Preparing the Budget

Since most of a school’s income comes from tuition, the development of the next year’s budget begins with preparing the best and hopefully most accurate projection of next year’s enrollment at each age level.

In this process, you should show enrollment for the year before, the current year, and the year for which you are planning the new budget.

Patterns of attrition can then be discussed more objectively. Enrollment takes into consideration feeder schools, increasing interest in the school, future marketing efforts, etc.

When preparing a budget, several assumptions are made and should be written on ~ a separate sheet of paper as an explanation of each line item so that the board and administration have a clear rationale for budget changes. Let us look at the budget line by line and list the assumptions which would explain the amount on each line.

Sample Budget

REVENUES

LINE ITEM AMOUNT – ASSUMPTION

Operational Income (Tuition and Fees)

Preschool – number of primary students x tuition

Elementary – number of elementary students x tuition

Junior High – number of junior high students x tuition

Extended Day – number of extended day students x tuition

After School Enrichment – number of after school enrichment fees

Application Fees – number of applications x fee

Annual Giving – number of families x average projected donation

Subtotal:

EXPENSES

LINE ITEM AMOUNT ASSUMPTION

Program Expenses

Salaries Increased Cost of Living Allowance + 3%

Payroll Taxes Total gross salaries x .085

Fringe Benefits # of participating staff x $ amount of benefits

Professional Development Number of Montessori staff x $500

Faculty Financial Assistance # of staff children in school * 1/2 tuition discount

Scholarships 3% of all tuition income

Books $500~$1,000 per classroom

Supplies Consumables—$200 per child

Services Subcontracted services, as milk

Administrative

Postage and printing $20 per family

Insurance increase by 10% over last year

Equipment repair and maintenance Per service contracts

Audit Per cost of audit

Miscellaneous

Facilities

Mortgage Per mortgage

Utilities Increase by ~10% annually

Maintenance and Supplies Cost of living adjustment + square footage increases

Building Repairs Cost of living adjustment + projected repairs

Property tax Per tax projection if applicable

Subtotal:

Capital Items:

Major Repairs Per projection + 20% contingency

New Furniture and Fixtures Per projection + 10% contingency;,

New Building (Expansion) Per capital drive goal

Vehicles Per projected need

Revenues Less

Expenses before Capital Items:

Capital Expenses:

Revenues over Expenses after Capital Additions:

Budget Cycle and Tuition Payments

Rough Cut—Administrator and Treasurer (December-January)

The Administrator originates the budget for the following school year and presents it to the treasurer. Tuition raises and staff raises are projected with high, medium and low level options with the corresponding impact on the budget shown. The board reviews the budget and confirms modifications and raises. Tuition is set for the following year. At this point the principal is able to issue contracts in late February. For most schools, the fiscal year corresponds to the academic year (July to June).

Intermediate Cut—Administrator and Teachers (June)

Usually, capital expenditures and repairs are analyzed and approved late in the year by staff. This could cause some change in the budget. Also, with the end of the year totals in June, budget totals for the following year can be adjusted based on the previous year’s final information. Hiring will also factor in new variables, depending on what staff is returning

Final Cut—Administrator, Treasurer, and Board (October)

With final enrollment confirmed for the current year, and with a sense of capital needs for the year established, a final budget can be approved.

Cash Forecasting and Budgeting

Accurate cash flow projections are critical to the success of a summer program. Just because a program is expected to be profitable does not mean enough cash will be on hand to pay creditors, employees and taxes when the need arises. ln fact, growing programs often consume more cash than they generate. This is because increasingly larger amounts of cash become tied up in inventory, equipment, facilities, payroll and accounts receivable. Other directors invest their entire savings to start a new program without a sufficient cushion of cash required to pay bills when due. In either case, it is useful to think in terms of monitoring and managing cash as well as profits. A worksheet — such as the one shown on the facing page — is useful for estimating cash flows.

If you are able to anticipate possible cash drains in advance of the occurrence, several steps may be taken to avoid cash crises. For example, to increase cash in the short term, you may be able to plan ways to:

Accelerate payments from customers, e.g., offer discounts or other incentives to customers who pay early.
Grant credit to fewer customers.
Eliminate or postpone purchases from suppliers.
Negotiate extended payment terms with creditors.
Deplete inventories of raw materials and supplies before re-ordering.
Re-order raw materials and supplies in smaller quantities.
Arrange for a short-term line of credit from a local lending institution.
Sell long-overdue accounts receivable to a collection agency.
Negotiate on a quid pro quo basis with the school

HAPPINESS IS A POSITIVE CASH FLOW

Preparing the Budget