Strengthening Reserves for a Sustainable Future

Compensation is just one piece of the employee retention puzzle at an independent school that offers many rich benefits.

Feb 3, 2025  |  By Edward F. DiYanni, Stevenson School

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In my 17 years as CFO at Stevenson School, I have come across many NBOA resources, including Net Assets articles, that prompted me to explore financial management at my school in a new light. No matter how long you’ve been in the independent school business, it’s not too late to keep learning. My latest ah-ha moment came when reading a recent Net Assets magazine article highlighting “ The 10 Warning Signs of Financial Distress at Your School” by Brenda Stonecipher. She highlights 10 key areas for CFOs and finance professionals to monitor:

  1. Declining enrollment
  2. Increasing financial assistance
  3. Budget deficits
  4. Lack of long range (3-5 year) financial forecast
  5. Declining reserves
  6. Inadequate financial reporting
  7. Low donor retention
  8. Deferred maintenance
  9. Expansion of debt
  10. Spending deferred tuition revenue

Calibrating the 10 Points

Upon reflecting on the article, I thought a very useful addition to knowing these 10 areas would be a way to assess a school’s performance in each. After conferring with the author and learning that she had not developed an assessment scale, we at Stevenson created a simple four-star scale that evaluates each area as follows:

  • performance is excellent
  • performance is very good (above average)
  • performance is OK, but warrants close monitoring
  • performance is not good, and this is an area that needs focus and a plan of action

This addition to the excellent outline of top 10 points helped us assess our school’s current financial strength and identify steps to further strengthen its position and long-term sustainability.

Since not all areas carry the same immediate or potential financial impact (e.g., declining enrollment would generally be more concerning than a need to improve financial reporting), some degree of subjective weighting was necessary in calculating an average score for the school's overall position. Drawing on the results of the self-assessment, the head of school and CFO prepared a financial sustainability action plan to be reviewed with the board of trustee’s finance committee.

 

A New Reserves Policy

As any experienced business officer will tell you, a self-assessment tool is only as valuable as the action you take based on the data it provides. Our use of this tool has led to several improvements in the business office, including the development of a new reserves policy and benchmark targets.

Homing in on the points of rainy-day cash fund and deferred maintenance reserves, we conducted a thorough review of Stevenson’s overall reserves position, documenting and clarifying it for trustees and identifying any additional reserves on the balance sheet. We used this exercise to facilitate discussion with the finance committee and ensure a shared understanding of this critical financial sustainability factor.

Just as importantly, we prepared a formal reserves policy — a first for Stevenson. In doing this, we were aided by two other Net Assets articles: “ Growing Your School's Cash Reserves, and Using Them Wisely” (May/June 2024) and “ Trends in the Capital Spending Ratio” (Jan/Feb 2024). NBOA members can see a sample reserves policy in the NBOA Library.

Point 11: General and Administrative Expenses

When using this self-assessment, think about how you might augment it to best fit your school. For example, we at Stevenson have added an 11th area of focus to Stonecipher’s original 10, which is decreasing general and administrative expenses as a percentage of net tuition. We monitor performance in this area based on available benchmarking metrics received from our auditors and historical year-over-year comparisons of school operating results in this line-item category.


Author

Edward DiYanni

CFO

Stevenson School

Edward DiYanni is CFO at Stevenson School, a PK-12 boarding and day school serving 750 students in Pebble Beach and Carmel, California.

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