Common-Sizing Financial Statements – focusing on the student (part one)

Every mission statement includes a common theme – students.  Though some appear to concentrate on fundraising, athletics, endowment, service to society or faculty scholarship, the primary reason for our institutions to exist is the transformation of students.

So, if the desire is to reflect financial performance in a common metric, with the goal of leveling the playing field of different sized institutions, let me suggest reporting revenues and expenses in per-student terms. You may want to stratify students into traditional and non-traditional groupings but the simplest approach is the create an overall student FTE denominator.

Before we move to the numerators (see “Part Two” in this series) let’s take a detour down the path of revenue assignment.  I like to take some areas off the table by connecting expenses and revenues.  The first is to look at what is being spent on external affairs and comparing that with unrestricted annual gifts. External Affairs includes Advancement/Development, Alumni and Church Relations/Publications, Institutional (non-recruitment) Marketing and Public Relations/Communications.

So, why am I carving this out?  Primarily, it is because efforts in these areas are tangential to the recruitment of students. They are for donor, alumni and community reputation and support.  That support is expressed through unrestricted gifts. Indeed, restricted gifts are appreciated but rarely provide funds to support the annual operations of external affairs.  The goal here is to demonstrate that this area does not require subsidy from net tuition revenue. If annual, unrestricted giving exceeds what is spent on external affairs, those areas are taken off the table. Ideally, a surplus of 5% or more results.

The second carve out is for athletics and student life.  Institutions with high percentages of on-campus students require a much larger student life staff than those that are commuting.  Also, residential institutions tend to have more robust athletic programs.  My suggestion here is to use the net contribution from auxiliary enterprises (room and board less costs) to fund student life and athletics. The idea is to have a surplus at the end of this calculation.  If you do, athletics and student life are taken off the table.

The good news is that positive net contributions from these two carve-outs mean that net tuition revenue is not diverted for endeavors that should be fully supported otherwise.

Part Two will apply a per student metric for the remainder of revenues and expenses. See you in a couple of days.