The Financial Times carried a fascinating article earlier this month that, among other things, addressed the volatility on many companies' balance sheets, emphasizing that the volatility needs to be removed.
That sounds highly corporate and perhaps un-school-like, but the reality is that many schools are facing an analogous situation: families who are in serious arrears on their tuition payments, or who have paid nothing at all toward the current year. Another layer might be that donor who made a substantial pledge, but who hasn't followed through with a single dime.
For independent schools reliant on tuition payments and pledge payments (isn't that just about everyone?), non-payment = volatility on our balance sheets. We might have swings of several hundred thousand dollars--or more, in certain scenarios. Like banks who are working with the "have-not" companies described in the FT article, how long can schools continue the process of what the FT author terms "extend and pretend" or "delay and pray"? In other words, how long can schools continue to extend payment schedules, pretending that the cash is actually in-hand? That formula doesn't work for very long, and the school ends up being hurt financially.
It is a cycle we cannot afford. As a restructing specialist quoted in the article says, "Eventually, gravity takes over."
Is it easy, though, in such a people-centric enterprise, to cut loose those families who haven't paid? Can schools afford it? Can schools afford not to?
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