Here are several considerations when making large changes to budgets and financial strategies.
- Have you run a realistic three-year forecast that includes a careful test of the effect of demographic changes on your enrollment flow?
- Before adding new and large expenditures –
- What is the short- and long-term impact of the expenditures on the bottom line?
- Are there additional resources needed to support the increased expenditures?
- How many new students are needed to offset the new expenditures?
- How long will it take to cover the cost of the new expenditures with new students?
- When adding a new revenue program –
- How long will it take to reach breakeven on the program?
- What assurance are do you have that students will come?
- What is the cost of the marketing program?
- Have new or renovated facilities been included in the budget?
- Does the budget for the new program include utilities, maintenance costs, and custodial costs?
- Does the college have a deferred maintenance list –
- Does the list identify buildings and infrastructure with the greatest risk of failure in the short-term?
- What is the cost of these short-term risks and what happens if they fail?
- How would the college provide the funds to fix a critical failure?
- What is happening with debt –
- How much debt is the college carrying?
- Are debt payments depleting cash at a fast rate?
- Is long- and short-term debt increasing faster than the college can support?
- What percentage of the campus is collateralized?
- Is the college in danger of violating debt covenants?
- Has the Chief Financial Officer and President talked to lenders about the possibility of renegotiating terms or consolidating loans?
- Richard Cyert Economic Equilibrium Model – if the college has produced a series of deficits, it needs ever larger short-term loans to provide sufficient cash, and the demographic bust is expected to produce economic disequilibrium. The Cyert Equilibrium Model can be used to estimate the amount of income and reduction in expenses to reach equilibrium. There model has two parts – the first part identifies the ‘current disequilibrium sources,’ and the second issued to estimate what
Cyert Model – Part 1
Current Fiscal Year Cyert Disequilibrium Gap Measure
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Gap Category |
Gap |
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Operational Deficit |
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Credit Line (total amount borrowed) |
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Accumulated Deferred Maintenance Infrastructure |
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Accumulated Deferred Maintenance Buildings |
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Accumulated Deferred Maintenance IT |
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Total Disequilibrium Gap |
Cyert Model – Part 2
Cyert Equilbirium Estimate
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FORECAST |
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Equilibrium Grid – Operations & Current Net Assets |
Total Current Net Assets |
Year 1 |
Year 2 |
Year 3 |
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Current and Forecast Operational Net |
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Forecast of Cash for Current and Next Three Fiscal Years |
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Highest Risk – Deferred Maintenance |
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Disequilibrium Signal = 1, if Net and Cash is less than the prior year and = 1, if risk is higher than the prior year. |
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Equilibrium Grid – Total Enrollment |
Current Enrollment |
Year 1 |
Year 2 |
Year 3 |
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Current & Forecast Enrollment |
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Disequilibrium Signal =1, if it is less than the prior year. |
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Total Disequilibrium Score |
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Note On Equilibrium Grid Score:
- If the disequilibrium score for each year is greater than 0, then the college is in equilibrium.
- If the disequilibrium score is greater than zero for multiple years for any category of current assets or enrollment, this identifies the source of current or future disequilibrium.
- If the total disequilibrium score is rising in the last two forecast years, then the college should take steps to stem the disequilibrium within two years.
- If the total disequilibrium score is increasing and beginning to yield total scores of five, then is speeding toward large scale financial distress and must immediately looks at every feasible means to increase revenue and deeply cut expenses including debt service.