Three Ways Fundraising Leads Financial Turnaround

By David Rowe June 1, 2020 June 19th, 2020 Blog Post
Blog Post

Colleges and universities that had barely recovered from the Great Recession find themselves blindsided again by the economic freeze meant to stamp out the spread of COVID-19. For many institutions, this is the third major blow to enrollment, and potentially endowment, since 9/11.

For presidents and chief financial officers leading a financial turnaround will top the agenda. Looping in the chief advancement officer early will provide a number of advantages, not the least of which is that development’s revenue-generation cycle can be shorter than the academic year and can transcend fiscal years.

Here are three ways fundraising can provide help more than almost any other revenue stream:

Softer Landing

In order to be fair to students, faculty, and staff, full phase-outs and teach-outs can take multiple years. In order to bridge the gap between the current deficit and future savings, ask a donor to make a three-year step-down pledge that will allow you to alleviate the entire deficit immediately with gift revenue, and each year thereafter to make incrementally smaller pledge payments based on the savings you anticipate.

For example, you can ask a donor to make a $175,000 three-year pledge to help you phase out a $100,000 program.

  • Year 1 = $100,000 Pledge Payment + $0 Savings
  • Year 2 = $50,000 Pledge Payment + $50,000 Savings
  • Year 3 = $25,000 Pledge Payment + $75,000 Savings
  • Year 4 = $0 Pledge Payment + $100,000 Savings

Longer Runway

Once you’ve done your homework to identify new revenue sources, ask donors to provide the funding to get new programs off the ground. Structure the pledge in the same way as the softer landing model above, except that instead of savings, the declining pledge payments are offset by increasing revenue.

As a matter of stewardship and good business, hold yourself accountable to targets of genuinely new (not redistributed) net revenue. By all means, don’t create another cost center in need of a soft landing during the next recession.

More Lift

The tough reality is that even after new revenue streams are identified and painful cuts initiated, many colleges and universities will still face challenges funding basic operational and capital needs. Now is the time to be straightforward with yourself and your donors about what your most pressing financial needs are. Be brutally honest about what expenses should be scheduled for a soft landing and then seek and accept only gifts that provide that soft landing, a longer runway for new revenue, or actually improve your bottom line within the fiscal year.

College leaders need to turn their attention to financial turnarounds sooner rather than later. Advancement can play a crucial role in helping reshape the financial position of the institution while you develop a sustainable business model for the new normal.

When you’re ready to align your advancement resources with your turnaround strategy, call AGB Consulting for our experts to help with a complimentary review of your specific needs. Also, if you want to learn about opening up safely this fall, join us for a complimentary webinar on June 23.

With more than 25 years of senior-level education leadership experience, including as president and vice president for advancement, David Rowe, PhD, is a senior consultant with AGB and the CEO of The Development President.

 

Opinions expressed in AGB blogs are those of the authors and not necessarily those of the institutions that employ them or of AGB.

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