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MONTHLY NEWSLETTER:  FEBRUARY 2009 ISSUE

QUALITY IS KEY TO WEATHERING CHALLENGING ECONOMIC TIMES
BY RICK VAN ALFEN, CPA
PROVIDENCE FINANCIAL CO., LLC



The vast majority of charter school operators genuinely strive to provide a quality education to their students. However, we all know there is a wide continuum of quality attainment by individual charter schools. It may be obvious to stress the importance of quality when speaking of something as important as education. Obviously, this has always been important for all of the reasons that educators, administrators, and parents become involved with the charter movement. Recently, however, the level of quality a school achieves has assumed even more critical implications due to the current challenging economic environment.

Funding Cuts Many states have cut their education funding or are in process of doing so. Some states have also significantly delayed funding payments. Schools operating at below capacity with underutilized classrooms and teachers could find themselves in a dangerous financial situation. Adequate enrollment numbers are becoming more significant. The level of quality in instruction, management, and academic achievement are the greatest controllable drivers of enrollment demand. Quality in financial management will also facilitate wise financial decisions, including prudent expenditure reductions. These schools are also the ones more likely to have built up enough cash on hand to provide liquidity when cash flow is tight.

Slow Credit Markets

The credit markets are also very challenging for schools trying to finance a facility acquisition. As we have all seen in the news, banks generally donít want to lend right now, even to great credits. There is currently a very moderate amount of investor interest in charter school bonds. The relevant point for charter operators is that with the reduced availability of financing options, only the best charter schools will be successful in obtaining financing. Potential funding sources will look closer at school management, reputation in the community, cash flows, enrollment levels, the wait list, and how funding cutbacks may affect a school. With limited funds, financing sources can be more selective and will seek to work with only the highest quality schools as they are the ones less likely to close.

We donít have to look very far to find examples of the importance of quality in other industries. Despite poor quality ratings, the American car companies did very well financially until the combination of competition and a poor economy exposed their Achilles heel of poor quality in the late 1970s (remember the Pinto, Gremlin, etc.?). The Japanese car companies set their sights on the future and placed a strong emphasis on quality, which has allowed them to become tremendously successful and better weather challenging economic times. ?

For information contact Rick Van Alfen, Providence Financial Co., LLC
Phone: 801-299-8555 Email: rick@providencefinancialco.com