Fiscal resiliency: tips and tools for effective modeling and analysis

This blog summarizes key takeaways from our fiscal resiliency podcast series, episode three.

When examining fiscal resiliency within the context of the current higher education landscape, it is clear that colleges and universities are facing pressure from many different directions.

Fiscal pressures have been mounting for decades as the competitive cost to operate an institution has increased and, along with it, the cost for students to attend has escalated. As a result, we’ve seen a huge increase in student tuition over the years. With COVID-19 playing a significant role this year, there has been a 4% decrease in nationwide undergraduate enrollment and a 22% decrease in community college enrollment for first time students this fall1. The drop in enrollment, and uncertainty the pandemic brings, has magnified the pressures the higher education industry is experiencing.  

“While schools have ‘rainy day’ funds, the rainy day is here – and it’s been here for more than eight months now,” Tim Meyers, senior higher education advisor at Baker Tilly, said on our recent podcast. “Institutions across the country are running short on (or have ­­exhausted) their excess reserves and are looking for more strategic means of survival.”

Considering these trends and what’s going on across the U.S., it is more important than ever for institutions to understand their current fiscal position – and the opportunities to protect their fiscal position in the future.

Modeling as a key to success

As emphasized above, 2020 has presented the perfect storm for higher education institutions in terms of fiscal challenges. They are getting pressured from every angle – and they need to know the specific details of what is necessary to bounce back. One critical part of a school’s resiliency plan should be sound financial modeling. A thorough three-to-five year financial model can analyze the impacts of rising costs, decreasing enrollment and, of course, COVID-19, among other factors.

Modeling should, at a minimum, examine an institution’s income statements, balance sheets and cash flows. This will allow higher education leaders to self-evaluate their school’s fiscal situation and understand key levers for improving their financial performance.

Generally speaking, a solid model is:

• Comprehensive: It looks at the institution’s income statements, balance sheets and cash flows, as well as other key financial and operational documentation, such as enrollment data.