Who Is Driving
Your School's Direction? Can You Shrink Your Way to Success?
Hello Doug,
I hope you're winding down
another successful school year and preparing for a well-deserved summer
break. There's no rest here at HEG as we've a number of projects underway
around the globe, including market study and business plans for K-12
international schools in Canada, GCC, USA, and Asia. Along, with this,
we're actively representing the sale of a dozen schools globally, and two
school evaluations this Fall.
As shared in past
eNewsletters, our team has been involved in numerous projects the
regarding start-up of new private schools and those in the midst of roll
out. All of which require an experienced hand to ensure the are operated
and managed effectively. As they say, you never get a second chance to
make a first impression.
One of the critical blunders
we see time-and-again with start-ups is that fact that founders haven't
developed a detailed enough strategic business plan from pre-formation to
operation over a five to seven year timeline to adequately determine
whether: (1). The school is feasible in that particular market based on
its program/operation/finance benchmarks; and (2) They've adequate
capital to cover the initial cash-flow shortfall in the first two to
three years of operation until they reach their break-even point.
Our rule of thumb when
establishing a school is: it needs to break-even within 24-30 months; it
should be able to pay down its debt within eight to ten years, and IRR
(depending on location) should range upwards to 25 to 35%.
Nevertheless, the fact is
that schools don't break even right away. There's just too much overhead
that extends costs before you reach an enrollment point whereby you break
even. However, when you reach that point, then it's clear sailing, along
as you ensure that you continue to deliver on the program quality you
committed to the at the beginning. You can't cut corners here!
For those schools, be it
established or new, that do not adequately prepare a strategic financial
plan and budget, they end up in a cash crunch, and in most cases, start
cutting back on program resources and staffing and/or dip into next
year's tuition to cover this year's shortfall. This is a slippery slope
to get on and it becomes more a matter of "when" not "if"
the school shuts down. I've seen it too many times now.
There can be fine balance
between delivering on program quality and achieving your mission and
being financially responsible. But that's what planning is about. Measure
twice...cut once.
But who is the driver of
ensuring you achieve your strategic priorities? Who drives the decision
making for your school? Is it the accounting office, Head of School, or
the Board? Is it the 'bean counter' or the educational CEO of your
school's vision. Don't get me wrong, there has to be financial
accountability, but who ultimately makes the decision on the bottom line?
And what's your bottom line and how do you measure it?
In today's eNewsletter I
want to talk more about who drives your school's decisions regarding
short- and long-term strategic priorities and how to align your school's
planning to ensure your institution is sustainable and directed towards
your goals within a financially responsible process. In simple terms,
this is what strategic planning is about, and something no successful
school (be it for-profit or non-profit, new or established) can do
without in today's every changing world.
One thing is for sure, you
can't shrink your way to success.
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To your success,
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Douglas Halladay
President
Halladay Education Group
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Today's Article:
Who Is Driving Your
School's Priorities? Can You Shrink Your Way to Success?
I read an article (Monday
Morning Memo) a few months back that shared a story about a cafe owner
who was famous for their soup, who was told by their accountant they
could improve profits considerably if they added 5% more water to their
recipe. The accountant was right. Water was added and no one noticed.
Months later, the cafe added 5% more water and still no one noticed.
Later, more water was added. And then a little more, but never more than
5% since they'd demonstrated that customers couldn't detect just 5% more
water was added.
As you guessed, the cafe
owner didn't lose customers incrementally, but all-at-once. "The
soup here just isn't as good as it used to be." It proves that
operators have a blind spot to the all-at-once backlash that comes from
watering down the soup. Businesses expect to see incremental declines
when they're incrementally abusive, but that's not how it works. When clients
pack up to leave, they take their business (your students) with them and
leave all at once.
The key principle for
cost-cutters is that profits go up when costs are lowered. On paper, this
makes sense since a cost-cutter's forecast doesn't project a decline in
business.
In the short-term,
cost-cutters look brilliant.
Later, when clients quit
buying soup (enrolling students at your school) and the business begins
to crumble, the cost-cutter becomes an even bigger champion: "See, I
told you? If I hadn't cut expenses, we'd really be in trouble now. But
with our new, lower overhead, we're still profitable. I've saved the
school."
Don't shake your head. I've
watched it happen at many schools and it makes me want to scream.
My question is, who
determines your school's priorities, and do you develop a short- and
long-term plan to enable you to responsibly align your resources to
achieve your goals, allowing you to ride out the dips in start-up and
operations?
I'm not implying that all
accountants are meddling. Someone has to ensure you live within your
means. In fact, it's easier to raise revenues than slash costs.
However, when you're a new
school, you cannot shrink your way to profitability (and sustainability).
You need to ensure that you've the capital in place beforehand to cover
your initial short-fall; not "cut" your way through it.
In fact, in during your
initial start-up years, you should develop an accountable business plan
that allows you to grow your school's program quality rather than shrink
it.
I'll finish off with one
more pearl from the article to drive home the concept that you can't
'shrink' or shrivel' your school to success...
A cost-cutter buys grapes
and makes raisins.
An entrepreneur buys grapes and makes wine.
You'll never see a person
arrive to a celebration
carrying a box of raisins.
NEXT
STEP
If you would like to find out more about strategic planning
or school formation services, or advise on the review and implementation
of your current plan, please contact HEG to find out more by sending an email
to info@halladayeducationgroup.com
or calling directly at +1-604-868-0002.
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