Like many of you, I spend time in January planning for the year. I think about what my priorities will be for my business, my personal life, and where I will focus my time. Part of this includes, as it did last year, an exercise to identify what the top priorities will be for colleges and universities for the year.
Cost restructuring and analysis remains at the top
The turnover of senior finance leaders has slowed down. I hope this is a sign of finance staffing stability after the significant turnover we saw this time last year. This stability will be important over the next few years because small institutions are about to hit more difficult financial times.
This has created pressure on the academic side to create new programs, sunset or modify existing programs, and think creatively about how to structure staffing and increase average class sizes. This and the opportunity for provosts to move into presidencies will cause burnout, turnover, and instability on the academic side of small institutions, making these critical initiatives even harder to achieve.
Regardless of the predicted “demographic cliff”, many small institutions have already seen a flat or declined enrollment, despite discounting at higher rates to attract more students. At the same time, institutions face inflation and the pressure to replace positions at higher rates, increasing expenses faster than revenue. This places immense pressure on us to right size our institutions for a financially sustainable future. I am working with a handful of institutions to evaluate choices around this now. As we look to the next two years, it is still unclear if they will survive.
Many in higher ed are talking about an increase in the rate of institutional mergers or closings. I still believe this will be more prevalent in 2025 because of board designated endowments and borrowing from restricted funds.
I am no economist, but prices are high, interest rates are high, unemployment has slowed, and it is harder to get a loan for capital improvements. If we see a downturn in the value of our endowments this year, we will feel the impact by 2025. This will be a hard year. One potential bright spot is that enrollments generally increase during a recession, so perhaps fall will bring good news.
Automation (especially for reporting & budgeting) rises from #3 last year
The big surprise this past year was the number of institutions that still created financial reports using Excel. The one purpose for financial statements is to use them to make data-informed decisions about the future. The longer it takes to get meaningful financial information, the slower the pace of decisions. In this environment, we cannot afford to lag, especially when it already takes us two years to effect real change.
How can we ask budget managers to be accountable for a budget when they are simply seeing a long list of accounts across multiple departments showing small dollar amounts? A VP overseeing 15 cost centers needs a clear picture of the situation. Unless we aggregate all 15 cost centers and distills them into twenty line items, the VP will not see the impact of all the smaller decisions. I’ve often said that if you want to prevent someone from knowing what’s going on, give them lots of data. They will be so overwhelmed by the weeds; they will not see the forest.
I hear lots of reasons why people don’t automate reports, but it is usually a lack of prioritization and lack of understanding on how to get started. There are many tools available, even tools that combine budgeting and reporting. The ability to analyze and monitor financial results will be more critical in the next few years. You will see more pressure from presidents, boards, and VPs for meaningful and timely financial information.
Financial modeling replaced upskilling and succession planning
While this seems closely related to reporting and budgeting, it is distinctly different in that it is solely focused on the future. It involves creating a model that shows the potential future financial outcomes of a new initiative or a sudden change in enrollment. Think about the most significant pressures we face in our educational models. The emergence of new technology giving rise to artificial intelligence, remote work and school, or the rising curiosity around micro credentials and soft skills are just a few.
Strategic planning and storytelling
The financial headwinds we face cause us to have conversations around strategic planning. A critical outcome of planning is knowing the financial impact of decisions and whether we can afford to make changes. We can use the link between the strategic plan and financial projections to tell the important story of our future.
Whether we start new programs, eliminate old ones, offer micro-credentials, increase our online presence, or downsize our physical campus, we need to know these changes will save money. We must ask ourselves, “Is this enough?”
If we are not able to easily generate timely financial reports, this modeling exercise becomes more difficult. Further, understanding the interplay between all funds is more critical. Many of us think only of unrestricted operations, which is not a complete picture. We must spend all the restricted funds available, rather than allowing budget managers to hold them for a rainy day.
I still believe in the importance of upskilling and succession planning. (My #2 prediction last year did not even make the cut this year.) I suspect most finance leaders will be too busy learning the dynamics of their new role or modeling financial choices to put effort into this now. Perhaps they’ll be able to next year.
Stay tuned throughout the year as we bring you more real-time insights from the work we do every day with institutions like yours!