Batten Down the Hatches

August 12th, 2012 | Posted in Articles

How to Manage in Tough Economic Times

How is everyone else faring in this economic environment? It seems to begin every conversation, from the national and large regional organizations to the small regional and single-site operators, regardless of whether an operator’s primary funding source comes from private or subsidy sources, or whether it is located in the Northeast, West, South, or Midwest. How is everyone performing and what strategies are they using to deal with declining enrollments? Who is getting financing and how? Is anyone growing? This article represents a break in our five-part financial series to address these questions, provide an overview of the situation, and share strategies that have been heard informally over the last few months.

How do you compare? — Revenue and Enrollment

Our informal discussions with educational providers through personal contact and seminar discussions elicit similar responses. Most owners are reporting a decrease of about ten percent in revenue with no change on the bottom line as compared to 2007. This is bad news for the decline in enrollment, yet good news and testimony to this industry’s ability to adapt quickly to changes in enrollment. Those who have survived past enrollment fluctuations and economic downturns have done so by adjusting costs—mainly staffing costs—on a daily (and sometimes hourly) basis, and they are confident and calm about surviving this downturn as well. In addition to adjusting costs, these providers also prepared well for a change such as this by developing healthy relationships with parents, lenders, and suppliers that would adapt to needs and changes, stabilizing resources (mainly cash and manageable debt), and knowing how to continue to be innovative and focus on business development and opportunities that will poise them for action when the time is right.

Don’t neglect your most important function — Leadership and Confidence

Now is the time for operational excellence! Staff and parents are looking to you to provide the leadership to make the hard choices when changes need to be made, while maintaining positive energy and confidence in keeping your program and business progressive. Customer service should be at an all-time high. Consider low-cost avenues for investing in your staff, families, and center. Provide training opportunities for staff, even if it means having an existing master teacher mentor younger staff. Begin a parent board and ask parents to provide refreshments for the meeting. Begin a parent newsletter that focuses on parenting information and which praises staff for their accomplishments and training. Plant a garden this spring that is visible to parents and have the children take an active role in maintaining it. Keep up maintenance and refresh classrooms with paint or small equipment purchases as funding allows. Reward staff with longevity service awards and thank them, thank them, thank them! Ask parents to contribute time or resources and thank them, thank them, thank them!

While using more creative and cost-effective strategies to manage your business, don’t forget to look for the opportunities to be innovative and even to invest in the industry if you are able. Watch legislative and private initiatives that will fund tuition in certain areas and adapt your programs accordingly. Pay attention to new avenues of revenue, such as adding infant programs, collaborating with the local schools to provide on-site afterschool programs, tutoring, business collaborations, state pre-k initiatives, or accepting subsidized tuitions, etc. Consider expanding into a geographic area that is stable and seek acquisitions of existing programs if you have the human and capital resources to do so.

Most providers are hesitant to attempt tuition rate increases in an environment such as this, but are using this opportunity to review financial and operational parent policies. Such things as registration fees, multiple child discounts, vacation policies and payment policies are often over-looked, yet can provide significant opportunities to increase revenue. In addition, many operators and investors in the private education industry believe that now is an opportune time to develop their business by acquisition and subsequently, there continues to be growth activity. Financing is a greater challenge with frequently-changing bank policies and more stringent requirements, however purchase and sale transactions continue to be completed.

Making the hard decisions — Cost Control Strategies

Staffing Costs. This is the most important and most difficult area to manage, but most educators have long been masters at cost containment and quick adjustment in hours to match enrollment.. If there is waste, it is most often seen in the early morning and late afternoon hours, and in supplemental staff such as “floaters” and part-time staff. If changes in hours are necessary, seek volunteers first, and then protect the core, long-term staff. Continue to develop and train this staff and keep them motivated by using more cost effective techniques, which are usually more meaningful as well. Have parents or children make “Why You are Great” cards for their teacher, give teachers recognition for training and special accomplishments in parent newsletters, and most importantly, communicate more than ever with staff and demonstrate your confidence that the strong organization you have developed will adapt and survive.

Programming Costs. This may not be the time to make major capital investments into your program, such as new buildings, vehicles, or playgrounds, unless they were long overdue anyway. This is more likely the time to maintain what you have already built, and again, to be creative and cost effective about your spending. Stay plugged in to your state and national childcare organizations, comparison shop for food, supplies, and insurance, be more innovative about low-cost art projects, hold a fund-raiser for a specific need such as a classroom computer, consider bringing field trips on-site, and include staff in generating creative program ideas.

Marketing. Typically business owners see marketing as an easy way to cut costs and save money when revenue declines, however now is the time to market! As with staff morale and programming costs, the most effective methods are many times also the least expensive. Invest your marketing budget back into your parents and staff with referral credits or bonuses, or hold a charitable fund-raiser at your center and invite the local newspaper. Be consistent about parent newsletters and information to parents and consider sending communications by email to save money. Start a parent advisory board, join your local Chamber of Commerce, or give a free day to parents who are interviewing for jobs.

If funding allows, develop or refresh your website, and consider email marketing.

So batten down the hatches as necessary, but continue to invest in your organization with energy, excitement, and confidence. Your leadership and enthusiasm is your greatest asset during difficult times and instilling confidence in your staff and parents will lead them forward.
We hope that some of our ideas help support your efforts in the coming months and we look forward to hearing from you about what is working!

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