From 100,000 Feet to 6 Feet Under

From 100,000 Feet to 6 Feet Under(Board and Finance Committee Communication Tools: Annual

Financial Reporting and Multiyear Financial Planning)

PNAIS Business Officers ConferenceApril 25-27, 2010

What We’ll Cover Today• Financial Reporting– Why We Report– What We Should (and Shouldn’t) Report– To Whom Do We Report?

• The Annual Budget/Reporting Cycle• Multiyear Financial Planning• Board Financial Training/Orientation• Institutional Research

And all this in 75 fun-filled minutes!

The Gospel According to St. Rob…

• This is what I think, developed over 25 years of working with school finance and boards

• YMMV… (adapt it to your individual circumstance and school/board culture)

You Don’t Need to Take Notes!!

This presentation, together with all supplemental materials, is available online (http://www.tinyurl.com/pnais-cfo)

But you do need to take notes about the URL!AND, you need to know the magic password:

pnais2010 (all lowercase)

Financial Reporting

Why do we report?

So that the person/group to whom we report has the information THEY need to make the decisions appropriate to their role in the organization….no less, but NO MORE

Financial Reporting

• What we should (and shouldn’t) report– We SHOULD report the information that allows

focus on what is needed to play the role appropriate to the person/group receiving the information

– We SHOULDN’T report information that inadvertently puts the focus elsewhere

Financial Reporting

What happens if too little information is provided?

(Obviously) people don’t have enough to go on to make wise decisions

Financial Reporting

What happens if too MUCH information is provided?

People focus on the wrong thing…they lose the forest for the trees

(we tend to provide too much information out of a concern that folks won’t have as much info as they think they need—keep that extra stuff in your hip pocket for use at the meeting)

Financial Reporting

• To Whom do we report?– Account Managers (the dirt…)– Account Supervisors (the 10’ level)– The Head of School (the 100’ level)– The Finance Committee (the 1000’ level)– The Board of Trustees (the 10000’ level)– The School Community (the 100000’ level)

The Dirt….Account Managers

The 10’ Level…Account Supervisors

The 100’ Level…The Head of School

• Account Manager/Supervisor reports for accounts Head is responsible for

• Year-end Account Supervisor report for all school accounts after close of fiscal year

The 1000’ Level…The Finance

Committee

“Hard” Revenue($$ we can count on once enrollment is known)

• Tuition• Endowment Income• Interest Income (except when rates change)• Transfers from reserves (when needed)

The ISM Finance Model

“Soft” Revenue

• Fundraising

($$ we CAN’T count on once enrollment is known)

The ISM Finance Model

“Hard” Expenses

• Salaries/Benefits• Financial Aid• Utilities and other physical plant costs• Program costs

– Glue sticks, paperclips, construction paper, etc.– Basketballs, officials, etc.– Lab supplies, clay, library books, historical maps– And a whole lot more…!

• Overhead– Audit fees, Day Care license, PNAIS/NAIS

memberships, etc.• (We’ve only scratched the surface!)

($$ we KNOW we have to spend)

The ISM Finance Model

“Soft” Expenses

• Most capital & “special project” expenses– Computers/technology– Tackable surface in MS hallways– Hydraulic lift for maintenance– (pretty much anything new that costs over about $1,000)

• Professional development• Transfers to…

– PRRSM (Plant Replacement, Repair & Special Maintenance)– Tuition Reserve (our rainy day fund for a modest enrollment drop)– Board Reserve (our “general purpose” rainy day fund)– Quasi-Endowment (an annual investment in our future)

($$ we can defer spending in any given year)

The ISM Finance Model

Fundamental Principle

• In a financially healthy school, 100% of “Hard” expenses should be covered by “Hard” revenue

The ISM Finance Model

(The Gospel According to ISM…)

The 1000’ Level…The Finance

Committee

(see file “finance_committee_pnais.pdf”)

The 10000’ Level…The Board

(see file “board_budget_pnais.pdf”)

The 100,000’ Level…The School Community

The Annual Budget/Reporting Cycle• Fall– September: Admin prepares final prior year financial

results and 1st current year projection– September: Finance Committee goes over financial results

and projection– October: Board receives prior year results and projection– October: Admin prepares draft of 5-year Strategic

Financial Plan (SFP)– October/November: Finance Committee reviews SFP (1-3

meetings, depending on complexity)– December: Board adopts SFP

The Annual Budget/Reporting Cycle• Winter– December/January: Admin prepares draft of next year’s

budget– January: Admin prepares 2nd current year projection – January: Finance Committee goes over proposed budget

(1-2 meetings, depending on complexity) and projection– February: Board receives 2nd projection and approves

budget

The Annual Budget/Reporting Cycle• Spring– May: Admin prepares 3rd and final projection– May: Finance Committee goes over projection and

discusses disposition of surplus (if we’re so lucky!)– May/June: Board receives final projection and acts on

disposition of surplus recommendation

The Annual Budget/Reporting Cycle• Worth Noting…– We only adopt the budget ONCE, in February

• Even when the fall reality differs significantly from the adopted budget, we DO NOT change the budget--we always compare ourselves to the original adopted budget (though the Board may approve major deviations)

• By doing this it focuses all year on the strength (or weakness) of our ability to plan well

Multiyear Financial Planning

• Why create a multiple-year financial plan?– To test the future implications of next year’s

budget plan– To test to see if a school’s strategic plan is realistic

over the multiple-year plan’s timeframe

Multiyear Financial Planning

Board Financial Training/Orientation

“Finance 101”

(see file “finance101_09-10_pnais.pdf”)

Institutional Research

The Board “Dashboard”

(see file “dashboard_09_10_pnais.pdf”)

Why Educational Costs Rise Faster Than Inflation

Alan Blinder Article

(see file “blinder_article 2-93.pdf”)

Final Thoughts (1)

• A paramount role of the CFO is to support the Head and the Board in their efforts to carry out the mission of the school and to realize their vision for the future of the school

• (It’s so easy to consciously or unconsciously subvert the Head and/or Board via the budget/financial assumptions one makes)

Final Thoughts (2)

• By focusing on what the audience for financial reporting NEEDS to know to play the audience’s appropriate role at the school and by tailoring the reporting to that end, the CFO can facilitate wise, forward-looking decision making

Thank you!