The Iron Triangle of Your Financial Policy

Even as we settle into a new pandemic normal of adjusted staffing, enrollments and ratios, inflation is on the rise. According to Roger Neugebauer, in The Art of Leadership: Managing Money: “Often, …directors’ valiant efforts to keep their centers in the black only serve to mask a fundamental problem… their costs of doing business have inflated to the point where their fees (whether they are paid by parents or a public agency) are no longer high enough to cover expenses. When tight times arrive, one of the first things a director should do is to perform a break-even analysis. The purpose of this analysis is to determine your break-even point — the fee level above which your center is making money and below which it is losing money.”

Louise Stoney of Stoney Associates suggests monitoring the ‘iron triangle’ of enrollments, rates and fee collection. Whether paid by parent fees or third-party funders, “If the children are not enrolled, the funding does not flow. This makes full enrollment a cornerstone of ECE finance, regardless of whether the program relies mainly on public funds or relies primarily on parent fees, or a combination.”

Stoney further points out: “Fees only become revenue when they are collected…In tough fiscal times, when third party funders are cutting budgets and parents are squeezed financially, ECE programs often face a difficult choice: keep fees high and risk increased vacancy rates and higher bad debt, or lower fees to boost cash flow. Unfortunately, the right answer is not simple or obvious, and it may vary from center to center based on the services offered and the families served.”

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