Pulling a college back from the brink of financial distress requires an extraordinary effort by all segments of the college – the board, president, administration, faculty, staff, alumni, and everyone who has a stake in its survival. This blog outlines several common steps to save a college at the brink of financial distress. Let’s make it clear, the process of saving these colleges will involve a complete restructuring of the college. Before any high-level financial steps are taken, the president needs to get the backing of the board of trustees, next it needs to clean house, then the president needs to quickly find new sources of revenue, and the college will more than likely need to deal with its debt. All of these steps should be designed to give the college several years of breathing room so that it can develop programs to generate long-term positive net income. Pulling a college from the brink of financial disaster boils down to a major reorganization of the college to cut costs, raise revenue, reduce debt, and consider borrowing from the endowment.
Board of Trustees
- The president must present a coherent plan to the board describing the current and forecasted financial condition of the college. In addition, the plan should: layout the goals to end deficits by cleaning house, developing new revenue sources, dealing with debt, and borrow from the endowment.to give the college more breathing room.
- The board will need to approve a motion that clearly states: their direction to the president to reorganize the college to eliminate short and long-term deficits, their expectation that all employees to support the actions of the president, and their understanding that the reorganization will not be completed in a single year but will continue for several years.
- The chair, executive committee and the president should meet with faculty and staff to emphasize the support of the board for the changes that will be taken by the president.
House Cleaning
- Cut Expenses by:
- Closing academic programs in which enrollment does not cover the direct costs of operation. This action will involve the termination of some faculty contracts and terminating the employment of some program staff.
- Identify academic programs with an excessive number of faculty and staff given the enrollment, then eliminate staff and faculty based on the procedures established in the faculty handbook.
- Redesign non-academic staff positions with the goals to eliminate redundancy and disorganized workflows, which should lead to fewer staff employees.
- Eliminate or consolidate the number of administrative departments, which will require that administrators and staff will take on broader responsibilities and may result in fewer administrators and staff. In cases where the college is in dire straits, the president should take over a chief administrative role, for example, the president should take over the role of chief academic officer.
- Faculty and administrators will need to take over work formerly done by their former staff assistants, such as copying, mail delivery, typing, and any other work that was the responsibility of a terminated employee that must be done.
- Conduct an early retirement or incentive campaign for faculty, administrators, and staff to cut long-term costs.
- Because the college cannot survive without cash; take these steps:
- Consolidate offices and classrooms into fewer buildings; employees will have to move; there will be no choice in this step.
- Sell grounds, buildings, and equipment that are not needed.
- Arrange with students to pay their overdue bills.
Find New Sources of Revenue
- Begin a save-the -college fund raising campaign.
- Find new revenue sources that quickly generate new non-trivial amounts of money.
- The best source for new money is sports with large teams so that.
High Level Financial Action – Deal with Debt
- Start by listing all debt and covenants. Determine if the college has violated any covenants. The president will need to deal with this before meeting with lenders to negotiate a consolidation with a reduction in principle.
- Meet with lenders to negotiate the consolidation loans through a reduction of principle; the college will need help from a debt specialist during the negotiations. As you would expect, these are very difficult negotiations, but are also critical for distressed colleges carrying heavy debt loads.
- Too often financially distressed college have over-collateralization their existing loans. This reduces the capacity to borrow.
- Reappraise the physical value of the college to determine if the value of the campus exceeds the amount of collateralization, which would provide room to borrow funds to support the reorganization.
High-Level Financial Action – Borrow from the Endowment
- If the college has an endowment fund, the college should plan to take large loan to provide breathing room during the reorganization.
- Steps to taking an Endowment Loan.
- An endowment loan requires formal approval by the board and by the relevant state government office.
- Prepare a document that delineates the current and long-term financial distress of the college, the steps being taken internally to reduce the financial distress (House Cleaning and New Revenue Sources), the amount of the loan, the impact of the loan upon the endowment fund, and the expected payback period and the interest rate to be used to compute the annual payback amounts until the loan is paid-off. Provide this information to the college’s attorney and to the board.
- Contact the Attorney General (AG} for a meeting that would include the chair of the board and the college’s attorney. The purpose of the meeting is to learn about the legal procedures to borrow from the Endowment Fund and inform the AG estimated time to complete the process.
- Following the meeting the college’s attorney should prepare a motion for the board that will be part of the documentation submitted to the state requesting authority to take an endowment loan.
- After the motion is approved that was written by the college’s attorney, the college’s attorney submits the and the formal documentation to the Attorney General’s office.
- After approval maintain documents and records transaction in the records.
This list is only a partial guide; each college is unique. It will not be easy, but the survival of the college will depend on hard and painful decisions. If an obstacle arises that threatens to stop the process – PRESS ON!