Great Charter School Board Treasurers Do These Things

by Rich Billings

One of my favorite moments as Chief Financial Officer of Rocketship Education was when our Board Treasurer ripped the cash flow slide out my 30-page board update, threw the rest in the trash, and said, “you are going to get sick of me asking about cash flow.” At the time, Rocketship had three schools and planned to serve thousands more families. This was exactly the right question to ask a fast-growing nonprofit that must meet its financial obligations, steward public funds responsibly, and ensure teachers and principals have the resources they need to fulfill their mission.

Recruiting a strong Board Treasurer is hard and usually involves lots of begging. But the right candidate will quickly elevate the work of the finance committee, raising expectations for how the board supports management and ensuring the committee is focused on the right things.

Great Board Treasurers DO…

Ensure the Finance Committee has expertise that matches the school network’s needs and stage of growth. In general, the biggest gap we see are committees that lack members with operational finance experience. For example, three-to-seven school networks can benefit from a startup CFO who has managed cash flow and set up financial systems in a growing organization. A thirty-school network may benefit from someone who has regionalized financial operations for a large, multi-site organization like Starbucks or DaVita.

There are numerous, talented finance professionals that do not have financial operations experience, like investment bankers, or have such specialized expertise, like tax accountants, that they miss large strategic issues. Without a breadth of experience on the finance committee, the result is often a poorly-functioning committee that goes deep on issues in which members have expertise, while leaving the organization exposed to major financial risks.

Know what they care about and demand clear, simple financial dashboards. The best Board Treasurers have a clear sense of the guiding questions they want management to answer on a consistent basis and the underlying metrics they want to see. For example:

  • Is the organization financially healthy? Metrics: days cash on hand, rolling monthly cash flow forecasts, coverage ratios, cash reserves
  • Is the organization managing resources efficiently? Metric: budget-to-actuals for expenses and net income
  • Is the organization managing resources efficiently? Metrics: home office expense per student, number of students / home office FTE
  • Is the organization allocating resources effectively? Metric: resource allocation vs. organization’s stated annual priorities and needs

Great Board Treasurers also ask the CFO to outline the key assumptions driving financial outcomes (i.e., enrollment, philanthropy, staffing, and facilities expense).

Ask strategic questions about resource allocation. The charter school network’s investment of resources should match its strategic priorities in the short- and long-term. It is easy to have annual budget and resource allocation conversations that are completely divorced from the long-term, strategic plan. For example, say a charter school network needs to raise $5M to open three schools and it raises $3.2M this year instead of $1.5M. The additional $1.7M is not simply “found” money that should be immediately spent in the current year. The Board Treasurer should work with management to understand how these resources fit into the long-term financial plan. In addition, the Board Treasurer can and should push on whether the organization’s stated priorities are sufficiently staffed.

Help the charter school network create a viable, long-term financial strategy. What is the base financial model for a school in the network? Are the schools sufficiently funding the home office? Are philanthropic projections reasonable? What is the real estate financing strategy and are there certain cash flow and balance sheet requirements the network should work towards? What are the key assumptions and what changes would need to be made if those assumptions are wrong? Getting clarity on these types of questions is essential to building a public school system that can grow responsibly over time.

Help the organization manage financial risk. Financial risk can come in many forms: fraud, lawsuits, unexpected special education expenses, declines in public funding, poor compliance, enrollment misses, etc. It is good practice for CFOs to report regularly to the board on material financial risks and periodically review the organization’s financial controls. And a great Board Treasurer will work with management to ensure there are strong enough dashboards to monitor these risks — yes, an organization can project a budget surplus and run out of cash. They will ask what levers management intends to pull if annual projections are wrong (e.g., public revenue is 5% less than forecast). Great Board Treasurers will also ensure that the network has financial policies that govern the handling of cash, segregation of duties, expense approvals, and whistleblower protections, among others. For those networks that own their own buildings, a good question to ask is whether the organization has reserved enough capital for long-term facilities expenses (new roof, HVAC replacement, etc).

Give charter school networks strategic advice and help them “see around the corner.” Board Treasurers experienced in financial operations have typically learned hard lessons about budgeting, overly-optimistic assumptions, expense controls, and managing stakeholders that are useful to school systems trying to manage growth. They can also help CFOs and CEOs anticipate common problems as their organizations grow in complexity, such as “What happens if one school has to execute a private facilities strategy? Does that school pay for the extra cost or is the additional expense shared across the network?”

Great Board Treasurers DO NOT…

Blur the lines between the board and management. They stay focused on strategy and outcomes and let management figure out how to get there, providing advice and support when asked.

Pull management away from running great schools. Great Board Treasurers are clear on expectations such that management can focus on executing the organization’s mission instead of spending all its time preparing for, presenting at, and debriefing from finance committee meetings.

Get into the weeds around daily operations. So-called working boards can fixate on technical issues and never get to the most pressing strategic questions. This approach can lead to answers that are precise but strategically incorrect. From a strategic standpoint, the cost structure of schools is predominantly staffing and facilities. Spending significant committee time on copier expenses (while there may be potential for savings) is likely a bad use of a finance committee’s attention. Focus on the key drivers: enrollment, per pupil revenue, fundraising, staffing, compensation strategy, and facilities expense.

Believe every answer can be found in the private sector. Public school finance is complex, highly-regulated, and highly-politicized. And generally low funding means high-performing school systems must be extraordinarily efficient with their dollars. Private sector professionals are often surprised by how challenging the financial environment is for charter school networks. And most charter school CFOs who come from the private sector report that managing charter school finances is by far the hardest job they ever had.

Artifact: Select slides from budget presentation to board finance committee from three-school charter network

Artifact: Guiding questions that Board Treasurers can ask when evaluating annual budgets.

*SUBSCRIBE to Charter School Growth Fund’s Weekly Finance Newsletter*