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Providence Financial












MONTHLY NEWSLETTER:  NOVEMBER 2009 ISSUE

CHARTER SCHOOLS MEET THE REAL WORLD
BY BRENT VAN ALFEN, CPA
PROVIDENCE FINANCIAL CO., LLC



While traveling with a friend of mine on a business trip, he made a comment I will never forget. He is a developer of single family housing, and he said, “There was a time when all I had to do was stick a shovel in the ground, and I made money. Now, it is almost impossible to find a loan to develop a project, let alone make a profit!”

Does that sound familiar? The rest of the story is that he said this approximately 25 years ago! Since that time, he has been through at least three “booms and busts” in his business. That is the business cycle that many real estate developers experience. As we all know, that industry is now experiencing another extremely challenging time. Smart managers in this industry take defensive measures during the boom times to carry them through the lean times that will likely recur. Those managers who take a long-term perspective usually survive and prosper. Those managers in this industry who spend their profits or get over-extended during the good years usually do not survive the challenging years that normally follow.

Business cycles can be experienced by the entire world economy, a national economy, an industry, or an individual business. They may vary in length or intensity and are created or influenced by many factors. Charter school managers must learn to manage their business in the context of the inevitable economic cycles that will occur. The United States is currently experiencing a difficult economic cycle resulting in budget cuts and other cost-cutting measures being imposed on charters by their states or districts. Smart managers will take a long-term perspective by saving some rainy-day money for lean times, major expenses, or other contingencies that will inevitably arise.

Another reality we must all plan for is called a product life cycle. Product life cycles have varying definitions, largely according to the product involved, but for our use let’s use three stages, defined as “innovation,” “rapid growth,” and “maturity.”

Most of us recall the times when there was so much excitement and anticipation about charter schools revolutionizing education and changing the world. Most of the thought and discussion I heard was largely idealistic and theoretical…this was the “innovation” stage that may still be the case in some states or communities.

Perhaps most of the country is in the “rapid growth” stage of the life cycle of our charter school “product” where the discussion is largely centered on issues related to managing full classrooms and expansion campuses. Waiting lists are long and life is good.

I am starting to see areas of the country where the market is maturing, however, and the cold, hard realities of prudent management face charter managers every day. I see some areas where charter schools are being started in a very close proximity to other charters, and competition is no longer just with a stodgy public school but with other charters. In fact, there are more and more public school districts that are waking up and realizing that they had better improve their product to compete with other charters. Wait a minute, did I say compete? Yes, depending on where your school is located, you are facing competition either now or you will be in the not-too-distant future. In some areas, charter schools are starting to fail and go out of business due to either poor business or academic performance. This is a classic sign of a maturing market.

If you want your school to survive and prosper through difficult economic, business, and product cycles, you had better focus on quality management practices. Good management focuses on marketing, community relations, internal practices and procedures, etc. From my perspective, though, the foundation of prudent financial management cannot be taken for granted. The income stream may not be stable and reliable forever. That roof will need replacing someday. Enrollment may possibly drop. Don’t take anything for granted; plan for negative contingencies. Like my friend the developer, you must think long term.

For information contact Brent Van Alfen, Providence Financial Co., LLC
Phone: 801-556-2290 Email: brent@providencefinancialco.com