Aligning Your K–12 Financial Stars
Tip Sheet
THE HEAD OF SCHOOL • THE BOARD OF TRUSTEES • THE BUSINESS OFFICE
Private and independent schools have three groups of financial stewards: The Board of Trustees, the Head of School, and the Business Office. Each role is a guiding star in the constellation that is school operations, serving a unique function in financial oversight. The school operates most smoothly when the stars are aligned on purpose, metrics, and goals.
Alignment doesn’t always happen organically. It takes work and trust that everyone is focused on what is best for the school. The earlier you reach alignment each year, the smoother school operations will be. In addition to aligning with the school’s mission, here are some examples of the core metrics each group should bring to the table:
The Head of School
Retention and attrition rates for staff and students
Teacher and staff turnover is disruptive to school operations and can degrade families’ confidence in the education you provide their children. The Head of School is responsible for nurturing a sense of ownership and community while monitoring employee retention and attrition rates. Families have more educational choices than ever—public, private, magnet, charter, or even homeschooling—and attracting new students costs more than retaining current enrollees. Thus, building a culture of belonging for students and their families is critical to an independent school’s survival.
Cost to attract each student
The old adage “You need to spend money to make money” is true. With tuition as the number one source of funding in schools, a head should know what the school spends on recruitment and if admissions marketing is driving enrollment. What is the return on investment (ROI) for those efforts in terms of the number of new students enrolling and the amount of tuition those students pay?
Cost to raise a dollar
Fundraising is crucial for every private and independent school. Donated dollars fund financial aid programs, create endowments, enable infrastructure improvements, and help the school invest in its future. A Head of School should understand the cost of marketing, staffing, software, and materials to raise each dollar that goes into those funds.
Don’t wait for the stars to align. Reach up, rearrange them the way you want them to be.
The Board of Trustees
The annual budget
The annual budget is the principal framework for business operations. The Board of Trustees has a fiduciary duty to review and approve budget proposals while factoring in past performance and projected income and expenses. This is crucial to ensure business continuity.
Cost to attend the school
The board should have a strong understanding of current global, national, and local economic conditions. When tuition and inflation outpace family income, a school’s financial sustainability may be threatened. For example, if the largest employer in the area had layoffs and the board decides to raise tuition anyway, the school may struggle to enroll enough students. If they need to pull students from outside the area to survive, the cost to attend calculation must include not only tuition, uniforms, books, technology, etc. but also transportation and/or lodging.
Cost to educate each child
The flip side of the cost to attend calculation is how much the school spends to educate each child. The National Business Officers Association estimates a median gap between net tuition and fees per student and the total operating expenses per student of over $4,000. Each school’s cost to educate varies, and it must be factored in when creating the school’s budget, financial aid strategy, and fundraising goals.
$4,000+ the median gap between net tuition and fees per student and total operating expenses per student
The Business Office
Operating expenses
The business office is responsible for outbound cash flow management, including payroll, employee benefits, facility maintenance, utilities, technology, marketing, insurance, and other expenses incurred through regular school operations.
Net tuition revenue
Net tuition revenue (NTR) is realized after subtracting financial aid from gross tuition revenue. This is an essential metric for the business office as it is the school’s number one source of income—an estimated 74% according to the NBOA—compared to fundraising in the number two spot at 4–10%.
Operating income
Beyond NTR and fundraising, auxiliary programs, interest, investments, and miscellaneous sources contribute to a school’s gross income. The business office is tasked with managing school funds so that the operating income— the total when subtracting operating expenses from gross income—stays in the black and the school does not lose money every year.
When the stars are aligned
While the business office is listed last in this document, the people and systems in that office often provide the reports the Head of School and the Board use in their roles. This critical function requires accurate data, which can only be assured when your school enrollment, academic, and financial software is fully integrated and provides a single source of truth.
Once everyone agrees on the metrics above, they can work together to attain their shared goals for enrollment, the annual fund, and the reserve fund. Your school is better positioned for long-term financial sustainability when your K–12 financial stars are aligned.
SHARED GOALS
Enrollment
Every school should have goal for student enrollment by grade and tuition revenue. Be sure to factor in the percentage of full-pay vs. partial-pay families.
Annual Fund
The annual fund is the backbone of all school fundraising. It helps cover expenses and can fill the gap between net tuition revenue and operating costs. The more a school has in its annual fund, the more programs it can offer.
Reserve Fund
Reserve funds can address unexpected expenses. For example, many schools used reserve funds at the beginning of the 2020 pandemic to purchase plexiglass dividers, masks, sanitizing stations, and new software and equipment to enable remote learning.
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