Pub. 1 2011-2012 Issue 1

17 Being a school leader requires making tough choices. It’s your season to put a few wise financial benchmarks in place now that will save you heartache later! Supporting the Movement o f Charter Schools 801-394-4140 more likely to receive an Investment Grade rating from a bond rating agency. They stay more solvent and have much more flexibility in accomplishing their mission. This may mean you have to consider leasing for awhile or living in a less than ideal space. If you choose to go over the 20% benchmark, make sure you have a strategy to get there within 5 years. NEW SCHOOL SEASON (FIRST 1-3 YEARS OF OPERATIONS) SAFETY MARGIN: During this season, you’ll want to be more aggressive with your safety margin. Plan on having at least 5% on your bottom line after all expenditures. Don’t cheat! If you consistently and aggressively build up your reserves in the first three years, you’ll be prepared for growth, as well as any unforeseen expenses (i.e. lawsuits, new roof, etc.). CASH ON HAND: Your goal over the first three years for a medium size school (500-625 students) should be to have between $500,000 and $600,000 in the bank measured on June 30 your third year. That is about 60-90 days cash on hand. PURCHASING: The policy here should be to only buy equipment as you need it. Far too many schools decide they want something so badly that they immediately add it to every classroom, only to find some teachers prefer not to use it. This is especially true with technology. It is also critical for you to ALWAYS consider your maintenance cost when creating infrastructure. Don’t put in a $300,000 computer system without considering how much it will cost to maintain going forward. FUNCTIONING SCHOOL SAFETY MARGIN: Some folks might dif- fer from our opinion on this one. Once you have sufficient cash on hand, you can drop your safety margin to as low as 3% and still meet any debt service coverage bond covenants you may have. Your job is not to amass a pile of cash. Now is the time you can use those resources to really propel the mission and vision of your school. CASH ON HAND: Your goal now is to maintain the 60-90 days cash on hand. When you fall short one year because of an unexpected purchase, up your Safety Margin one year and rebuild your reserves. FACILITY: Consider refinancing now that you have a great track record. Remember, anything below 20% of revenue is great! PURCHASING: When you budget, consider using reserves for one-time purchases. That’s why you saved in the early years. Being a school leader requires making tough choices. It’s your season to put a few wise financial benchmarks in place now that will save you heartache later! Monty Hardy is the President of Red Apple Financial, a professional firm with years of experience in the complex financial requirements of operating a successful charter school. Monty can be reached at 801.394.4140.