On an unusually cool August day in 2001, a thick fog shrouded University School of Nashville’s campus in mystery as students ascended the stairs to start the new school year. Suddenly, a lightning bolt flashed. Thunder boomed. The fog cleared. And as if by divine inspiration, a vision for a financial flash report appeared in my mind…
Actually, the truth is that no part of this job has come in a flash, not since my first day at USN in August 2001. I’ve relied on a few nuggets of wisdom that my father shared with me while fishing as a child and my prior experience in different industries.
My father owned a small office supply and printing business. He had fewer than 100 employees, lots of inventory, and a printing plant filled with expensive presses. Although he worked long hours, he loved waking up each day. My special time with him was Saturday morning, when we would wake up early and head out to fish as the mist rose off the Tennessee River. Fishing for me was more about listening and talking than putting a jumpy cricket on the hook (poor cricket!) or actually catching a fish (poor fish!).
My father shared how he could immediately gauge the state of his business by keeping his eye on a short list of things he tracked daily, monthly, quarterly and annually.
My father shared how he could immediately gauge the state of his business by keeping his eye on a short list of things he tracked daily, monthly, quarterly and annually. At a glance, he could see the changes from one period to another and use that information to predict what would happen next. As he talked, I could picture his graph paper with columns for each year, where he noted the year-end stat for about ten items that he said were the key to everything.
I didn’t know the word “metric” and back then, “KPI” was just a random string of letters, but I did understand what he meant about numerators and denominators, and how their relationship revealed more when you look at them together than they did on their own. It was clear that when it came to business, my father was not making up fishing stories. This was real stuff that allowed him to make real decisions.
Early in my career, I worked in banking, public accounting and consulting, and after amassing an inexhaustible supply of frequent flyer miles, I traded my status for a seat in the business office at USN. The financial system produced huge, detailed reports that printed on a continuous roll of wide green bar paper. The reports were overwhelming, physically — they folded over on themselves several times — and intellectually. With all the data in front of me, it was impossible to make any sense of it. Furthermore, I could not imagine how trustees and academics with no financial background got any value from these statements.
It took a couple of years, but eventually I developed a one-page snapshot of some key figures that I felt the board should see each month. It wasn’t fancy, and I had to walk the committee members and board through it at each meeting to help them understand what these numbers meant. There were no comprehensive financial statements showing details by division, department or sector, and it didn’t include an income statement that would inspire more questions than it answered. Instead, I focused on a handful of key cash elements that showed a picture of the entire school’s financial health.
The flash report focused our board’s attention on the results, which freed the administrative team to do the jobs necessary to advance the financial trends in the right direction — jobs like taking care of students, raising money, collecting tuition, managing our endowment and debt, and spending our reserves appropriately.
Key to the success of my flash report is consistency. My Excel file contains every monthly worksheet back to that first Flash Report, in same format, with the same nuggets, just as my father had handwritten on that columnar paper. After a few years of leading the annual operating budget creation process, I boiled it down to a dozen drivers in an Excel model that the anyone could manipulate live to see the effect of pulling different financial levers. Each year, the finance committee uses this tool to game out how a salary pool increase or change in the allocation of the operating budget to financial aid would affect tuition per student.
The model shows, for example, that non-people line items have little effect on tuition, but the smallest increases in the salary pool have a big impact on tuition. We were able to use the model to see how a goal like doubling our endowment could impact our dependence on tuition or how adding or retiring long-term debt would free up or use resources in our business model. While it’s not perfect, we still use that model every year.
Like anyone responsible for the financial operations of a large enterprise, I’ve worked with lots of models and tools along the way. Some data visualization and benchmarking tools are too complicated for use outside of the business office. Others are effective in annual discussions with our faculty, board and committees. At the end of the day, though, they all want to see basic flash budget model they’ve grown up with. The high-level view keeps everyone focused.
While consistency is key, that’s not to say I’ve not thought about tinkering with the report. I may remove the Annual Fund metric because the development director has created a fundraising dashboard for each meeting, and we don't need the redundancy. I'd consider reducing the aging buckets on receivables to just month-end delinquent and write-offs to date. We've received some substantial temporarily restricted gifts to help with capital projects, and I don't have a clean way to share that info on the current format. And if I were starting afresh, I'd include some key items from annual presentations I make to the finance committee and board regarding financial health and other benchmarks. That way board members could see those more often to gain a better understanding of their impact.
What we have accomplished at University School with this kind of tracking is significant. The endowment has increased 35-fold over the past 20 years, and our debt is a small fraction of what it was. Thank you for the rule of thumb, Dad! I’ve put it to good use.