How To Grow a Small Private School

I can’t count the number of times I have taken part in conversations which I can sum up as “why don’t you start a school?”.

These are always enjoyable — it’s fun to sit over a latté and think through what the art of the possible might be — but I’ve never taken these discussions seriously.

The reason is simple: the school, to survive, must be profitable.

I am aware that notions of profit are somewhat anathema to many teachers. Even parents choosing a private institution — one that must find a market to survive — often subconsciously think of it as “not-for-profit” and thus just breaking even.

As with taxes — “what do you mean you have a surplus, you’re taking too much of my money!” — schools that turn a profit are seen, somehow, to be breaking the social rules.

Yet this profit is essential to the school’s future. Let me explain.

Profit is simply what is left over. Without these leftovers, there is no opportunity to invest in the future.

Note that setting aside capital for renovation, replacement and repairs is a part of operating anything; it comes out before profits are assessed. What profits do is allow for growth.

The school may, for instance, need to build an addition or even move to a newer building. It may want to expand its range — add another block of grades — and need to provide for classroom materials and teachers in advance of actually having sufficient registrants.

In other words, change costs money that must be put aside if the changes are going to take effect.

Most private schools handle their growth needs by tapping endowments or other such long-term funds. When these exist, this is perfectly reasonable.

But a large schema of endowments is the result of many, many years of operation.

I served on the Board of the local Suicide Prevention and Crisis Intervention Centre; after nearly forty years of operation its only major endowment were the gift of the building it occupies and a fund to finance scholarships from a prior chair of the board. This is typical. I also served on the board of a small private school. Coming up on two decades’ operation, it had none of these, yet.

New facilities do not have such financial capabilities, yet in the early going will need to keep adding capabilities to reach a point of sustainability.

As a result, many small private schools end up using lines of credit and mortgages to fund their change needs.

Again, this was for many years not an altogether wrong-headed approach, but now the school risks being on the wrong side of an economic cycle — and has hampered its ability to seize opportunities or deal with change.

For instance, in one case I know of, the area in which a school is located is undergoing massive redevelopment, and the school’s site is ripe for an offer.

Yet this school, which has used debt for prior needs, would find it difficult to say “yes” to that offer, as relocation within the zone where it draws the bulk of its students will require a significantly more expensive site, plus (re)construction costs.

This is why profit is essential: the school has serviced its debt, but not significantly retired it, and thus finds itself hamstrung to either deal with its real estate questions or achieve its plans for growth.

So a small private school must set tuition at a rate that builds for the future — yet doesn’t cripple the present. A tough challenge!

Some schools try to do this by asking for a loan from new parents — a development fund from which the school draws the interest (and, upon leaving the school, the capital is returned). Some go further and simply assess a development charge.

But all of this is in one way or other a disguised higher tuition. It would be better to deal honestly with the true costs of the school.

Suppose, for instance, the tuition statement came with a statement of what the money goes for.

The building is probably mortgaged; some goes to make those payments. The prudent school will look to also include an annual payment to reduce the principal — the sooner the building is owned outright, the more options the school has.

There are salaries, and building operating costs, and classroom costs.

Then there should be a fund, as I mentioned earlier, which is added to — a capital fund — for building repairs and improvements, and another capital fund for school expansion.

All of these are anticipated expenses and should be part of the base budget.

Finally, the rate should be set to generate a return — 5% would be adequate; 10% would be desirable but hard to achieve — which is the “profit margin” (or, if you like, the contingency capability).

This more businesslike approach would create a healthy school, one that was capable of risking expansion.

An elementary school could add a middle school, and then a secondary school, providing a complete experience based on its educational philosophy.

(This might, for instance, be the growth path of a Waldorf or Montessori programme, or a gifted childrens’ facility.)

Alternatively, a second school location could be added, which could expand the school’s reach in a geographically-dispersed region (I recall our days in the AMI school in Connecticut: a second facility elsewhere in the Greater New York Metropolitan Area, where there were no other AMI schools — both were in the same Connecticut town! — would have been a natural expansion choice, as “only a fool” would have commuted a child out of New York, or from New Jersey, on a daily basis).

What all this leads to is that founding a school requires several things to come together for a continued period of time: an educational philosophy and founder to share that vision, the proper business structure to make it a financially-viable institution, appropriate and dedicated teachers who will go far beyond “a job” to make the institution into a thriving community that can sustain itself, and a Board to oversee the whole and ensure flights of fancy do not undo all the good work being done.

Without all of those, talking about educational philosophy and founding schools will remain just that — talk — or worse, another institution that flounders and makes poor decisions trying to scrape up the minimum to operate each year is likely to undo all the vision that went into its creation.

When the school has to start violating its “reason for being there” to chase enrolments simply to pay the bills … the dream is dead.

Wednesday April 25, 6 pm Pacific / 9 pm Eastern / 1 am GMT: Join CBS Radio’s Al Cole and Bruce Stewart in an open forum on community building. We’ll take questions and discuss capitalizing community projects, forming community groups, and rethinking community education. It’s an hour you won’t want to miss. Registration is $9.95 and is done through this link, where you’ll be provided with the phone number (US-based) to dial in on the 25th. Hope to see you there!