Numbers That Count: Identifying Financial Metrics for Christian School Boards

For 20 years Christian Education Ministries has been working with Christian schools and School Boards to improve their financial sustainability and resilience. We have developed an eye for the numbers that count - those that Boards and school leaders must be across to anticipate issues and respond to opportunities. While sustainability should be front of mind for all schools, as stewards of Christian schools it is all the more important that we govern, manage and monitor towards sustainability (and excellence) because it is that much more important that our schools be enduring.

So what are the “numbers that count”?

1. Enrolments: Clearly enrolments are the driver of school performance. But don’t fall into the trap of “enrolment myopia”. Too often schools pursue enrolments at the cost of mission, vision, values, and genuine quality education, and suffer decline through watering down school culture. Parents and carers enrol their children for a variety of reasons and the value proposition can’t be diminished by an “enrolment growth at all costs” mentality.
2. Recurrent revenues per student: Do you know what your recurrent grant funding trajectory is, per student, to 2030 excluding NCCD adjustments? Understanding this is critical and will enable school leaders to manage the mix of government, tuition and other funding sources to ensure sustainability, and communicate well with school stakeholders. Further, understanding recurrent revenues per student (and having a clear understanding of NCCD revenue adjustments and its supporting costs) allows school leaders to get beyond the total numbers in an income statement to a deeper understanding of how they compare to comparable schools in the significant areas of their cost base. While comparing schools can be a little like comparing apples and oranges, there is value in appropriate comparison of per student metrics. Why is separating NCCD important? Because the often short term nature of NCCD adjustments can often cloud judgement and good, long-term decision-making.
3. Salary and wages as a percentage of recurrent revenue: Do you measure your permanent and casual teaching salaries separately from your administration salaries? Do you separate salaries that support NCCD adjustments, deliver specific grant obligations, or support non-educational outcomes at your school (canteens, theatre operations, etc.)?? Having this data clearly measured allows critical comparisons of teaching FTEs, total costs and per-student costs to the equivalent metrics for other employment categories. What resources is your school investing in education delivery compared to supporting activities?? While supporting activities are critical, too often schools fall into the trap of adding non-teaching resources without consideration of other, more cost-effective means of supporting education. With employment costs being the most significant cost for schools, and often fixed costs in the short term, understanding how you are investing these dollars is critical.
4. Enrolment capacity: Schools invariably know their budgeted enrolments, but do you have a handle on the enrolment capacity that exists within your school’s existing cost base? Said differently, what additional revenue-generating enrolments could you take on without adding to the cost base? What cost base I hear you ask? Good question… Do you know what your school’s cost base is? What costs are fixed, what costs vary with enrolment numbers, and what costs are step-variable costs - those that are fixed to a point beyond which they change to a new level, and at what point is the change triggered?? Having a good sense of your enrolment capacity, and what it will cost you - if anything - to fill that capacity, is critical to good decision-making. Understanding your cost base and how it changes in response to incremental enrolments supports good decision-making - it enables school leaders to make informed decisions as to the profit and cash that will be generated by enrolment decisions so they invest resources strategically.
5. Tuition recovered: Discounts, fee subsidies, scholarships, bad debts - these are all part of managing a Christian school and working with the communities of parents and students that our schools support. From time to time, everyone needs a hand. School Boards and leaders need to monitor these reductions to tuition revenues because they impact financial results and sustainability, and they can equally impact school culture if the school’s educational “product” is undervalued (or perceived to be) or embeds a “we don’t need to pay” attitude in parent communities. We recommend that you understand them individually (because of their distinct purposes) but manage them as a collective reduction in revenue. Too many schools implement the individual components for specific purposes without fully understanding their collective impact to the bottom line, or the carpark conversation about the school’s approach to tuition.
6. Debt per student: Balancing infrastructure investment versus investment in staff and educational resources is something that school leaders often debate. Do the facilities attract the students, which in turn fund teaching and learning, or does great teaching and learning bring the students, which in turn fund the facilities? It’s a balance, and a balance within an overall strategy that has to support increased cash flows which enable debt to be serviced. The typical wisdom is that debt per student shouldn’t exceed $10,000, but whether that number is too high or too low depends on the quality of your strategy, and your ability to reasonably forecast the school’s capacity to repay, and to build in margin for error, or mishap, or both.
7. Net profit: Christian schools invariably operate on a not-for-profit basis - it’s a prerequisite for government funding in Australia; it’s a prerequisite for some of the regulatory concessions non-government schools enjoy. But not-for-profit means schools do not distribute surpluses to owners, or related parties - clearly Christian schools must return a healthy profit because it is what enables investment in growth, investment in infrastructure, and servicing of debt. Extended periods of low profitability will inhibit growth and tend to be self-perpetuating. Plan strategically for profitability!
8. Operating cash flows: School financial statements should identify the cash flows the school generates from its operations, and how it utilises those cash flows to invest in assets and/or service its financing commitments. Often you will hear the term “EBITDA” (earnings before interest, tax, depreciation and amortisation) which is an approximation of operating cash flows. Boards need to monitor the school’s ability to produce operating cash flows - like net profit or EBITDA the ability to generate cash is critical to funding school growth, investment and maintaining solvency.

A reasonable question to ask next is, what should each of these measures be in a healthy school? The answer is, of course, it depends. While rules of thumb are sometimes useful aids to understanding, the more important issue is that Boards actively monitor these metrics in the context of a medium to long-term strategy which supports sustainability. And this means forecasting income statements, balance sheets and cash flows over a medium (5 years) to long-term (10 years) horizon. While forecasts will always be wrong, the management and governance discipline that flows from this approach to strategy and planning means that operating and financial outcomes will inform strategy, and strategy will maximise the likelihood of financial success. With these sorts of disciplines, School Boards and leaders can plan, focus, refine and be patient (and your banker will thank you for the greater visibility and confidence).? Without them, the trap is to manage only the annual cycle, and that, in my view, is fraught with danger.

Finally, Boards must own the strategy and govern the school to achieve that strategy. Never is it the role of Boards to “set and forget” - Boards are where the responsibility, accountability and liability sits. Never are the financial aspects the sole driver of strategy, i.e. How do financials sit in the context of education, infrastructure, stakeholder and community engagement, a cohesive and sensible marketing, communications and engagement strategy, etc.?

And remember, being a Principal with a hands-off Board can be a lonely, arguably dark place. An engaged School Board with a Principal driving the Board-approved strategy forward with transparency, accountability and godliness should be the aim of every Christian School Board.?

Matthew Gray works with Christian Education Ministries in the financial management of the 12 schools overseen by CEM. He joined CEM after retiring from the KPMG Australia Partnership in 2019, where he provided financial accounting, taxation, consulting and audit services to a diverse range of private clients across Australia and internationally for around three decades.? Matthew has previously served as the Chairman of the Board of Elders of Gateway Baptist Church in Brisbane. He has been married to Lucinda for over 27 years, and together they have three adult children to their credit.