Most financial problems can slowly erode a college’s financial foundation. However, these five conditions can force a college to close immediately.
- Not making payroll.
- Not paying employee taxes.
- Not paying utility bills.
- Violating debt covenants.
- Not paying debt service.
Any one of these events can force a college to close. When a college fails to pay its employees, they will not work, and they will sue the college. When a college fails to forward federal employee taxes, the U.S. Treaurey follows a simple rule – pay up immediately or have your funds impounded. Utility bills may seem to have little immediate consequences until a utility terminates its services due to a string of unpaid bills. Another operational-dependent service is IT. Failure to pay a third-party contractor who either provides direct administrative services, or operational hardware and software can result in the loss of those services. In today’s world, very few colleges can survive when they lose critical administrative and academic services.
The two last conditions – violating debt covenants and non-payment of debt services – can quickly close a college, Debt holders have little patience with debtors which fail to meet these two conditions. The debt holder will push a college to take immediate steps to resolve these failures, or they will force a college into bankruptcy.
When a financially distressed college is aware of these conditions, they must take immediate steps to find money or prepare an orderly plan to close.