Prepare for Your Audit! Step 3: The Pre-Audit

By the EdTec Client Management Team 

March 22, 2018

In our last blog post, we covered the first two phases of the audit cycle: Auditor Solicitation and Auditor Engagement. In this post, we’ll take a deeper dive into the third phase, the Pre-Audit. This phase occurs between April and June, and involves the auditor’s first visit to the school and frequent communication between the auditor and school leaders.

Once your charter school board has selected an auditor, the first step will be working with the auditor to establish a timeline for the final report. Keep in mind that you’ll want to leave enough time to conduct a thorough review of the audit report, so the earlier you can begin the pre-audit, the better.

During the pre-audit phase, it’s important to ask questions as they come up. Remember, your auditor is a resource, not an adversary, and they want a clean audit just as much as you do. The pre-audit phase is designed to prepare the school for the main audit, so now is the time to clear up any confusion about the process, test internal controls and compliance, and remediate any issues before the end of the fiscal year.

As you prepare for the auditor’s first visit, there are a few things you’ll want to get in order so the visit runs smoothly. It is helpful to have reviewed the segregation of financial duties, prepare an explanation for significant or complex transactions, and gather key documents. These documents include internal controls policies and procedures, paperwork related to pending legal matters, as well as copies of significant transaction such as leases and loans, new contracts with service providers, and new grant agreements. Your auditor may also ask for financial documents such as trail balances and check registers.

In addition to making sure your financial house is in order, the auditor will need proof that the school has been keeping up with state reporting compliance. Well in advance of the first visit, start compiling copies of all state compliance records and supporting documentation, as this process can be quite time consuming. This documentation includes:

  • Student records, bell schedules, calendar, instructional minutes
  • CALPADS Fall I reports (1.17, 1.18 and 8.1)
  • English Learner, Free/Reduced Lunch Program records
    • CELDT or ELPAC scores for EL/RFEP students
    • NSLP or alt. income form for all students reported as FRL
    • Direct Certification reports (3 reports pulled throughout the year)
  • Teacher credentials
  • ASES attendance reports and supporting documentation
  • Attendance records
    • Copy of P2 and all supporting documentation
    • Detail and Summary for testing month
    • Teacher signed verification for testing month

Whenever possible, provide your auditor with electronic documentation to keep everything organized, and try to fulfill their requests in a timely manner to avoid delays; remember, delays now mean you will have to rush during the main audit phase later. If you have any concerns about being able to produce certain documents, share them with your auditor as soon as possible so you can work together toward a solution. Lastly, remember to share major new developments with your auditor as they occur; your auditor will need to know about plans to open a new school or take out new loans, or expectations of new funding sources, as this will impact your school’s financial situation.

Once it’s time for the actual visit, make sure you set aside ample time to meet with the auditors to provide an overview of the school’s operations and review their questions about the school’s policies and procedures. This will set the stage for a smooth and efficient visit.

The pre-audit phase is designed to prepare your school for a successful main audit. Treat your auditor like a true partner; don’t hold back any information, be clear and timely in your communication, be open to suggestions regarding how to improve processes, and ask questions as they come up! And stay tuned for our next blog post about the next phase of the audit cycle, the Main Audit!

Strategic Planning for Charter Schools: A 101 Guide

By Guest Blogger Jonathan Kaufman, Co-Founder & Principal of  Third Plateau

One of the biggest missed opportunities we see among charter schools is operating without a strategic plan in place. LCAPs and charter renewals are necessary and useful, but they are far from a substitute for a strong strategic plan. For most school leaders, that then begs the question, “Okay, but what is a strategic plan and how do I get one?”  

A strategic plan is a document that sets a bold vision for what an organization wants to accomplish and outlines the path to make that vision a reality. Unlike LCAPS and renewals, strategic plans are internal documents, meaning they are never audited by an authorizer or the state. This means that a school can be aspirational and audacious in its thinking and planning, and include goals that it could never risk including in a compliance-focused LCAP or renewal. By giving your stakeholders the freedom to dream big without compliance restrictions, you’re helping to push the school to higher levels and reminding everyone why the school exists in the first place. Simply put: strategic plans allow school leaders to be far more authentic regarding what they care about and why, truly rallying their teachers, boards, students, families, and community around a bold vision and purpose.  

Even more important than the document itself, the strategic planning process is exceptionally valuable. A successful strategic planning process takes about six months and does four things: 

  • Takes an honest look at what’s going well and what’s not. This means asking tough questions and giving honest answers. For example, if your four-year college attendance rate hasn’t shown improvement over the last few years, avoid excuses and identify the root causes. Perhaps more supports are needed for students struggling with certain subject areas required for admittance into four-year colleges. 
  • Solicits candid input and feedback from supporters and detractors. There are bound to be uncomfortable discussions, but it’s better to address those head on than to pretend the underlying issues don’t exist. 
  • Enlists a wide range of stakeholders to co-create the plan. Create a strategic planning task force and make sure to invite representatives from all stakeholder groups, including teachers, staff, board members, students, parents, and community members.
  • Empowers a school and community to take ownership over the future they are trying to build. It’s easier to generate buy-in for your strategic plan when there are genuine efforts to identify opportunities for improvement, and when all groups are represented and informed.  

Great schools are driven by great strategic plans. So what are you waiting for?  

Prepare for Your Audit! Steps 1 & 2: Choose an Audit Firm and Engage

By the EdTec Client Management Team 

December 12, 2017

An audit is an official, independent review of your charter school’s financial statements by an approved CPA. An annual audit is required of charters in most states.  

There is much preparation required before the annual audit.  The timeline below breaks up the charter school audit cycle into multiple phases and includes suggested dates. In today’s blog post, we’re going to focus on the first and second phases: Auditor Solicitation, which all schools should ideally start preparing for in September, and Auditor Engagement, which should be completed by April 1. If you’re not there yet, there’s still time – but you should start now!  

Charter schools must select an auditing firm at a publicly noticed board meeting, and contract with the selected audit firm by April 1 of the current fiscal year (e.g. you need to select an audit firm for the fiscal year ending June 30, 2018 by April 1, 2018).  Before this can be done, a charter school’s board must issue a request for proposal (RFP) from auditing firms. You can find sample RFPs for audit services online, or ask your local charter schools association or peers at other charter schools. A school’s letter to auditors should include the school’s legal name, address, and contact person; years of operation of the school; history of prior audits; status of 501c (3) application; fiscal year to be reviewed; enrollment and ADA data for fiscal year to be reviewed; if the school is site-based or independent study; if federal expenditures will exceed $750K; if the school also requests tax filing services.  Remember that you should only reach out to auditors listed on your authorizer’s approved vendor list. You might want to ask peers at other charter schools for auditor recommendations, as this can be helpful advice.   

Once you have proposals in hand, it’s time to bring them to the board for review and voting action. There are a few key qualities that are important for board members to look for in an audit firm.  Preferably, the auditing firm will have experience working with charter schools and understand how they operate; if your school is in its first year of operations, you’ll want to work with a firm that has experience working with first-year charters. An ideal firm will also be responsive to questions and proposal requests, as this is an indication that there will be good communication during the auditing process when pressing questions arise and the school requests feedback and support. It’s also important to select a firm that seems to have a reasonable, fair mentality.  

Many districts and county offices of education require some sort of notification of the selected audit firm, along with cost information and certification that the firm is authorized to conduct school audits, and some may require notification prior to April 1, so be sure to check with your authorizer. And be on the lookout for our upcoming blog post about the third phase of the audit cycle, the Pre-Audit! 

Tax Season Is Coming…Get the 411 on 1099s!

By Jacqui Runholt, AP & Business Process Specialist

November 29, 2017

You may not be a tax expert, but if you work with vendors that provide services to your charter school, you’ll need to know the basics about 1099s. A 1099 Form is used to report income from self-employment earnings, as well as interest, dividends, and other earnings, and you’ll need to submit these forms to eligible vendors and to the IRS. We’ve put together a few tips to keep in mind leading up to tax season:

  • Any vendor that is paid to provide services to your school could be eligible to pay taxes on 1099 income. As a best practice, get in the habit of requesting W-9’s from all your vendors when you start working with them, so you have the information you need to issue 1099s when the time comes.
  • Start reviewing your vendor list now so you’re not scrambling to meet the January 31 deadline!
  • If your charter school leases its facilities, the rent expenses may be reported on a 1099 Form.
  • If you’re not sure if you need to submit a 1099 for a certain vendor, just go ahead and submit it. The IRS will know whether a vendor is eligible. It’s better to be safe than sorry.

The due date for submitting 1099s to vendors and to the IRS is January 31st, but don’t wait until then. If you’re done at the beginning of January, submit! Corrections can be made through the end of March.

Grow Your Enrollment Applications With School Tours 

Use tours as a marketing tool to reach prospective families and tell your school’s story.

by Melanie Horton, Senior Marketing Manager

July 10, 2017

You’ve gone through all the hard work of starting a charter school.  Your programs are successful and your students are doing well. But you’re still struggling to meet your target enrollment numbers each year.  Success on its own will not automatically generate a waiting list; you must arm prospective parents with information about why your school is a strong educational option for their children.  Because while school choice provides the opportunity for your school to exist in the first place, it also creates competition.

Tweet: Most charter schools don’t have a large marketing budget, but there’s a lot you can do that doesn’t cost much at all. Start by offering tours of your school. Advertise these tours on social media and at local community events. Get in touch with the local homeowners’ association or chamber of commerce, and ask if you can speak for a few minutes at the next meeting. Talk about your school’s mission and how you serve local families, highlight recent achievements, and invite community members to take a tour of the school and/or pass along the message to those with school-aged children.  Reach out to local churches, community centers, and businesses, and ask if you can post flyers on their bulletin boards.  Make sure to include the tour schedule along with your school’s website, phone number, and social media information so that those who wish to contact you about tours are able to do so.

It’s important to get the tour logistics right. Aim to schedule tours at times that are convenient for working parents, such as early in the morning or during lunch hours.  Make sure to keep the tours under an hour (you can always assign staff to stay later and talk to families who aren’t in a rush). If you’re not sure when to schedule the tours, ask a few parents of current students for their input. Maybe evenings and/or weekends work best for your community.  In that case, you might not be able to implement all of the suggestions below, but at least you’ll have a captive audience.

It’s helpful to capture visitors’ contact information so you can stay in touch and monitor interest in your school across time. Create a simple sign-in sheet – the data gathering is easier if this is done on a tablet or computer – that includes the  parent’s name and email address, and the prospective student’s current school (if applicable), and ask visitors to sign in when they arrive for the tour. Knowing where prospective students are coming from will help you to target future communications efforts, and having a database of email addresses of interested families makes it easier to keep telling your school’s story after the tour. If your school sends  newsletters to current parents, include your new contacts in future newsletters to keep them informed of all the great things happening at your school.

Start a cohort of student ambassadors who, along with school staff, will participate in the tours and talk about their experiences. This is especially valuable at the high school level, as parents tend to bring their children on the tours, and they often have questions that only current students can answer.  Inviting parent volunteers to participate in the tours is also beneficial, as they can speak to why your school is a good fit for their families.

It is helpful for the tours to be led by an administrator and a teacher, as both offer valuable perspectives and can answer different questions about the school, its programs, and policies and procedures.  If possible, divide the visit into a school overview (complete with a short question and answer session), and a walking tour. During the presentation, remember to highlight what makes your school unique, including interesting programs and classes, innovative learning methods, and awards and achievements. Invite the student ambassadors to give a quick presentation about something they’re involved in at the school, and invite parent volunteers to speak about parental involvement.

Parents like to know what their child’s day-to-day will look like. On the tour, make sure to visit at least one classroom in action; you can create a rotating sign-up schedule in advance so there isn’t any last minute planning on the day of the tour. Guests don’t need to sit down and observe the class, but they will appreciate being able to pop in and note the setup and size. If possible, visit both a core subject classroom (e.g. math or science) as well as a music or arts classroom. Also plan to stop by areas that are unique to your school, such as a school garden or robotics lab. For larger schools,  parents might be interested in seeing key facilities such as the gymnasium and theatre.

Make sure to provide visiting families with something they can take with them that will aide in their decision-making process. Create a simple one-pager that includes key statistics about the school, such as enrollment, average class size, special programs and classes available, graduation and college statistics (if applicable), contact information, and enrollment/lottery dates and details (there will likely be a lot of questions about this last one, and you want to make sure everyone has the information they need – after all, this is the point of the tour!).  You don’t need to be a graphic design expert to create an effective document, and free online tools like Canva and HubSpot can help with layout and design.

If anyone on the tour has a question you can’t answer, note their contact information so you can follow up with them when you find the answer. And make sure your main office staff is knowledgeable of the school and trained to answer questions, or direct inquires to the appropriate people, when they receive follow-up phone calls.

When guests leave the tour, they should have a clear understanding of what your school is all about. This is a valuable opportunity to connect with prospective families and brag about your school; make the most of it!

School Leader Summer Reading: Cleaning Up Your School’s Payment Processes

by Dena Koren, Senior Client Manager

July 3, 2017

The (slightly) less hectic summer months are a good time to review the school’s financial policies and procedures to make sure everything is in place. With that in mind, here are a few thoughts about one very important topic in this area: payment methods!

For many of our clients across the country, we see the same problems around navigating how to pay for supplies and services: school leaders want to be nimble and responsive to their team, but they also worry about managing the budget and following policies and procedures for the audit. Not an easy task!

As a school, you have several different payment methods at your disposal:

  • requesting a vendor invoice – perhaps matched with an internal purchase order (PO) – and paying that vendor by check
  • reimbursing employees or volunteers
  • maintaining petty cash at your school or central office
  • using a debit card associated with your bank account, or
  • paying by credit card

While there are reasons and occasions to use each of these, I strongly recommend using the invoice (and PO, if you have a PO process) and paying by check as often as possible!

The benefits of an invoice and check are:

  • Visibility into what you’re buying
  • Documentation and authorization that clearly follow your financial policies
  • Savings driven by consolidating orders and purchasing through contracted vendors
  • Cash management because you can readily control when checks are written

Because a well-run invoice and check process is centralized through your business staff, the ostensible drawback is that you are strictly controlling and slowing down the purchasing of materials and services. This may feel limiting to people! One way you can address this is to keep a regular weekly schedule of ordering and negotiate fast shipment times with your vendors. Another method can be purchasing portals like or or purchasing systems like Procurify, which can allow individuals to order through a single source and follow the approval process.

For other payment methods, limit usage to the needs that they address best. Here are a few examples:

  • Employee reimbursements: mileage and meals when traveling, fingerprinting fees, limited emergency supply purchases
  • Petty cash: making change in the front office for school purposes (e.g., break a $20 or give change for the purchase of a school t-shirt), pay an emergency plumber who only accepts cash
  • Debit card: if you have a school credit card, almost nothing. The reason is that debit cards take money directly out of your account, potentially bypassing internal authorization and increasing the risk of missing documentation. If you don’t have a school credit card, then see the “credit card” section below for some reasons you might need your debit card.
  • Credit card: ah, a necessary evil! Let’s talk about this in greater length . . .

With so many digital purchases done online via credit card now, it is nearly impossible to avoid getting a school credit card. But be sure to create a robust credit card policy to go along with it! Think about both the card uses and the mechanics for your policy:

  1. Who will have a school credit card? Keep this limited, perhaps only the office manager, executive director, and/or principals. Note that it’s likely that either the cardholder or someone else at the school will need to personally guarantee the card. It’s difficult for charters to get small business cards that do not require a guarantee.
  2. What can be purchased on the credit card? Keep this limited as well, for example: travel expenses, team appreciation dinners, conference fees, specialty supplies (can be a slippery slope, so be careful!).
  3. What cannot be purchased on the credit card? Make this list robust to show you’re serious, for example: curriculum, books, school supplies, computer equipment or technology, field trip entry fees, yearbook vendor fees, refills on postage meter.
  4. How will credit card owners document purchases? Several best practices are: require all receipts to be submitted within one week of the close of the CC statement; outline consequences if documentation isn’t provided (e.g., CC usage suspended until receipts submitted); ensure that purchases of a certain level are pre-authorized; and ensure CC statements are reviewed by a supervisor (note: make sure your most senior school leader has a member of the board reviewing and signing off on his or her CC statements monthly).

One final take-away for your financial operations – It’s ok to make purchasing and payment a little inconvenient! The slight inconvenience will help ensure that you are conscious of your spending, you are staying in line with your budget, and you have everything you need when it comes time for your annual audit.

Landing Your 2017–18 Charter School Budget: Finalizing your budget for the next school year

by Dena Koren, Senior Client Manager

June 6, 2017

It’s June, and many charter schools are scrambling to put the finishing touches on their charter school budgets for the 2017–18 school year. This can be frustrating and overwhelming given all the moving parts —finalizing staff compensation, collecting final proposals for next year’s contracts, deciding which software and curriculum to use, tracking down charter school budget plans from all the department leads, and of course, the state budget revisions… all while trying to finish out the school year!

Here’s my advice: Don’t sweat it! There is no way you are going to have all of these items finalized by the time you need to send your budget to the board for approval (likely this week or next week!). Plus, there are many aspects of the budget that are completely out of your control. Instead of worrying, try this approach:

1. Pick two or three areas of the charter school budget you’re going to focus on in the 11th hour. These should be areas of the charter school budget that are either your most significant sources of revenue or expense, or have caused problems in the past. And don’t pick “staff”! (See my next suggestion below for wrapping up your compensation budget.) Once you have picked your areas of focus, set aside a designated time (~30 minutes for each area) to dig in and try to firm up the assumptions — then put a bow on it! Once the year starts, and you have more information, you can work with your Finance Director or adviser to adjust the annual forecast to include all your latest knowledge and assumptions.

2. For staffing, again — do your best! Finalize the charter school budget with the information you know now, and include reasonable and conservative assumptions for the things you don’t know. At some point, you have to stop trying to get everything locked up and just go with what you have. But being conservative will help you avoid the frustration of going over budget down the road.

3. Make a list of the areas where you feel assumptions aren’t solid, and over the summer, push to solidify them. Also, be upfront with your board about the areas of uncertainty (note: no need to share every uncertainty, just the ones you feel are the biggest opportunities/risks). I find that outlining the missing information at a high level actually strengthens the board’s comfort with the financial plan. The board members will appreciate the transparency and feel reassured knowing you are aware of the uncertainties and on top of all the moving parts.

For most charter schools, budgeting is an art, not a science. There are countless details, many of them unknown or unknowable, so we just do our best with what we have and keep pushing for improved clarity as the year goes on!

Finance & Operations: 5 Key Things Every Charter School Leader Should Know

Originally published November 2015

Here at EdTec, we have the fortune of working with many school leaders, both seasoned and new to the charter world, which allows us to see the most effective school leadership practices.  Many new school leaders have brought successful strategies implemented in their classrooms to their new roles as executive directors.  Inevitably, however, there are aspects of managing a school that fall outside the comfort zones of school leaders and board members, such as finance and operations.  While most grow to develop skill sets in these areas, it can take time to develop those skill sets, and for those brand new school leaders, going into the job with the full knowledge base required to successfully run a charter can feel impossible.  But there is hope!  This article highlights questions that routinely come up from directors who have had to adapt to the unfamiliar financial and operational demands of their position.

  1. What key concepts do I need to know to monitor my school’s financial position?

The following indicators should be examined when building or managing your school’s budget.  You should understand these concepts to gain a sufficient understanding of your school’s financial situation:

  • Balance Sheet vs. Income Statement: In financial accounting, the balance sheet and income statement are the two most important types of financial statements. A balance sheet lists the assets and liabilities of the school as of a certain date. These may include receivables and payables (see accruals below).  An income statement, also called a profit and loss (P&L) statement, is a report for revenues and expenses over a specific time period, usually a fiscal year.
  • Operating Income: The most basic financial indicator you will need to monitor on an ongoing basis is your school’s operating income, which is derived from the income statement. This figure is simply the amount of revenues received minus the amount of expenses your school incurs in a given fiscal year. In the business world, “operating income” and “operating profit” are often used interchangeably.
  • Depreciation: It’s also important to understand the effect that depreciation will have on your school’s operating income. Depreciation is a method of allocating the cost of a tangible asset over its useful life. If your school purchases technology for $10K that has a useful life of five years, $2K of that expense will be realized each year over the course of those five years.  This means that the operating income may only be reduced by $2K each year for accounting purposes, but the full $10K still had to come out of the school’s checking account at the time of purchase.
  • Fund Balance vs. Cash Balance: The fund balance is the net worth or equity of the school. This is measured by its total assets (all that the school owns that has a monetary value and enhances its worth) minus its total liabilities (all that the school owes in debts and obligations). In other words, it is the net amount of money the school has accumulated over its lifetime (the sum of each year’s operating income since inception).  The fund balance is a good indication of the long-term financial health of a school.  Similar sounding, but distinct, is the cash balance: the amount of cash the school has in the bank at a given time.  Keep in mind that your fund balance will likely not equal your cash balance, because your fund balance represents all of your assets, not just cash.  Assets include cash and any payables or receivables, or land and equipment that is being depreciated.  When examining a cash flow statement, the projected cash balances indicate whether your school can meet its obligations on time.  If that balance is positive, you will be able to pay your bills and employees on time; if it is negative, you will not, and will need to figure out a way to manage those shortfalls through negotiating with vendors or borrowing money.
  • Accruals: Accrued expenses are liabilities which are recognized on your books before they are paid for, while accrued revenues are assets which are recognized on your books before they are received. Remember, accruals are a big reason for the difference between fund balance and cash balance. Depending on the accounting system your school uses, accruals can be booked differently.  Despite the differences, however, it’s essential to know that at the end of each fiscal year, there will be a significant percentage of current year funds that the school is still owed, but those funds won’t actually be received until the following fiscal year.  Accruals are those amounts that are still remaining past June 30 that count as current year revenue even though they aren’t received in the actual current year.  The same applies for expenses that are incurred before June 30, but paid out after June 30.
  1. What are the big-ticket items to keep in mind when managing this year’s expenses and starting to budget for the next?

While you might stress over whether you should budget $5K or $10K for professional development, an additional set of textbooks, or extra office supplies, it is important to remember that these are smaller-scale, discretionary expenses.  Other more rigid, bigger-ticket items determine the amount left over for those discretionary items.  Taking the time to address the big-ticket items that are within your control well before the start of a new school year will enable you to maximize the amount of funds that remain for day-to-day programmatic expenses, and any extras you can afford.

  • Special Education encroachment costs typically fall somewhere in the wide range of $300-$1,000/ADA if the charter acts as a school of the district for Special Ed purposes. If you are unhappy with the services received for the associated costs, then don’t view this as a set cost in the long term. Evaluate how the district compares to becoming your own LEA and joining a charter SELPA, where you will receive the Special Ed revenues and avoid the district’s encroachment, but will need to provide the Special Ed services to those students in need.
  • Rent costs can vary wildly depending on the terms of your school’s lease. Evaluate whether the school’s current space is serving its needs well. If it is, explore whether there might be room to negotiate lower rent for the coming year.  If it isn’t, explore what other options may be available within your area.  Additionally, can you request facilities from the district under Prop 39, or can you seek reimbursement for part of your school’s rent through SB 740 or CSFIG?
  • Various services can represent a significant decision point for schools: in-house personnel or outsourced provider? When sourcing services such as food providers, custodial, back-office, or other consultants, hiring in-house is the option that likely affords you the most flexibility. It also requires benefits and employer contributions, as well as the cost of any associated supplies needed to fulfill that service. On the flip side, using an outsourced provider may provide cost savings and may simply be less of a headache, allowing the school to keep a smaller, more streamlined staff focused on the instructional program, while avoiding the hassles and costs of addressing staff turnover in those areas.  If pursuing this option, make sure the vendor is competitively priced for the services or service level being offered and can fulfill the specific needs of the school.
  1. Examining this year’s budget: Is an operating loss acceptable? How much?

You should be making any necessary expense cuts in order to maintain a balanced budget and an operating income that will meet your authorizer’s requirements for minimum reserves.  Note that the longer in the year you wait to make cuts to ongoing expenses, the less effective they are in preserving your operating income.  Because it is relatively early in the school year, making the hard decisions now will save you headaches later when it is too late to make any fiscally meaningful changes.

While projecting an operating loss should never be taken lightly, if you’ve already made all the cuts possible and cannot cut further without significantly jeopardizing your program, projecting a loss may be a last resort only if you have a healthy enough fund balance to sustain the loss.  If you have a positive fund balance that is larger than your projected current year loss, your fund balance will at least remain positive at the end of the year, after taking this year’s hit.  If you find yourself in this position, it will be crucial to work with your board and financial advisors to examine two specific areas as you consider how much of a loss can be sustained:

  • Cash: What are the cash projections throughout the year? If cash flow looks tight from month-to-month, spending decisions should be determined more by short-term obligations than annual budget considerations. If cash balances are healthy, however, assessing cash flow is not quite as imperative to your overall approach to budgeting.
  • Fund Balance: Has the school accrued substantial reserves from prior years resulting in a positive, strong fund balance? If so, tolerating a loss in this year’s budget will not jeopardize the school’s long-term financial health, if there are essential elements to your program that cannot be sacrificed. However, your school will not be able to sustain this approach for long, as authorizers will want to see fiscally sound, sustainable projections come time for charter renewal. Accepting an operating loss for the year should be an absolute last resort, and only if your school has the fund balance to sustain it.
  1. Cash flow financing: How do I evaluate options if my school is in need of cash?

Managing limited funds can be one of your more stressful financial responsibilities as a school leader.  Given the nature of the timing for charter schools’ revenues and expenses, even a positive operating income and fund balance can sometimes lead to cash shortfalls.  You are responsible for evaluating whether borrowing is the right solution for your school.  There are three crucial questions to ask:

  • How much does the school need to borrow?
  • How long will the school have to repay?
  • What is the interest rate and what other fees (e.g. origination or management) are involved?

It’s important to think about the long-term implications of the questions above.  Any interest or fees will not only limit the amount you can borrow, but will also decrease your operating income for the year.  Additionally, it’s important to think of those fees in annualized terms.  If your school will need to pay 5% in fees to borrow money for two months, that would be comparable to a ~34% annual percentage rate (APR).  Evaluating options on an annualized percentage basis will also help you weigh multiple borrowing options, as you are then comparing apples-to-apples.

Throughout this process, continue to ask the bigger picture questions that have implications for your school down the road:

  • Why am I short on cash? Is it a temporary issue, or is it systemic within the school’s financial planning?
  • Does borrowing cash now put me in a position to need to borrow again in the near future?
  • Where in the budget can I make cuts to balance the additional cost of borrowing money?
  • What is my long-term plan to develop cash reserves to reach sustainability?
  1. Getting your ducks in a row: What do auditors look for?

Contrary to common expectations, auditors do not focus on whether your school is doing a good job.  Rather, auditors’ main function is to evaluate whether your school is telling the truth about the job that it’s doing.  This means that they assess the accuracy and compliance of your school’s attendance records, financial statements, and some procedural items such as resolutions passed by the board and the financial controls in place at the organization.  In the end, auditors make a determination about whether your school is at risk of no longer being a “going concern” (meaning the school is able to continue operations in the foreseeable future), but the bulk of their work is to ensure that your school is fairly stating all financial information.

If you are a new school leader, you may be looking for the auditor to tell you that the school is doing a great job.  More likely, if things are going well, they will inform you that the school is doing a sufficient job and is in compliance.  For example, if things are not going well in the auditors’ eyes, their reason will not be that attendance is too low; instead, their reason may be that attendance is inaccurate according to the reports submitted versus the daily records.  The setup and organization of attendance files, documentation of invoices and payments, backup for any deposits made, contracts or MOUs signed for the year, and board agendas/minutes/resolutions are all items that require substantial record-keeping for auditing purposes.  Make sure whoever oversees operations at your school is continuously evaluating the compliance of these auditable items throughout the year.

Financial management can be challenging even in the best of fiscal times.  However, keeping these basics in mind can help you meet those new school year resolutions.  And remember – never be afraid to ask for help!

Four Common Audit Findings & How to Avoid Them

By Gasper Magallanes, Senior Director of Client Management & Development, EdTec 

Originally published May 2015

Whether you’re a new school leader or a veteran, a good audit comes down to knowing what to expect, the preparation put in months in advance, and the follow through during the audit and afterwards. Summer’s around the corner, but audit season pops up before you know it. As you’re going through your pre-audit checklist this summer, here are a few common audit findings to keep front of mind. Touch base with your auditor ASAP if any of these hit too close to home and you need a refresher on best practices!

Missing Documentation

One of the most common audit findings is for missing documentation such as back-up for expenses or deposits (e.g. receipts, invoices, check copies).  Make copies and keep them.

Shortcutting AP Processes or Approvals

From opening mail to signing checks, controls need to be in place to ensure all expenditures are properly approved prior to payment.

Inadequate Tracking of Restricted Funds

Allocating funds to non-allowable costs or failing to record required budgets, board policies, and reports is a quick way to earn a finding on state or federal program funds.  Stay current on funding requirements and restrictions.

Letting Checks Languish

Making deposits in a timely manner is important for preventing fraud, not to mention paying bills on time.  Deposit cash and checks as soon as possible after receipt.

Look Your Best to a Lender

By Adam Miller, SVP, EdTec 

Originally published August 2014

A facility of your own, designed to reflect and to support your school’s unique model, community, and students, is the dream of many charter school leaders.  Like most dreams, wishing upon a star is not enough; it takes a lot of hard work and planning to make a facilities project come to fruition. Further, you’ll need to get someone else to believe in this dream since it costs millions of dollars to purchase and/or build your own site.  To successfully get a lender to help turn your vision into a reality, the work begins years before you break ground.

In this article, we’ll explore the criteria that a lender will use to determine whether your school is a good investment. After reviewing how the lender will examine your school, we’ll discuss tips to look your best before going under the microscope.

Four C’s of Lending

To get to know your school, a lender will ask for a host of documents including your past, current, and future financials, prior audits, charter petition, bios of board members, and enrollment reports.  It may feel like lenders are pouring over every bit of minutia, asking questions about small details to which you’ve long forgotten the answers.  All this probing is not to find a tiny bit of information to trip you up, but rather to develop a big picture of your charter school.

Lenders synthesize your information into four categories, which helpfully all begin with the letter C.  Through the Four C’s of Lending: Character, Competition, Collateral, and Credit, lenders evaluate your school and your project.   Since your dream facility depends on you getting an A on the Four C’s, let’s understand them better.


A lender wants to make sure that the high character you are teaching your students is also reflective in your school’s management.  Lenders will take a close look at the capabilities of your leadership team, including staff, board members, and any high level consultants (e.g. EdTec).

The lender wants to know that the school leadership has the skills and experience to manage a high performing school, a small business, and a facility project – all at the same time.  The lender will assess this through examining biographies, reviewing board minutes and organizational documents, and conducting interviews.

Besides the school leadership, of special concern is the facilities project team.  Any lender or investor in the school will need to feel comfortable that the architect, general contractor, and other members of the facilities project team can deliver a high quality project that the school can move into on time and that will last at least as long as the loan.


Besides having a team that can keep the school thriving and manage a facilities project, the school also needs to be able make its loan payments on time and in full.

The lender will try to construct a complete picture of your financial health by reviewing your historical financial performance, your most recent financial statements, and your financial projections.  Potential lenders will want to understand your operations, your history of producing a positive operating income, and your current cash available.  Further, they’ll need complete details of any outstanding debt to ascertain if those loans will make it more difficult for you to take on additional debt and whether it will affect the new lender’s ability to take radical action if the school closes.

An initial calculation a lender will perform as a proxy for your ability to service your debt is the Debt Service Coverage Ratio (“DSCR”).  DSCR is calculated by taking your Total Revenue (from all sources) minus Total Expenses divided by the annual loan payment for the proposed loan.  For example, if your school’s revenue is $5,000,000 and your expenses are $4,600,000, this is an operating income of $400,000.  If the annual loan payments are $300,000, then the DSCR is $400,000/$300,000 = 1.33.  Most lenders will look for a DSCR of around 1.25 or higher, although EdTec has seen lower.

Your expenses will be reviewed and compared to standard expenses at other high performing charter schools.  You should be prepared to explain any unique line items in your budget; either standing out because of a special feature at your school or for higher or lower expenses than would normally be seen.  Further, you should be able to show where there may be some room in your budget that would allow you to make cuts in case you don’t meet your enrollment targets.  The lender is not only trying to understand how your expenses may change as your school grows, but also wants to make sure that even with the facilities debt you will be able to continue to fund all the unique programs and staff that make your school a success.


To make a loan to your school, be it for 7, 10, or 30 years, the lender needs to believe your school will be around for at least the length of the loan.  Your historical financials may be solid, your leadership team can be outstanding, but other threats are still out there.  You need to show you have the ability to navigate these outside threats (i.e. survive in a “competitive” landscape).

The first threat, which is likely never far from your mind, is your authorizer.  Not only is your charter up for renewal every five years, but the authorizer can revoke your charter.  The lender will want to understand your authorizing environment and relationship.  That California has an appeals process, making you less susceptible to shifts in local political winds, does give the lenders an amount of comfort.  However, if you’ve already been through a renewal once, that will provide additional assurance.

The second threat is losing enrollment, which means losing revenue.  The lender will want to know that there is high demand for space in your school (i.e. waitlists) and to see that there haven’t been enrollment issues in the past.  Further, they’ll want to see consistent high academic performance, as that is a likely driver of continued demand for your school. Lastly, they’ll look closely at the performance of other schools in your area.  One reason is to confirm that you are a high quality option for families in the area, and that you won’t lose out to district or charter school competitors.  The second reason won’t make you feel all warm and fuzzy, but the lender also wants to know that if something happens to your school, that there would be demand for another charter school to move into the space and take over your mortgage.


Collateral is the value of what you pledge to repay the loan.  The obvious example is the appraised value of the property.  The lender assesses risk for this type of collateral by looking at the Loan to Value (“LTV”).  As the LTV of your project increases, so does the perceived risk.  LTV is calculated using the assessed value of the property (e.g. $10,000,000) and the amount of the loan ($8,500,000).  $8.5 million/$10 million equals a Loan to Value of 85%.  The remaining 15% ($1.5 million) is the amount of equity that your school puts into the deal.   Most lenders will be looking for LTV from 70% to 90%, although charter schools have issued tax exempt bonds at or over 100% LTV.

Besides the property, there are additional sources of collateral that you can pledge to the lender to make the loan happen or lower the cost of borrowing.  These sources include credit enhancement from programs such as CCSA’s California Charter Building Fund, a letter of credit from a bank, or a guarantee from a high net worth friend of the school.

Four Tips on the Four C’s

Passing the test on the Four C’s is an essential step to getting the loan to make your dream facility come true. To score well, you can’t cram for this test.  Success is dependent on building a documented track record of strength, competence, and high performance.

Your school can set itself on the right path from even before the doors open.  Below are four tips that by following you’ll be getting in shape from day one to pass the Four C’s and take that big step to your dream facility.

  • Build a Diverse and Talented Support Team

Before your charter is even approved, you can start building a team that has the skills and capacity to successfully complete a charter school facilities project.  You can seek out experts in a variety of areas such as finance, real estate, law, community and government relations, and project management. These key skill sets will be invaluable as your charter faces non-facility challenges as well, yet another reason to begin building your diverse, talented team early.

While you can certainly hire professionals in all of these areas, you can begin by building a network of volunteers with these specific skills. Spread the word among staff, parents, and supporters that you are in need of these skills to help make your school thrive.  The obvious place to integrate these highly skilled volunteers is through the Board of Directors.  However, often that level of commitment and responsibility may not be for everyone. Further, the limit of your number of board members would then limit the number of volunteers.  To address this need, consider adding committees to your board that will allow non-board members to share their expertise and become integrated into the school committee.

When you do need to supplement your team with paid professionals, besides assessing their general expertise, you should make sure they fit your charter’s specific needs, for example:

  • Do they have experience working with charter or K-12 schools?
  • Have they worked in the local area? Local knowledge may be key to getting plans approved.
  • Are they interested in your mission? You live and breathe your school every day; anyone you hire should support its mission.
  • Can they meet outside of “business hours”? The demands on a school leader while school is open often do not accommodate set meeting times.  It’s helpful if the consultant has flexibility to meet before or after the school day.
  • Do the billing terms mesh with your cash flow? Sometimes delays from the state force delays in payments to consultants.  It is helpful if your consultants understand this.

Bringing talented people into your school community will help your school thrive and convince a lender that you have the ideal character to be a successful borrower.

  • Build a Fundraising History

To make the numbers work for a facilities project, often charter schools put in a sizable line item for fundraising.  Let’s say School X can only afford a $5 million facility.  Their dream facility will cost $6 million. Suddenly stories of successful capital campaigns and tales of rainmaking development professionals abound. It is perfectly fine to include fundraising in your project plan, but it must be believable.  If your school has never raised more than $20,000 per year, it’s far-fetched to believe that $150,000 per year is now likely.  If fundraising is part of your plan to service your debt, the lender needs to believe that your plan has a near certain likelihood of succeeding.

To include significant fundraising in your budget, you need to establish a track record of fundraising success.  Early in your charter’s life, make fundraising, from your school or expanded community, an ongoing focus of the school.   If you’re relying on your school community, show an increasingly higher percentage of community members making donations.  You’ll want to build a solid foundation to show that fundraising is a core practice at your school and not subject to the whims of a few individuals.

If contributions from foundations or high net worth individuals will be essential for a facility, again start developing those relationships early.   The first contact and the first grant award should come well before the need for facilities assistance.

  • Make Student Recruitment and Attendance a Focus

A lender needs to feel comfortable that a charter school’s revenue will cover the debt payments for the life of the loan.  As enrollment drives charter school revenue, this means creating a track record of full enrollment with a high attendance rate.  Full enrollment alleviates concerns about your school’s ability to succeed in a competitive environment.

Many will see goals of full enrollment and high attendance percentage and think that every charter school tries to reach them.  That is true, but the best, most successful charters, are very intentional in setting their enrollment growth plan, devising a strategy to reach it, and documenting the process.  High attendance rate is not just a nice thing to have; it is fundamental to school culture at successful charters.  Having a focus on full enrollment means being quick to understand and address any dips in attendance numbers.  It also means pushing your school to not just reach its goal, but to build a waitlist as a security blanket for the school and reassurance for a lender that the demand for your school outstrips supply.

A consistent, predictable enrollment will make financial planning easier for your school and provide comfort to a lender.  Enrollment and attendance strategy and performance discussions should be elevated to the board level as it is central to the financial health of the school.

  • Maintain Political and Community Relations

In the months building up to the hearing for a charter, charter leaders are tenacious networkers and advocates.  They lead door-to-door campaigns to educate parents.  They meet with school board members, church leaders, city council members, and business leaders.  They write letters to the editor, lead public rallies, and inspire foundations to donate.  The hard work pays off, the charter is approved, and . . . these new relationships dwindle.

The amount of activity understandably needs to decrease as more time and energy is transferred to opening and operating an amazing school.  However, you should have a plan to keep the communication channels with community leaders, politicians, foundations, and your authorizer open.   Share the milestones and achievements with them.  Keep your school and the good work that you are doing in their minds.  Maintain a database with the information of key stakeholders and track when you are engaging with them.

To get a facilities project completed, you will likely need the support of many of these stakeholders.  They can speed up approval of plans, build community support for your site, or write a letter of support to a lender. In your charter approval process, you accumulated many of the political and community assets you need to make a facilities project easier.  Enrich these assets, don’t let them atrophy.   It’s never fun to have your first communication with someone in a long time be a request for help.


From the earliest days of your charter school, you can start building the foundation of your dream facility.  By bringing talented people onto your team, developing a track record of fundraising, creating and executing a student recruitment plan, and maintaining and building your community relationships, your school will exhibit the character, credit, and competitiveness that is attractive to a lender. It’s a long and arduous road to a facility of your own that reflects the heart of your school, but with proper planning and foresight, it can be well worth the hard work and can serve your school community as you continue to grow.

A special thank you to Adrienne Barnes from Capital Impact Partners, Laura Kozel from Rocketship Education, and Jennie Bartkowiak from EdTec for their work on the 2014 CCSA Conference presentation upon which this article is based.