. Total budgeted Expenses divided by number of students at capacity
$3,600,000 budged expenses / 350 students at capacity = $10,286 per student
b. Compare tuition rates to the student cost
$10,286 (cost per student) minus $9,000 (full tuition rate) = $1,286 GAP per student
Identify additional sources of revenue (contributions, grants, fees) to “bridge the gap”.
Metric #3 – Liquidity – CASH is KING! – best practices indicate that cash reserves should include 3 – 6 months of unrestricted funds. Cash reserves should be calculated based on monthly expenses (outflows) – calculated as follows:
a. Budgeted expenses / 12 months of operations
$3,600,000 / 12 months = $300,000 of budgeted outflow
b.Calculate cash reserves
$300,000 monthly budgeted outflows x 3 months reserves = $900,000
$300,000 monthly budgeted outflows x 6 months reserves = $1,800,000