10 Practices of Financially Healthy Schools

MICHAEL E. BATTS, CPA 

There are few things that impact students and their families more than a healthy, thriving school community. A financially healthy school is better positioned to serve its students than an unhealthy one.  I have advised numerous nonprofit private schools on governance, operational, and financial matters over the years and I served as chairman of the board for a nonprofit private school for 20 years. Based on these experiences, I have identified 10 practices that financially healthy schools have in common. As a person of faith, I believe that God honors and blesses these practices – I have seen it first-hand.

1. Composition of the board

The role of the board of a nonprofit private school is a critically important one. I am often asked what attributes make for excellent board members of a nonprofit organization. I always give the same answer, which is two things: genuine wisdom and a passion for the mission of the organization. Forget the idea of putting people with specific technical expertise on the board in the hope of getting free professional advice.  You can hire professional expertise when you need it.   

2. Mission and purpose

Having a clear sense of mission and purpose is a fundamental starting point for organizational success, including financial health. Don’t fall victim to the easy, lazy way out by taking the position that your mission and purpose are obvious. There are all kinds of questions that a wise board will ask itself in defining and articulating the specific mission and purpose of the school. Questions like:

Are we primarily a college-prep school or something else?

If our school is faith-based, how will the faith element affect our admissions, curricula, employment, and conduct policies?

What are our objectives with respect to academic performance of our students?

A clearly articulated statement of mission and purpose should serve as the foundational basis for all programs, activities, and initiatives carried on by the school—as well as the guidepost for evaluating the school’s success.

3. Excellent top leadership

Just like you can’t expect to operate an excellent school with a mediocre board, you shouldn’t expect to operate an excellent school with top leaders who are not, themselves, excellent at their work.

The school’s board should ensure that staff leadership collectively includes strong business and financial expertise in addition to appropriate educational leadership skills. The head of school may or may not be a strong business administrator, but somewhere in the top leadership staff mix must be strong business and financial expertise.

4. The true cost of excellent education

School leaders often underestimate what it really costs to operate a school that truly has the ability to carry out with excellence its mission and purpose. Be honest with yourselves in this process. Define excellence. Price it. And then include it in your cost estimates.  

5. Charge what it costs – plus a reasonable surplus

In his now out-of-print 1996 book entitled From Candy Sales to Committed Donors, Bruce Lockerbie advocated charging tuition and fees sufficient to cover the costs to operate a nonprofit private school with excellence. And operating a school with excellence financially means allowing for a reasonable operating surplus in the budget. His advice was revolutionary at the time. For some reason, many private schools were simply unwilling to charge tuition and fees sufficient to cover the actual costs of operating the school with excellence. In failing to do so, the schools created a highly stressful annual obligation to raise money in all kinds of conceivable ways (candy sales, gift wrap sales, banquets, etc.) literally just to pay the bills! And in years where such fundraising efforts were not adequately successful, the ramifications were significant and stressful.

Lockerbie’s advice is still relevant today. If a school is to operate in a financially healthy manner, it should charge tuition and fees sufficient to cover the costs of operating the school with true excellence in pursuit of its specific mission and purpose.

6. Financial aid

Not everyone in your school’s community will be able to afford your school’s tuition and fees, no matter what level your school sets them at. Every school should determine the nature, extent, and funding sources of financial aid it plans to offer to families who cannot afford full tuition and fees.

A well-administered financial aid program can help families that would not otherwise be able to participate in the school’s program to do so—an important element for many schools desiring to serve their community.

7. Collect tuition when due

Because enforcing tuition payment policies is so painful, many schools take a path of lesser resistance and begin to let slow-payment and no-payment situations slide. When they do that, before you know it, the school has a receivables problem.  Poorly managing collection of tuition payments can literally threaten the viability of a school.  

School leaders must accept a hard truth. If, after applying appropriate available financial aid as described in Step 6, a student’s family is unable to timely pay applicable tuition and fees, school leaders must kindly and lovingly help the family transition to a school that is a better match.

8. Raise funds for special things

If a school operates with the financial plans described in Items 1-7, the school should not have to raise money to pay the bills. Accordingly, the school can raise money for new things. Special things. Like new computers, or a new gym, or a performing arts center, or any number of other great, new things.

It is much easier to motivate donors to give to help a school acquire beneficial new assets to improve the school’s programs than it is to get donors to give so that the school has enough money to pay the bills for regular operations. And even if a school is able to raise money annually that is necessary to pay operating expenses, doing so limits how much the school can raise in addition when the school needs to acquire special new assets.

9. Define and assess excellence in the details

After a school defines what it considers to constitute excellence in its operations (as described in Item 2), the school should define what excellence looks like in the details, and develop “markers of excellence.” Markers of excellence are measurable or observable attributes that indicate when excellence (as defined by the school’s leadership) is achieved. As an example, assume that a school has as one element of its mission and purpose helping students gain acceptance to competitive colleges. A marker of excellence in this area might be that 80 percent or more of the students in each of the school’s graduating classes are accepted for admission to the college of their first choice. The school should develop and identify markers of excellence for each significant area of its operations.

10. Have “zip” and love

Create some “zip.” Some excitement. As regularly as possible. Make the kindergarten classes as cool as they can be. Have an awesome playground. Have a really cool mascot. Have members of your faculty and staff who genuinely love and care about the students and who show it. Cultivate positivity. Teach students how to love and care for others, including those who are different from themselves.

I believe that making school as positive and exciting as school can be is a worthwhile endeavor. Our kids are our future leaders. We need bright, motivated leaders in the future who have experienced positivity, love, and care. And maybe they will pass it on.

Michael E. Batts is the president and managing partner of Batts Morrison Wales and Lee (nonprofitcpa.com), a national CPA firm dedicated exclusively to serving churches, ministries, and other nonprofit organizations across the United States.