Notes on Financial Stability for Montessori Schools During COVID-19 – or Any Time

Notes on Financial Stability for Montessori Schools During COVID-19 – or Any Time By Charlie Biggs, Executive Coach/Consultant for Nonprofit Organizations and Independent Schools and Preschools

Financial stability depends on keeping a balance between income and expenses — with at least a little more income over time so your school can survive and thrive. This can be difficult under any circumstances. It is especially challenging during a situation like the current COVID-19 pandemic. Here are some thoughts on how Montessori schools can achieve financial stability – looking first at income, second at expenses, and finally at developing and sharing contingency budgets to help with your planning and keep your staff and families in the loop. Some of these suggestions are specific to COVID-19. Others are more general and could apply any time. Each of these points could easily be a whole article unto itself, but I want to outline them all here to give you a wide range of things to think about as you and your school grapple with how to sustain and strengthen your work through this strange and difficult time.1

INCOME

To get through the current crisis and ensure the long-term financial stability of your school, I would encourage you to do the following. • Continue educating your students,

supporting their families, and charging tuition even if your physical facility has

to close. At some point, or perhaps several times, over the coming year, your local or state government and/or Health Department may order you to close your physical facility – either because of a case in your school community or because of an increase in cases in the broader local community.

If this happens, you should continue educating and supporting your students and their families through home-based instruction, and you should definitely keep charging your full tuition. There are at least three reasons for this, all of which you can and should explain to the parents at your school. 1. Closing your physical facility is not your choice or your fault. You are following guidelines set by local, state, and/or federal authorities – guidelines that are designed to ensure the health and safety of your students, families, and staff. So, hard as it may be for parents to understand, your closing actually benefits them and their children. 2. By continuing to educate and

support your students and families through at-home learning, you are doing everything you can under

the circumstances. In fact, based on what I’ve heard from Montessorians in Tennessee and across the country, you’re probably doing more than most of the other schools in your area. You and your staff are undoubtedly working harder than ever and putting in even longer hours than usual. You all have a right to be paid for this work, and you have a right to expect parents to keep paying tuition in return. 3. By continuing to charge tuition,

you are ensuring that your school will still be there for your students, families, and staff when the pandemic

finally ends. If parents stop paying, you will have to lay off your staff, causing real hardship for them and possibly forcing them to look for other jobs. Unless you have substantial reserves, you also probably won’t be able to pay your fixed operating expenses, such as rent, utilities, copier fees, etc. On top of all that, your parents might lose confidence in your school and take their children to other schools that can support them

1 The ideas I’m sharing here come from my experience in nonprofit management and fundraising and as Director of the Knoxville Montessori School from 2009-2017, from webinars on various aspects of the COVID-19 pandemic that I’ve attended, and from insights gleaned from individual and group conversations with Montessori teachers and administrators in Tennessee and across the country. I am particularly indebted to the participants in the ongoing series of Zoom meetings on the pandemic organized by the Montessori Alliance of Tennessee and to the participants in the weekly Zoom meetings that the Knoxville Friends of Montessori has been holding since April 2020. Any errors and omissions in this article are, of course, my own. Everything I say here is intended as a suggestion, and you should be sure to check with your lawyer, accountant, business advisor, etc. before adopting any of these ideas.

more consistently during these times. The result of any or all of these could easily be that your school would have to close permanently. If your families value what you do for their children – and I certainly hope they do – they should be able to see that this is not in their long-term interest, even if it is difficult in the short term.

The overall point here is that you should not undervalue the amazing education that you provide to your students, even if you have to provide this education in a very different way for a while. And you should not undervalue the support you provide parents, which is more important than ever during this very difficult time.

You need to communicate all of this information to your parents as clearly and compassionately as you can, and you may need to make individual accommodations for families in which one or both parents have lost their jobs, been furloughed and had their income temporarily reduced, or been impacted in other ways. But, your overall policy should be to continue collecting full tuition from everyone who can afford to pay.

In order to make this work, it’s important to add language to your parent contracts saying that if you have to close your physical facility for reasons outside your control, you and your staff will continue educating your students to the fullest extent possible – and that parents will be expected to continue paying tuition. If parents have already signed contracts for next year, you can send this as an addendum to the contract, giving them the option to withdraw without penalty if they don’t agree. The schools I know that have already done this have found most of their parents to be very understanding and supportive. • Develop a plan for at-home learn-

ing, so your school can pivot quickly to this

if it becomes necessary. Doing “virtual” or “at-home” learning can feel antithetical to the Montessori approach, which relies so heavily on the physical materials and the interaction of students and teachers in the classroom. But, a key part of the Montessori approach is Maria Montessori’s advice that the teacher should “follow the child,” and if public health needs force schools to close and children to stay at home, then surely teachers and schools can follow them there and support their learning in that environment. Countless Montessori schools did that last spring, and most found that while it wasn’t optimal, it was at least possible – and that there were some unexpected benefits as well, including the opportunity to gain more insight into their students’ lives and to work more closely with their parents.

In order to make this work, and to keep charging tuition, it’s important to have a plan to shift quickly from on-campus to at-home learning in case of a shut-down, and to prepare your staff and parents so they know the procedure if it is necessary. If your school did this in March, 2020, you already have experience with this. If you didn’t do this, you can talk to schools in your area that did and draw on their experience and on the information and resources collected by groups like AMI, AMS, IMC, Trillium Montessori, and others. • Charge tuition that reflects as

closely as possible the true value of the

education you offer. In my view, Montessori schools offer the best possible education

for most, if not all, children. Doing this requires highly trained teachers, extensive (and expensive) materials, beautiful facilities, and a lot of time and energy. Far too often, Montessori schools don’t charge sufficient tuition to reflect all of this.

This is obviously not the time to increase tuition. But, as a general rule, you should set your tuition as close as possible to the actual cost of what it takes to deliver the wonderful service that you offer.

One way to set tuition is to find out, formally or informally, what other private schools and preschools in your area are charging. You don’t necessarily want to be the most expensive, though it’s OK if you are, but you should be charging at least 80%-90% of the most expensive. If you’re not, you should gradually increase your tuition over time to reach that level, and then keep raising tuition a few percent each year to stay ahead of inflation and give raises to your staff.

Setting your tuition this way will ensure that families come to your school because they really value what you offer, not just because you are cheap, and it will give you more resources to support your work. • Develop strong internal and external

marketing programs to attract and keep families that understand and appreciate the

value of what you do. These are things you should do all the time – and they are more important now than ever before.

External marketing is critical to attracting new families to your school. It includes a wide variety of activities such as tours and open-house events for prospective families (all of which can be done virtually or in small, socially distant groups), developing an informative and engaging website, doing some basic work to ensure that your site ranks highly in Google searches for schools and preschools in your area, and using social media tools such as Facebook and Instagram. In these efforts, you want to be sure that you are sending a consistent message that highlights the strengths of your program and attracts the kinds of families who will enroll because they value what you can do for their children.

Internal marketing is critical to keeping families at your school. You do not necessarily want to think of this as “marketing.” It may fit better with your school’s culture to think of it as “parent education” and “parent relations.” The key thing to keep in mind is that parents who have already made a commitment to your school by enrolling their children are the easiest target for you to reach. So, you should do everything you can to provide the best possible education for your students and to involve and educate their parents, as well. If the people who know your school best don’t want to keep their children there, you’ll have a hard time convincing anyone else to enroll.

Strong internal marketing, coupled with the excellent education that I know your school provides, can also help with external marketing because it will lead to increased “word-of-mouth” enrollment, as parents of current and former students tell their friends how much you did for their children and how happy they are with your work. This is the strongest possible kind of marketing, and it can play a critical role in your enrollment efforts. • Communicate with parents as often

as possible and as transparently as possible,

both individually and as a group. I hope that you are in regular communication with your parents all the time, but you will need to do even more at a time like this. Here are some things that schools I’ve been in touch with recently have done to stay connected: • Talk with parents individually to find out how they’re doing, if they have any questions, and whether there’s anything you or the rest of the school community can do to help their family during this time. • Send out surveys asking for parent input about questions such as how eager/willing they are to send their children back to school, what schedule(s) would work best for them, etc. • Send parents regular updates (at least weekly) to let them know what you and your staff are doing and to fill them in on your plans as they develop. • Hold parent roundtables on Zoom (or something similar) so parents can ask questions and you can address their concerns directly. • Set up a Google Classroom (or something similar) for parents where you can post information about school plans, resources for at-home learning, etc.

Through all of this, you want to be empathetic and listen closely to what your parents are saying – and to be honest about what you know and don’t know. This is a hard time for everyone, and there’s a lot we all don’t know. This is an opportunity for you to strengthen your relationships with your parents, and if you can communicate regularly in a caring, compassionate way, your school community can be stronger as a result. • Develop a need-based financial aid

or tuition assistance program to support families that can’t afford to pay

full tuition. Many Montessori schools keep their tuition low to ensure that a wider range of families are able to enroll. But for me, at least, a better way to do this, however, is to set your tuition as close as you can to the top of the market in your area (see above), and then use some of the funds from tuition, supplemented by fundraising (see below), to provide need-based financial aid to families who can’t afford to pay as much.

Setting up a financial aid program this way ensures that families who have more resources pay something close to what they would pay if their child went to one of the other excellent schools in the area. It gives you the ability to bring a wider range of families into your school community as well.

The COVID-19 pandemic makes creating a financial aid program even more important, since there are undoubtedly parents in your school community who have lost their jobs and/or seen a significant reduction in income. If you haven’t offered a financial aid program before, this is a great time to start.

To make your financial aid program as objective as possible, you’ll need information about each family’s financial situation. This can be hard to collect and analyze, so you may want to use one of the online

services that do this for you. These include the following (arranged in alphabetical order): • Blackbaud Financial Aid Management - https://www.blackbaud.com/solutions/financial-management/financialaid-management • FACTS - https://factsmgt.com/ • National Association Independent Schools, School and Student Services - https://www.solutionsbysss.com/ • TADS - https://www.tads.com/

All of these services collect financial data from parents – including the previous year’s tax return, information about their expenses, etc., – and prepare a summary for you that includes a recommendation about how much support they need. You can then use this to make your own decision about each family.

Keep in mind, all of these services base their recommendations primarily on the family’s prior year income, assuming that it will not change substantially in a year. So, if you are starting a financial aid program, or expanding your current program, to help families impacted by COVID-19, you will need to ask each family to provide documentation showing how much income they have lost as a result of the pandemic. They can do this in a letter to you, with whatever supporting documentation makes sense for their case. • Raise funds from current families,

alumni, other community members, local businesses, etc., to support your financial aid program and to pay for special needs caused by the pandemic, such as infrared thermometers, electrostatic cleaners, new outdoor facilities, etc.

I believe that in most cases, Montessori schools should be able to meet their core operating budgets through tuition and fees. But covering the cost of financial aid, facilities upgrades, and other special projects requires additional support.

There are many ways to raise funds for your school, including holding fundraising events, selling ads in a yearbook, etc. But if you need funds immediately to help families who have been impacted by the pandemic and/or to purchase specialized equipment to allow you to reopen safely, the best way is by appealing directly to people who know and love your school - current families, alumni, and other members of your community. Here are some ideas for how you can do this: • Craft a strong story for your school that appeals to the emotions of potential donors, highlights the wonderful things your school does for students and families, and explains why you need funds and how you will use them. • Prepare a 2-3 page case statement that embodies your story and includes pictures of your students and staff at work in your classrooms, on the playground, during field trips, etc. • Enlist a small group of your strongest supporters from your parents,

alumni, and other friends of the school to help with fundraising. If your school is a nonprofit and you have a Board, you can involve some or all of them as well. This is optional, but it can be very helpful. • Prepare a list of possible donors among your current families, alumni, community supporters, etc. and estimate how much each one might be able to give. When you are doing this, don’t forget to include the grandparents of both your current students and your alumni. Because grandparents are older, they often have more resources, and if they are close to their grandchildren, they may be especially eager to help. You should also include local businesses and foundations on your list and plan to approach them as well. • Make a commitment to the fundraising campaign yourself, and then ask your staff and members of your Board and/or the fundraising group to make commitments consistent with their financial situations as well. These can be small amounts, but it’s important to get 100% participation. If the people closest to your school won’t help, it is difficult to ask others to contribute. • Approach the donors on your list individually, using the 3-step approach outlined by Tim Seldin and Dr. Valadia Wise from the International Montessori Council during their “Fundraising During a Crisis” webinars.2 Here is the script they suggested: 1) Invitation to Talk: Whoever knows each person on your list best should email or text a message like the following: “Many of the families at our school are in trouble and can’t make it without your help. This is important to me and I think it will be important to you. Can you give me 5 minutes of your time?” 2) Tell Your Story: If they’re willing to listen, you and the person who knows them best should meet with them (in person or virtually) and tell your story. Then, without being specific, ask if they’re interested enough to get involved. You might say, “Without specifying an amount, can I count on you for support?” 3) Seal the Deal: If they say “yes,” ask how much they can contribute and how they would like to structure their donation – as a one-time gift, a monthly pledge, a stock transfer, etc.

You can modify this script to fit your own circumstances. If you are raising funds for health and safety equipment, for example, the message in step 1 could say, “We are facing substantial costs to purchase the health and safety equipment we need to keep our students and staff safe during the pandemic.” But whatever your needs, the basic 3-step approach should remain the same.

If you’ve never done fundraising before, it can feel daunting to ask for money directly this way. It is by far the most effective approach. One fundraising group that I know estimates that face-to-face conversations like these are effective 50% of the time. By comparison, requests made by phone are effective 25% of the time, and requests made by personal email are effective only 5% of the time.3

You do need to be prepared to have some of these folks say no, at either the first or second stage. But, if you can overcome your hesitations, you may be surprised by how many people do want to help. To make this easier, you and anyone else who will be involved should practice asking for support this way until you feel comfortable. It may feel awkward to practice this at first, but it will really help when you meet with someone and ask for their support.

One other thing to keep in mind is that people who make large donations usually want to be able to deduct their gifts from their taxes. If your school is not tax-exempt, you can create a “Parent-Teacher Organization” or a “Friends of [your school]” group and secure tax-exempt status for it. You want to be sure to talk to a lawyer about this so you set it up in a way that meets all of the applicable local, state, and federal regulations. • If you don’t already have a lawyer,

retain one to create a liability waiver and to review your enrollment and financial aid

policies, contract language, etc. Retaining a lawyer isn’t strictly related to generating income, but it’s an important step in this situation because there is so much uncertainty at this time. Having a lawyer review your policies and craft a liability waiver consistent with the laws of your state can save you a lot of trouble down the line.

EXPENSES

Hopefully, the combination of tuition and fundraising income will enable you to meet your budget goals. If it doesn’t, or if you’re not sure it will, I would encourage you to do the following: • Estimate how much your current

families, and any new families, can afford

to pay. This may be hard to gauge, but it’s critical. The best way to do this is to contact each family as part of your regular communication and ask them gently and diplomatically about their situation.

In keeping with what I said about charging tuition above, I would recommend going into these conversations assuming that your families will continue paying full tuition. But, you need to be sensitive to each family’s situation, and if someone says they need help, you can find out what they’re up against and let them know that you’re exploring ways to help if you can.

I would also recommend being careful not to make any commitments at this point about specific amounts of financial aid and explaining clearly that you can’t promise anything. But, you can let them know that you’re working on this and say that you are trying to get an initial sense of what the needs are and what you may be able to do.

Once you know roughly how much each family can afford to pay, you can tell what your tuition income is likely to be for the next school year. • Analyze your expenses to see what you can cut most easily. One way to do this is to divide your expenses into four categories: a. Mandatory for ongoing operations. b. Critical to doing business in your preferred way. c. Useful but optional. d. Simply a luxury.

Once you have identified the things that are “mandatory” or “critical,” you can see how much you can save by cutting some or all of the things marked “useful but optional” or “simply a luxury.” Depending on how things work out, you may or may not need to make all of these cuts, or you may need to cut more, but this gives you a place to start.4

Consider whether any of your expenses, like internet service, cell phones, or copier fees, could be reduced to a lower cost tier instead of being cut completely. That wouldn’t necessarily help a lot, but in some cases, even a few dollars a month can make a difference. • Analyze your expenses even more

closely and think about how you could make more extensive cuts if these become

necessary. This is where things get really hard. If you can’t bring in enough tuition and fundraising income to cover your budget even after you have cut the “luxury” and “useful but optional” items, what else can you do?

One thing you can consider at this point is cutting staff salaries. I would recommend doing this by cutting a consistent amount across the board, so everyone knows they are all sharing the same sacrifice. If you and your most highly paid staff are comfortable with it, you could also consider cutting your salary and theirs by a larger amount. However, I wouldn’t recommend doing this unless you talk with them first and get their consent.

Another way to approach this is by looking at the items in the “critical to doing business in your preferred way” list and asking yourself if there are cheaper ways to do these. There may be real value in proceeding in the way you prefer, but if another way would be less costly, it could be worth changing -- at least for now. This could include: • Eliminating helpful but nonessential positions, such as an administrative assistant position whose work you could take on for a while until the school’s finances improve. • Asking teachers and assistants to take on extra responsibilities like aftercare so you can stop hiring aftercare staff. • Exploring work trades (barters) with families who need tuition assistance. For example, one of your parents might be able to replace your lawn service in return for a tuition discount.

I would definitely not recommend cutting too much from your marketing budget. If you do, you can easily get caught in a vicious cycle where marketing cutbacks lead to lower enrollment and lower tuition income, which in turn leads to further cuts in marketing. I know of at least one school that experienced this several years ago, and their enrollment declined so much that after a few years they had to close.

Hopefully, this will all remain hypothetical. But, it’s important to think about scenarios ahead of time so you won’t have to make hard decisions on the fly without any preparation.

DEVELOP CONTINGENCY BUDGETS

Depending on what you learn from talking to your families and from analyzing your budget, you may be able to create a new budget that includes a reasonably accurate estimate of how much tuition income you will receive and how high your expenses will be. Ideally, of course, you would like to be able to cover all of the difference between your tuition income and your expenses through your fundraising. So, if you feel like you can raise that amount, you can set it as your fundraising goal.

However, if you’re not sure how much tuition income you’ll receive and/or how much money you’ll be able to raise, you can create several contingency budgets with different levels of tuition income, fundraising income, and budget cuts. If your budget is $300,000, for example, you could develop contingency budgets like the following:

Contingency 1: Budget $300,000 (no cuts). Tuition income: $240,000. Fundraising income: $60,000.

Contingency 2:

Budget $275,000 (after cutting $10,000 in “luxury” and “useful but optional” items and $15,000 by cutting salaries 2%). Tuition income: $230,000. Fundraising income: $45,000.

Contingency 3: Budget $250,000 (after cutting $15,000 in “luxury” and “useful but optional” items and $25,000 by cutting salaries 5%). Tuition income: $220,000. Fundraising income: $30,000.

The specific numbers in each case will depend on your school’s situation. But,

4 I have taken this system for categorizing expenses from Stephanie Bogan, “If The S&P 500 Falls To 2,000: How Financial Advisors Can (And Should) Be Preparing For The Next Crisis” (www.kitces.com/blog/stephanie-bogan-limitless-adviser-educe-crisis-preparation-business-modeling-uncertainty/). As her title indicates, Bogan focuses on planning for financial advisors, but her system for analyzing expenses can apply to any business or organization. Her article also includes a downloadable spreadsheet that you can use to analyze your school’s budget if you want.

thinking through options like these can be a helpful way of identifying potential tradeoffs and enabling you to see what will happen if you can’t bring in enough tuition and/or fundraising income.

SHARE SUMMARIES OF YOUR BUDGETS WITH YOUR STAFF AND PARENTS

After you have created your contingency budgets, it can be very helpful to share them with your staff and parents, so both groups know what’s going on and can understand more easily what will happen at different levels of income and expenses.

If you haven’t done this before, it may make you nervous, because it may feel like you’re revealing private information. But, especially in uncertain times like these, it can provide an important element of clarity for everyone involved. Your staff and parents may have questions about the choices you’ve made, but if you’re clear about what you’re doing and why that shouldn’t be a problem; and if the questions raise issues that you hadn’t considered, this can actually be helpful feedback that you can incorporate into your planning.

You shouldn’t share all the specific items in your budget, such as how much each staff person is paid. Instead, you should share broad categories of income and expenses, such as the following, which are based on Contingency 1 and Contingency 2 above: (Fill in numbers in the chart below for the actual expense lines.)

You can prepare summaries like these for each contingency budget that you develop. The point is not to frighten your parents and staff, but to help prepare them for the steps you will take depending on your income. That way any cuts you have to make won’t come out of the blue.

When I was Director at the Knoxville Montessori School, I found it was helpful to actually write staff contracts with different salary levels contingent on the school meeting certain levels of enrollment and income. If we met or exceeded our enrollment and income targets, we could give raises. If we were slightly under our targets, we could keep everyone at the same salary they had received the previous year. If we were substantially under our targets, we would have to cut salaries. We also included language in each contract that gave us the flexibility to make additional cuts as needed. Fortunately, we always met or exceeded our targets, so we never had to cut salaries, and we were usually able to give raises each year. But, writing the contracts this way gave everyone on staff a clear understanding of what to expect at each step in the process.

Sharing your budget summaries like this can also help motivate your parents and your staff to help with fundraising, because it will show them very clearly how much money you need to raise and what will happen if you can’t.

CONCLUSION

As I said at the outset, each of the topics I touch on here could easily be the topic of an entire article – or several articles. I hope this has given you some things to think about and some ideas you can use as you and your school deal with the financial problems posed by the pandemic.

One thing I know for sure: Montessori teachers and administrators are among the most dedicated and creative people I have ever had the pleasure of working with. So, whether you use some or all of these ideas, or chart your own path entirely, I am confident that you will find a way.

CONTINGENCY 1 – No cuts

Income

Tuition and Fees......................................$240,000 Fundraising Income...................................$60,000 Total Income......................................... $300,000

Expenses

Administration..........................................$XXXXX Building & Grounds .................................. $XXXXX Fundraising Expenses................................$XXXXX Marketing.................................................$XXXXX Mortgage Interest .....................................$XXXXX Mortgage Principal ...................................$XXXXX Personnel.................................................$XXXXX Student Expenses .....................................$XXXXX

Total Expenses........................................$300,000 Net Income / Loss .............................................$0 CONTINGENCY 2 – includes cutting $10,000 in “luxury” and “useful but optional” items and $15,000 in 2% across-the-board salary cuts.

Income

Tuition and Fees......................................$230,000 Fundraising Income...................................$45,000 Total Income...........................................$275,000

Expenses

Administration..........................................$XXXXX Building & Grounds ...................................$XXXXX Fundraising Expenses................................$XXXXX Marketing.................................................$XXXXX Mortgage Interest .....................................$XXXXX Mortgage Principal ...................................$XXXXX Personnel.................................................$XXXXX Student Expenses .....................................$XXXXX Total Expenses....................................... $275,000 Net Income / Loss .............................................$0