Higher Education Policy and Practice

Are Your Finances Strong Enough to Survive the Recession?

Every day the news media report more economic problems are threatening the financial stability of colleges and universities. We have all seen the news about Harvard University eliminating new hires and shutting down major capital projects because endowments have fallen precipitously and donations have turned into a trickle. Now we are seeing that
enrollments at elite institutions like Williams and Amherst are less than last year.

Presidents are on pins and needles waiting to see if applications are turning into real students who take classes at their institution. It looks as if they will not know their true enrollment until parents and students have determined that college is affordable this year.
Their decision may not come until late summer.

Enrollments, endowment income, and donations are leaving presidents in a quandary – does their institution have enough cash to sustain a significant drop in enrollment?
We want to help you by offering several simple guidelines to estimate your financial risk and suggesting ways you can strengthen your financial condition. Under the current financial conditions, the worst strategy is to try and wait out a situation that you know is bad. The chance of a quick turnaround, handout, or miracle is not in the cards!

Testing Your Financial Condition:

  1. Is your Composite Financial Index (CFI) greater than one? If it is less than one, you need to make immediate plans to reposition your score. Ask your CFO to use the CFI Worksheet and CFI Scoring Guide (also available on our web site’s Presidents Page) to complete this analysis. We are always available to assist you on this as well.
  2. Do you have at least four months of cash?
    If your cash reserves barely cover expenses each month, find ways to build cash: make sure students are paying their bills on time, draw down federal cash that is owed, leave positions unfilled, cut out any discretionary spending, reduce administrative perks, or put a hold on capital projects.

Other Critical Issues:

  1. Are banks calling your outstanding loan balances?
    Set up a loan repayment task force with your board chair, executive committee, and most valuable donors – have them negotiate with the banks.
  2. Is the Financial Aid Office giving away the college to get students? Ask for regular reports of financial aid awards so you can monitor them closely.
  3. Are payroll deductions for taxes and benefits being transferred on time? Ask your CFO to report each week on tax and benefit payments.

Other Suggestions:

  1. Set-up a cost control task force.
    Members should include the chief administrative officers. Their immediate task is to find cash to build reserves. Their strategic task is to find new ways of doing work so that administrative and staff positions can be cut.
  2. Out-Source money losing operations.
    Candidate include: bookstore, custodial services, security, and residence halls if they produce deficits; phone service, computer services, or anything that will reduce the cost of operations. This may require some trade-off between quality and cost. Your willingness to make that trade-off will depend on how quickly and by how much you have to cut costs.
  3. Look for partners. Can you create a symbiotic relationship with another college by sharing markets and cutting administrative and other costs?

Originally posted May 12, 2009

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