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Providence Financial









MONTHLY NEWSLETTER:  MARCH 2005 ISSUE

WHERE DID MY MONEY GO??
BY BRENT VAN ALFEN, PROVIDENCE FINANCIAL COMPANY, INC.


Once there was a scientist who did a laboratory test on a bullfrog. He said to the frog, “Jump,” and the frog jumped. He then cut off one of the frog’s front legs and told the frog to jump again. The frog jumped but was a bit wobbly. The scientist then cut off the frog’s other front leg and commanded it to jump again. The frog did the best he could in an effort to jump as commanded. The scientist proceeded with his experiment by cutting off one of the frog’s hind legs and commanded it once again to jump, but the frog was only able to push itself forward awkwardly. Finally, the scientist cut off the frog’s other hind leg and commanded the legless frog to jump one last time. When the frog did not move, the scientist wrote his observations in his notebook which concluded: “When all of the frog’s legs are removed, he obviously loses his hearing.” While the scientist correctly observed the result of his experiment, he came to an erroneous conclusion.

As charter school managers, we look at the financial statements produced by our bookkeepers and accountants and observe the results of our school’s financial performance. The key to effectively using financial statements is to know how to draw correct conclusions from the numbers. Good accounting is more than just a score for your school at the end of the year to show you whether or not you brought in more money than you spent. Just as the score at the end of a basketball game tells which team won the contest, it says little about why that team came out ahead of the opponent. A good coach keeps statistics on the key components of the game such as rebounding, steals, blocked shots, assists, etc. He also has statistics broken down by each player so he can tell who is contributing to the team effort. He knows that if his “hustle components” are better than the opponent’s, his team will probably win.

The key to effectively using financial statements is to know how to draw correct conclusions from the numbers.

The income side of the books for a charter school is fairly easy to understand. If there are a certain number of students in the seats, a certain amount of money will come in. Few things can practically be done to improve income beyond attracting more students. Once the student population is set for the year, the management focus must be on the costs. The key to good accounting is in knowing and controlling costs.

I once owned a company that had almost one hundred employees and generated around ten million dollars in gross sales. Each month I would get the operating results and ask the controller questions which resulted in elusive, frustrating answers. The controller was a good friend, and I’m a “softie” when it comes to people anyway; so I was far too slow in making a change in the controller position. After I did, I could not believe the difference in the amount of useable information I got to manage the company! Gradually, our information systems improved to the point where we knew what departments contributed to profits and what departments were losers. Finally, I had the information needed to manage! The lesson here is--if your accountant, in house or out, does not give you information and advice that you can use to better understand and manage your school, you may need to make a change. That is what you pay him for--not to just “keep score.”

You should have a well-thought-out budget formulated before the beginning of the school year. Invite the participation of all those in your school who can affect the performance of the budgeted items. If people participate in the budget process, they have a sense of “ownership” in the result and try harder to adhere to its guidelines. Don’t be afraid to adjust the budget as the year progresses if needed. Budgets are guidelines not to