[Auto-Generated Transcript of the Podcast Audio with Edits]
Welcome to Faithful and Flourishing Christian Schools. Today I want to talk about money, mission, and faithful and flourishing Christian schools, because I think that money is sometimes seen as a dirty word in ministry settings and in para-ministry settings like Christian school settings. And money’s a subject that people often seem to apologize for bringing up, and you can hear it in how the topic gets introduced sometimes.
Somebody prefaces the budget discussion. Somebody says, “I hate to talk about money, but...” and then they go into the conversation. Or somebody moves the finance report to the end of the agenda so it doesn’t set the tone for the meeting. Underneath this is something that I think is good. We don’t want some kind of financial matter or money to undermine our mission or to detract or distract from our mission.
And so I think these are people who believe that the school exists for something other than money, and it does, and they’re protecting that, and that’s a really wonderful instinct. If some people begin to think that the financial model is the core of the school, then that becomes problematic. Practically speaking, you need to have some kind of financial margin in order to live out your mission in a school setting.
There needs to be some source of funding. And so this really requires our best thinking. And I appreciate the fact that people are trying to protect against letting financial matters drive and dictate things. And I will say that even in my own church body, those conversations happen all the time on a school level, even in the entire denominational level, where there are people that can make decisions, and they take action, and the actions are framed as being primarily about finance.
But we all know that financial matters have implications for ministry matters and other matters. Imagine you’re in a congregation, and imagine that there’s some board of members who are really smart, gifted businesspeople. And so there’s a committee that’s formed, and that committee’s job is all things related to the legal matters and related to the property matters and the financial matters and all of those kinds of matters about the financial strength and stability to support the mission.
And then the pastor, and maybe there’s an associate pastor, and maybe there’s a school, the principal, and others, they’re in charge of the ministry components of what happens. You can say it that way, and you can separate it that way, but it’s not as clean and distinct as that in the real world. Let’s imagine, for example, that committee that’s in charge of all of the property. Imagine that they do some research, and they find out that property value is skyrocketing.
It’s amazing in that community. And so they realize that the property the church sits on is worth a ton. And so they put the church up for sale and the church building up for sale, and they sell it, and they sell it for several million dollars. And the pastor goes up to the committee and says, “What are you doing?”
And they respond, and they say, “Well, it’s our job to deal with the financial matters. It’s your job to deal with the ministry matters.” And the pastor said, “Well, I kind of need to have a church where we’re gonna worship, and where our church is located has implications for the people that we serve and we care for.”
And maybe the people at that committee say, “Well, we found a place about 20 miles away. It’s a third the price, and we’re gonna move over there, and it will be great.” And the pastor, of course, would be right to say, “Why didn’t we sit down and talk about this together? Let’s figure this out together.” Because those financial matters have an impact on what the pastor does, and what the pastor does has an impact on the financial matters as well.
So there is this distinction, and I come from a confessional Lutheran background where we often talk about the two kingdoms, and there’s this kingdom of grace, and then there’s a kingdom of the left that deals with what people might think of as earthly matters. That’s an overly simplified distinction.
The reality, though, is in the world, these financial matters have implications. They have consequences and implications upon how we go about our work in a Christian church and in a Christian school, whether it’s an independent Christian school or it’s one that’s attached to a congregation. So that’s why I want to talk about this.
And the main purpose of this podcast episode is about how we can take these financial matters seriously, how we can deepen our thinking about these financial matters, not so that we can just be the most financially strong school around, but so that the financial resources help amplify and support and bolster living out that Christian mission of the school each and every day.
That’s really what we want to talk about here. I think that sometimes schools avoid designing a real thoughtful financial model because they don’t want money to be the driving mission. I think it’s sometimes also because maybe they haven’t taken the time to build the education of what options exist and what are available as well.
But I think sometimes it’s this idea that they wanna put the big rocks, the big priorities in first, and there’s just not a lot of room for the financial conversations after they’ve dealt with those other matters, and they just don’t want that money to drive the decisions and the mission. But the issue is that when you don’t attend to the financial model, the money ends up driving the mission anyway.
It’s in a much harder way later, and oftentimes it ends up being at the worst possible moment when it’s a crisis and a difficult situation. And even well-planned-out financial models for schools can fail. God makes no guarantees of earthly success as we’re going about good, noble missions in our schools.
And we can make really great decisions and still find ourselves in a difficult position. I know that many of my listeners are not necessarily big poker fans, but there’s actually an interesting book by Annie Duke, who was, I believe, the first woman to win the National Poker Championship, and she wrote a book about leadership called Making the Bets.
And I heard her speak one time. I was invited to this invitation-only event about next-generation computing hosted by IBM in this nice place down in Florida, and she said one thing that really caught my attention. She said, “A lot of leaders think that leading is akin to a game of chess. And if you think ahead enough and you play all the right moves, you’re just pretty much guaranteed to win, or statistically, your chances are incredibly high.”
And she said, but the reality is that leadership is probably more akin to the game of poker, where sometimes you’re dealt a hand and it’s not a very good hand, and you have to play the hand to the best of your ability. But even if you play your hand as perfectly as you can, you may still lose. And I certainly don’t want to suggest, especially in a Christian school world, that this is all just a matter of chance and making bets and playing a game of poker.
I’m simply pointing out the fact that we live in a sin-stained world, and there’s a measure of unpredictability about running and leading and serving in schools, and sometimes you can make the best possible decisions given the circumstances that you’re in, and the outcome isn’t always what we had hoped and dreamt and prayed would happen.
And I just want to acknowledge that. I don’t want to set things up to say, “If you do these things, your school will be financially strong and stable no matter what,” because that is a myth in a sin-stained world. I think schools that never built a model, though, it’s a school that then hits a really rough year or a rough sequence of years, and there’s really no way to go back, and there’s really no plan, and you have weeks or months to make a decision.
You can just put yourself in a really tough situation. Again, I can’t say that anything in this episode will guarantee that we won’t ever end up in this situation. But we can think about it and do our best thinking and put our best planning into it. So let’s talk about some common myths, because I think that can lead into talking about the model.
So we’ll talk about myths, and then we’ll talk about some different ways of thinking about financial modeling. One myth is that if our ministry is faithful, God will somehow provide. As I just said, that’s not how life works in a sin-stained world. God will provide. We have clear Scripture that God will provide grace through faith in Christ.
We are saved by grace through faith in Christ, not by works so that no one may boast. That is a provision of God. The Scriptures say if we claim to be without sin, we deceive ourselves and the truth is not in us. But if we confess our sins, God is faithful and just, He will forgive us and purify us from all unrighteousness.
So we have a God who promises to forgive. We have promises where God says, “I will never leave you or forsake you. I’m with you to the end of the age.” A promise, “Come to me when you’re weary and burdened, and I will give you rest.” We have lots of incredible promises, so yes, God provides in that sense. But never in the Scriptures does it promise that we will be free from disease or disaster or tragedy or financial challenge or difficulty at times.
We have promises. We have the promise of consider the sparrow, and there’s even passages about how God does hear and answer prayer. What father, if his son asks for a loaf of bread, will give him a stone, or if he asks for a fish, will give him a serpent? If you then, though you are evil, know how to give good gifts to your children, how much more will your Father in heaven give good gifts to those who ask Him?
So we do have a God who hears and answers. But that is not some sort of prosperity gospel that suggests that somehow if you name it and claim it, that if you name the fact that you need $100 million for your school and you pray it in the right way with as much fervor as possible, that somehow God is obligated to give you that money.
We do not worship a cosmic genie. That is not the God of the Scriptures. Yes, we have a God who is faithful in the matters that matter the most and for eternity. We have a God who will never leave us or forsake us. But we are not guaranteed an easy path or all of the finances that we need to flourish in the ways that maybe we think we need.
Another myth would be talking about money as somehow unspiritual. The Scriptures talk about money a ton. In fact, a lot of people will abuse passages, and they’ll say that money is the root of all evil. Well, that’s a misquote. It’s the love of money is the root of all kinds of evil. It’s that position of the heart that actually becomes problematic.
We actually see that money, it’s even referenced in 1 Corinthians when there’s a list of different gifts. It talks about some people being called to generosity, which to me suggests that there’s a possibility that God sometimes grants certain people gifts. Some people are blessed with financial resources, and I’ve run into many generous donors and supporters who talk and think this way, and they don’t see that money as just theirs to hoard and use for their own joy and pleasure.
They see it as a gift that’s been entrusted to them, and their job is to use it as an expression of love of God and love of their neighbor, to use it in a way to advance missions that matter, and that’s a really compelling thing. So talking about money is not unspiritual. Of course, getting obsessed with money and thinking about it exclusively and at the disposal of these other important matters, that can be problematic.
Another one would be that tuition should fully cover the cost of educating a child. While that is one possible model, it is absolutely not the only model, and for many schools, it’s not the best model. And the reality is there are an increasingly small number of independent and parochial schools in the United States, for example, that operate this way.
And the ones that try to, sometimes they price out families, or they become schools exclusively for those who have a lot of wealth. Now, some will have a kind of model where they have the full tuition, but if there are families that really wanna be there, then they can charge a little bit more tuition to everyone, and those who can afford it will pay, and then they’re able to give a kind of scholarship from that tuition to some of the families that don’t.
So that’s a model that some do choose to use. But this idea that tuition should cover the cost of educating a child, that is one way of thinking about a school, but it is not the only way. Another myth would be that fundraising means begging people for money. The schools that raise the most are usually not the ones necessarily that even ask the most, and fundraising is not about begging people for money.
People may say that this is just semantics or I’m using marketing language or something, but I am not. This is actually about what we believe about money. Fundraising is about inviting people to be part of God’s work in the school. It’s about talking to people who believe that God has entrusted them with resources, and they are looking for opportunities to use those resources to advance God’s work in areas like Christian education.
And I have sat down with many people who think about their resources in that way, so much so that when you sit down and they make a sizable gift, they are so excited for the opportunity that they sometimes will thank you before you have a chance to thank them, and that’s an incredibly humbling thing.
They are absolutely one hundred percent partners in the gospel. They are partners in what God is doing at that school. It is not just the paid teachers and staff and the students and the parents. It is a host of other people that God often works through, including generous supporters, to help make a school work.
And so fundraising is not just about asking people for money. Another myth is we’re too small to have a fundraising or development operation. And again, you don’t need to have some full-blown advancement office, but I do think for many schools, it makes sense to have some approach, some plan to invite people to be able to share of their resources to help support what God’s doing there.
People who are excited, and they would be excited to be part of it. Another myth would be a balanced budget means that we’re financially healthy. That I believe is a simplistic view. A balanced budget can be a really good thing. But if you balance your budget by deferred maintenance, so you have an HVAC system that’s about broken and it’s falling apart, you have asbestos mitigation that probably needed addressing 40 years ago, you have windows that are broken, you have people who are having to make a vow of poverty in order to even work or serve at your school.
Yeah, you could have a balanced budget, but there are other problems that are quite significant that given enough time could actually undermine your school significantly. And so it’s not as simple as just getting to a balanced budget and we’re good to go. The idea is building a financial model that entails a balanced budget and that addresses all the financial needs that exist in the school.
And I’ll just do one other, ‘cause I wanna come back to it in a little bit, which is the endowment, the idea of an endowment, that’s just for really big schools. And that is not true, and you may not even know what an endowment is, so stay with me. I will talk about that somewhere along the way in this podcast episode.
All right, so that’s maybe the first couple of sections here. I broke this out into some different sections I wanna talk about, but I thought those were some myths to get us going, and I hope that along the way throughout the rest of this episode, we will debunk some of those myths even more. So where does the money actually come from?
And where can it come from? And this contributes to different types of financial models. I would say that typically a financially sustainable school is not just one with more money. It’s one that has a financial structure, a financial model that holds up when something goes wrong. And that usually means that there’s some kind of diversified portfolio.
If you think about being an investor, imagine you have $100,000 and you want to invest it in the market. Do you put that $100,000 in a single stock, and if that stock goes well, you’re good? Or do you diversify and split it up among different stocks so if some are doing well, some are not doing well?
So by diversifying some, you can give yourself a little bit more stability. You can do what we would call mitigate risk. And every school in America is working with some combination of usually six different types of funding. Some choose to just focus on one or two of these exclusively, and others try to diversify across more of them.
And my argument is not the more the merrier. You have to decide for your school with the right people which of these desire what measure of priority, and how does that mix look for your school? So let’s go ahead and walk through the different funding sources that we could be talking about. The one obvious one is tuition.
It’s the most common primary source for a lot of private schools, and it tends to be the one that most schools lean on the most, they lean into the most. And it obviously is heavily dependent upon enrollment and tuition-paying students. So students who are willing and able to pay a large amount of your stated tuition or some sizable amount of your tuition.
It obviously depends upon having a good approach to admissions, to retaining your students once they get in, to marketing, which is pre-admissions. It’s how do people learn about your school, what are the different ways that you help people discover that your school exists? And then admissions is that process of building relationships with them and giving them a chance to see if your school is a good fit for them and their family, their kids.
And then once they’re there, the retention, give them a great learning experience at your Christian school, and God willing, staying and continuing to also pay tuition while they’re staying. That’s all a part of a tuition-dependent school. It’s focused upon enrollment. If your primary financial model is tuition, then you will tend to have a lot of thinking and talking about marketing, admissions, and retention.
That will tend to be your focus, and those are really closely interconnected. Not that the other financial contributors don’t decrease the value of admissions and retention to marketing, but it does put a heavy focus. And when you’re very tuition-dependent, the temptation can be that sometimes you recruit families, and you know that you need the tuition of those families to keep the doors open, to pay the salaries, to cover the facilities costs, and to keep that school going.
There can be this temptation to recruit and admit anyone that’s willing to pay tuition, even if your school isn’t the best fit for them, and even if they’re not the best fit for your school. And that can be something that’s challenging to talk about. It requires us to sift our admissions and marketing retention strategy through our mission and our core convictions and who we believe we’re best positioned and called to serve.
Those are important conversations for us to have. So there’s tuition. The second one would be fundraising, but I’m gonna talk about fundraising in a lot of different categories here. So the first one I’ll talk about, I’ll just call it unrestricted gifts. Think about an annual fund. These are donor dollars that are granted to your school, and they’re not designated for a specific purpose.
So someone writes you a check for $100, and they say, “Here, use this however it’s best to advance the mission of your school, to serve your students, to care for your faculty and staff and your facilities and all of those different things.” That’s an unrestricted gift, and the school gets to decide where the money goes.
And so there are many schools that have some kind of unrestricted annual fund, and maybe that annual fund, they depend upon it to keep the doors open. Maybe they treat the annual fund as nice to have. So there are certain projects that require attention in the next five years, but it doesn’t necessarily need immediate attention.
And so they have an annual fund, and then they use these funds when they arrive to address some of those needs that are not immediate or urgent, but eventually they would be if they didn’t address them. And this is very different, though. Some schools actually design it, and it’s structured where they are depending upon a certain amount.
Maybe you’re a small school and you say, “We need to raise $50,000 a year to help cover some of the costs of our school, and we’re gonna build it in.” And that then requires you to have a structure for regular fundraising. And of course, it’s really helpful when you build a pool of regular donors, not just one-time donors.
But the unrestricted annual fund tends to rely upon people who are recurring supporters, people who say, “I’ll give $5 a month,” or, “I will give $100 a year or $1,000 a year.” And you have a list or a pool of those people, and you build relationships with them, you communicate with them regularly, you help them be aware of and feel part of what’s happening at the school, and they support your school over an extended period of time.
Of course, some will join that list and some will leave that list over time. But for this financial model, for this part of the model, the annual fund, that requires you or having someone in your school or more than one person who are building those relationships in an ongoing way for those regular gifts, and who’s returning to people and asking them each year or whatever the cadence is, if they’re willing to make a gift again.
And so you have that. So now we have tuition, and then we have the unrestricted gifts, especially the annual fund type. And then there’s a third funding source. Call this restricted gifts. So restricted gifts could come from foundations where you apply for grants. Of course, you could get unrestricted gifts from foundations as well.
You just need someone who’s learning how to write grants, and some foundations require very simple grant application processes, others are more complex. But restricted gifts are not just limited to foundations. You could have any donor who wants to make a gift that’s restricted. And a restricted gift comes with restrictions where you’re actually legally bound to use that gift the way that they describe.
So say I really like basketball at your school, and I want to write a check every year to help cover equipment costs for basketball. If I write you a $1,000 check every year, and it’s equipment costs for basketball, you cannot use that to pay teacher salaries. You cannot use that for anything other than equipment costs to pay basketball.
Now, note, I am not a lawyer. I’m not making any legal advice on all of these matters about finance. There is no official legal advice. I’m talking about this more conceptually, and I’m thinking about a general financial model. But restricted gifts are ones that come with restrictions. I find restricted gifts to be wonderful resources in a school.
And some people say, “I want as many unrestricted gifts because then I have more flexibility with the money.” And I get that, and I understand it. But restricted gifts play a really wonderful role as well. One, they teach us as leaders of our schools to be more disciplined, and it also allows us to connect with people around the areas where they’re quite passionate, around the things that they care about a great deal.
And so you could have a fund that is maybe $100,000, and it’s restricted for science lab equipment. And probably in your school, you may not be buying $100,000 of lab equipment in a year. So you have that fund that’s restricted for science lab equipment, and maybe you spend $10,000 of that a year, and then you’re able to go back to that restricted account year after year, and you can take some more out of it.
Maybe it’s building interest, and maybe you’re only using the interest on that, or sometimes you have to use more than that. Maybe you even use half of it if some big project comes up related to the science lab. So if you have a number of these restricted funds, you can learn to use those restricted funds to help support the needs of your school, and it simultaneously honors the intent of the donor.
And you are using the money, again, always honoring the donor intent. That is something that I hold very near and dear to my heart. I am a relentless advocate and champion about not just in the letter of the law, but in the spirit of the law, honoring the intent of the gifts that come from donors, because these are their resources that they have entrusted to us for a stated and specific purpose.
And it is a matter of our word to use those gifts in a way that would honor them. I am constantly asking that question about not just how do I use this in a way that technically follows the restriction, but how do I use this gift in a way that really fits what they have said is how they want it to be used?
To me, that is really valuable, and that’s how you build a true, meaningful relationship because they are partners in the gospel. These are not just people who write checks and give money. They are partners. They are part of the educational ministry and what’s happening. Could be restricted for a building or for a program or a scholarship fund.
A lot of schools primarily do restricted gifts when they’re working on a capital project, and someone will write a check for a specific building project, and that’s restricted, and you use it for that building project only. And by the way, there are restrictions that you could go back to the donor.
Suppose that they give you a gift and it’s restricted for something that doesn’t exist later on. You could just talk to them and see if they’re willing to loosen the restriction or change the restriction, or oftentimes when they make the gift at the beginning, you have a donor agreement, and you can work with your appropriate lawyers to work on this kind of thing.
And in the agreement, it says it was primarily for this, but if that doesn’t exist anymore, then it could be used in a secondary way, and donors will oftentimes do that type of thing. Restricted money grows the school’s obligations without growing its capacity. That’s the opinion that some people have about it.
They like this idea of unrestricted gifts. I don’t believe that. I don’t accept that. I think that’s a really narrow way of thinking about financial modeling. I think restricted gifts are a great part. Imagine you have tuition that’s coming in, you have an annual fund, and then you also have pools of restricted gifts for different areas that you can tap into to fund those areas, and sometimes even to fund them above and beyond what you would have typically done in a year, and it can really bless and pursue Christ-centered excellence in an area that might not have been possible otherwise, and that can be great.
Now, one thing we do obviously wanna be careful about is if a donor comes and it’s a restricted gift and the restriction is somehow intended to detract or distract from your mission or to take you off mission or to even undermine your mission. Of course, you have no obligation to accept such a gift, and it also is really important to be honest and upfront with donors.
It’s rare that you would run into a donor who would intentionally do that, but I suppose it’s possible. I’ve honestly, as one who’s worked in fundraising a lot, I don’t think I’ve ever run into a situation where I met with a donor who tried to do that or wanted to do that. But of course, if it is something that they wanted to give to you and they want it to be used for a purpose that just doesn’t align with your mission and what you believe, teach, or confess, then you have the right and the responsibility to decline that gift.
Or you could always have a conversation and see if they’re willing to restrict it to something else. And if they are, then maybe that’s a win-win. A fourth area then, so we have tuition, we have annual fund, we have restricted gifts, is endowment. And the way that endowment works is that the core body of the money is actually not spent.
The school draws a percentage annually, and it’s usually somewhere around 4% or 5%. And oftentimes, schools will do 4% or 5% of the average value of their total endowment over the last three years, so it doesn’t fluctuate quite as much if the market goes up or down one year. You can depend upon a reasonable, consistent amount of release each year.
To make this really simple, say you have an endowment of $100, then you would get $4 a year from that endowment. And that endowment would be invested, which is gaining interest, and it’s increasing in value, and other people may be contributing to that endowment, so it’s growing. But you would release $4 a year of that $100, or if it’s $1,000, $40, or $10,000, $400, or $100,000, $4,000, or $1 million, $40,000.
So for every million dollars you have in your endowment, you have $40,000 that you are able to release for the school. Now, endowment gifts can be unrestricted or restricted, meaning that they could be endowments or restricted to the endowment, but once it’s released, it could be used for any purpose in the school.
Or some donor gifts to the endowment can only be used for a certain purpose. It could be an endowment to help pay for your math teacher or endowment to help pay for your coach or an endowment to help cover the upkeep of your building. That money releases, and you can use that to help pay for your annual costs and your needs and other things of that sort.
A lot of times people don’t know how endowed positions work. Let’s say you have a teacher who makes $50,000 a year and you have an endowment, maybe it’s a million-dollar endowment, and it releases $40,000 or $50,000 a year. That would cover then either $40,000 or $50,000 of that person’s salary.
The endowment may cover the full salary or it may cover a portion of the salary. Sometimes the endowment is set up where a portion of that release helps underwrite the salary, but then another portion of that release is granted to that teacher to use for special resources and special projects that he or she wants to do in their classroom.
There are lots of ways that you can write up these endowments. That’s where you can work with your legal counsel or others in order to figure that out. And endowments could be a beautiful thing. It’s the only source here that releases without being re-raised. Once you have that million dollars, you essentially are going to be releasing $40,000 to $50,000 a year forever, or as it grows, even more could be released. Of course, some people are worried, what if the market changes and it goes down?
And that’s a reality. And when schools get in really difficult or dire straits, they will sometimes try to release more than the standard 4% to 5%. And there are some legal and other parameters that are involved in this, so I don’t wanna get into all of those legal matters. You should consult with the appropriate legal person to understand how all that works.
But that is always a sign of a strained school. If a school is tempted to somehow try to obtain the rights to release more than the 4% or 5% from their endowment annually, that’s not a good sign. That’s usually a sign that they are on a downward trajectory, and if they don’t turn things around quickly, they will probably not be staying open.
So the numbers can be small though for a long time. Like I said, a million-dollar endowment at 5% releases $50,000, or $40,000 at 4%. And so some people look at that and they say, “I’d rather just have the million dollars to use.” I actually think about this differently. I find endowments to be a wonderful, responsible use of resources.
You’re investing over time. It creates a predictability. It creates a stability. Again, it can be susceptible to what happens in the market, but you can grow this over time. And think about this. I’m at an institution that started in 1894, and if the amount of funds, even accounting for what a dollar was back in 1894 versus today... I did the math one time.
The amount of money that was raised at the school where I lead right now, the amount that was raised in the first six years, if they raised that same amount each year for 10 years, and then they just stopped, and they put it in an interest-bearing bank account in 1904, and I followed how much it would be valued today, our school would be one of the 10 or 20 largest university endowments in the entire United States.
Think about that. That’s the power of compounding interest over long periods of time. And so this is a little bit of the long game, and it involves this idea of thinking about the fact that, yes, you’re building this endowment, and it can bless and benefit and sustain your school in the short term. But what about the next generation?
As you’re doing this and you’re passing it on, you are passing on some strength and stability that can continue to grow for who knows how long, until Jesus returns, God willing. I think sometimes people say we’re too small for the endowment, and I think that is not helpful. The small school really benefits from permanent revenue more than a large one sometimes.
Imagine this. Some schools are churches where there was a family in a small rural community, and the family had a farm, and the farm had a lot of value, and they passed away, and the farm was valued at $10 million, and they gave $5 million away to their family and their estate when God called them home, and they left $5 million to go into an endowment for the school.
And it’s a small one-room schoolhouse, and essentially that endowment funds the school until Jesus returns. That is actually enough to underwrite the couple of teachers that help run and serve the students in that small school for a very, very long time. And they don’t have to charge tuition, or if they do, they charge a small modest amount of tuition, and they have a sustainable model.
And so even if you’re in a small school situation, it’s something you can think about. And endowments and gifts can come in the form of immediate gifts, where someone makes a gift right away today, and they write a check. It can also come where people include your school in their will. It’s what we call a planned gift, and they say, “I’d like to designate 10% of my estate to the school so that when God calls me home, 10% of that, or when God calls the last person in our family home,” however they wanna do it, “10% of that will go in an endowment for a fixed purpose or just for the school in some way.”
Now we have our fourth model financially. We have tuition. We have the unrestricted annual gift. We have the restricted gifts that just go in this account. We have the endowment, where you’re using the release of 4%, say. And now we go to the fifth one. This is one that very few people think about, very few schools use, but it’s worth noting and naming, which is third source funding.
So third source funding is often something like a business or some kind of operation that the school runs that then generates revenue for the school. It could be something like an extended care or a summer camp program, or they have facilities that they rent. Maybe they don’t use their facilities very much in the summer, and they rent them out for weddings or other kinds of events.
Or maybe you are a small school in the country, and you have a farm that was donated, and you actually operate the farm, and the teachers and the members of the congregation run it as a farm for kids from the city to come and experience farm life for a day, and they pay for it. It’s like farm camp for a day, and they pay an amount, and farm camp is run, and the revenue from that, the profit from that helps operate the school or keep it going.
I’ve even heard in some places, in one country, there was a school that had a large fish farm. They farmed and grew fish and sold the fish, and the profit from that fish farm was used to help fund the school. I’ve heard of a place out west, somewhere in California, I believe, I’m not sure exactly, where there was a community theater, and they gave 50% of the ownership of the community theater. All the profit from that 50% went to help fund this particular school, if I recall correctly.
Could be any kind of business endeavor, and some people get nervous about this. They don’t like it. They think that it can detract or distract from the core mission. We’re not in the business of making money. We don’t wanna do these other things. But there are other ways this can happen. In fact, there’s a whole college that does this.
It works out fairly well for them. College of the Ozarks in Missouri, they have an entire lodge, and they have a farm. They have a stained glass-making operation. It’s actually a college where students, if they get in, they pay no tuition, and that’s mostly because of federal funds that they get from a special program and then donor dollars that are released.
But they also do make some profit from these businesses that the students run, and then the profit can help cover some of the tuition and scholarships for those very students that are working there. And the students have to work a certain number of hours instead of pay tuition. Now, I’m not talking about a K-12 school where the students have to work.
And we don’t wanna have child labor laws being broken here. I’m not talking about that. But I am talking about the idea of something creative. I have seen churches that have simple programs where maybe there are bake sales, or maybe there is a greenhouse that volunteers in the church operate, and they grow seedlings, and then they sell them each year, and that’s a fundraiser of sorts.
The profit from that helps go to the school. There are sometimes tax implications and other things that you wanna think through, and this does require management. You usually need some kind of people with real expertise, real staffing. You need the legal expertise, the appropriate licensing. You’re obviously sometimes competing for the attention of the school.
It’s valuable often to have some people that are focused on that who are not responsible for the school. But it can be a source of revenue for schools, and it works. So you have now a fifth option. To just remind you one more time, we have tuition, we have unrestricted annual fund, we have restricted gifts that come in, we have the endowment that has that 4% release or 5% release, then we have third source funding.
Now, that’s five different possible funding. And then the sixth one that I’ll mention right now, and there can be some others beyond this, but these are the big six, would be government funding. There are a number of parochial schools, Christian schools located in states where there are voucher programs and other kinds of tax credit scholarships, education saving accounts, other things of that sort.
It really varies enormously state to state, so I won’t get into the details, but you can be aware of it. And there are some places where you might be in a location where the school gets $7,000 or $5,000 to $7,000 for every student who’s enrolled that comes from some kind of government program, and that may be in addition to whatever tuition you charge.
Maybe you decrease your tuition as a result. Some schools, depending upon what the rules are in the state, maybe they keep their tuition up. They’re actually operating with a larger amount per student in order to provide nicer resources, more teachers, more amenities. Of course, this is something that is a game changer for some schools in some areas.
There are critics. There are people who say, “With this comes compliance demands,” and what if there are administrative rules from the government that clash with your mission and what you believe and teach and confess? How do you navigate those? Some people argue you shouldn’t even get into this space because of those complexities, and others say, “Yeah, that is a risk, but we’ll try to mitigate those risks.”
There are many Christian schools that are operating fine and faithful to their mission and their confession while participating in these programs. The other critique that people will have sometimes is what happens when and if the money gets pulled out? What if there’s a change in administration and that money is no longer available?
That is a reality, and that’s a risk, and then if that money were to disappear, do you have some other financial models in place so that your school doors can keep open and you can continue to serve at least a smaller percentage of students? So the conditions under which the school accepts the money are not always conditions under which it will operate in ten years.
And by then, the budget starts to assume the money, and that’s obviously an important consideration. We have all of those. Now let’s think about this in terms of a portfolio. So any one of these six can fail on its own. And a school that’s built on one of them alone is incredibly vulnerable if that one thing fails, whether it’s tuition or your endowment or anything like that.
So the useful question is not really just what is our funding source, it’s what’s the right mix of funding sources for us now and in the future? Reality is you can’t just flip a switch and have all six of these overnight. It will take some planning and work, and your individual situation will determine how much time you have to prepare for the future and what’s your current situation.
Maybe you have a time of plenty right now, but you expect that things are gonna get tighter in a few years. Maybe you can plan for increasing or expanding that mix over time. You also can, of course, wanna do a question about what happens to this mix that we choose under different kinds of stress. You can do a little bit of scenario planning and walk through if-then options and how you would respond to different situations.
Two schools can have identical budgets, and they can be in completely different financial positions. One is maybe 90% tuition, the other is 60% tuition, 20% annual fund, 10% endowment draw, 10% from a greenhouse that they operate or a big bake sale that they do every year.
It’s the exact same revenue, but it’s a very different financial model and different school. Imagine this. If enrollment drops 8% with one of them, they have a crisis. If enrollment drops 8% with the other one, it’s a tough year, but they can work through it. That’s why this becomes good stewardship, good prayerful, careful thinking.
A portfolio helps give you some time. It doesn’t prevent problems, unexpected consequences, difficulties, even getting to the point where now maybe your school has to pray and decide, make that painful decision to close the doors after many years. It doesn’t protect from everything, and each part of this portfolio has a different kind of complexity to it.
But this portfolio does mitigate some risk. It does help you create a little bit more predictability and stability, and it gives you some time as a school to be able to make mission-minded decisions instead of always being in the middle of an emergency that you have to adapt to and respond to and make huge cuts and shifts here and there all the time.
Because what happens oftentimes is schools have thought so narrowly about this that when they get into a little bit of a bind, their only option is, “Who do we have to fire? What do we have to cut?” It’s all just about cutting your way to a balanced budget. And while that can be a reality, and I have been in situations in places where I’ve had to make reductions in spending that way, and that’s hard and it’s painful.
But if you’re building a broader portfolio, you can at least give yourself a little bit more time to be able to think through these things. And so imagine you have some funds that are a kind of cash reserve that are lightly restricted that you can use for various purposes, and then you have a drop in enrollment.
Maybe the drop in enrollment is because there was some tension in the school and some angry families left, and that’s unfortunate. So you don’t expect that it’s gonna happen every single year, but it was a one-time event, and you’re hurting from it that year. Maybe you have that cushion, some of those funds that you can use to address that year without having to make massive cuts.
Or you reduce your spending a little bit, and you tap into that, what’s essentially a kind of savings. So you see what I’m saying? You have a little bit more flexibility, and it allows you to make mission-minded decisions. It allows you to make decisions that take into account the people that you care about who are working there, the people you care about who are the families that you’re serving.
It gives you some time to think and pray and use biblical wisdom and discernment to the best of your ability with all of these kinds of things. So you can ask some basic questions. What percentage comes from your single largest source? How much has to be re-raised or re-earned every twelve months? You can maybe talk about that.
How much should be restricted? This is just a great conversation to talk about and ask, what would it look like for us to build out some more of these different financial streams to create some greater stability and strength from which to live out our mission? And that’s really the question here: what fits for your school?
You can bring some strong finance people from the business world onto your board, and they’ve given you something really valuable. But you do wanna keep in mind, some people coming from the business world, they have certain ways of thinking about money and certain ways of thinking about these things that may not always translate to your nonprofit Christian school mission and mindset.
I have run into this before where it’s a great Christian person, member of your church, they’ve led a big organization, but honestly, and I’ve even talked to people, when they step into that corporate world, they have to put on a little bit different face, a little more hard-nosed approach to doing things, and that may or may not be how you want to operate your school.
I’m not saying they’ve done something sinful necessarily, but sometimes even well-meaning believers, when they step into their business in the corporate world, they set aside some of the biblical virtues. There are other believers who take that very seriously and think through that carefully and try to honor what God teaches in His Word as they go about their work.
But I’m just saying, keep that in mind. Yes, you want to tap into the great financial expertise of believers who have come from the financial world, but don’t just assume that they’re experts in using biblical wisdom when it comes to finance, because those are not one and the same. Some Christians have been well-discipled, and they’ve studied and been well-equipped and have embodied more Christian virtues in how they handle finance in a secular workplace, and others maybe haven’t matured as much in that space.
So just keep that in mind when you’re working with different people. But you still could really be blessed by... I’ve certainly been blessed by a lot of those people, and even presently. You know, in business, the model is built for the margin so often, and revenue exceeds costs. The surplus is the point, but it’s not the only way to think about financial stewardship.
And the school’s model is obviously built for something else. You want a stable mission-consistent education and community, an education that is serving the students and their families you’re called to serve, and it’s sustained over decades and time. And that sometimes calls for thinking about things financially a little differently than how some do in the business world.
There are transferable components, but there are some things that we don’t want transferred to how our schools operate. I’m not saying that a margin or a profit margin is bad. In a nonprofit, we don’t really do profit margins. It’s called excess capital. It’s money beyond what you need for that present year that will be used for the future year if it can be used in that way.
A school with no surplus obviously can’t maintain a building, and it’s in real jeopardy. It’d be like you living without a single dollar in your savings account. That’s a little bit of a riskier situation. So that’s something. The school needs some kind of margin so it can keep doing its thing. It doesn’t get into cash flow problems where you get a certain amount of tuition, and then by the end of the semester, the tuition dollars start to disappear, and you’re short on cash.
That can be a really complex thing. That’s where the model of additional funding sources comes in, because if you’re just getting tuition and you’re not getting donor dollars that are released throughout the year and other kinds of funding sources, then it is really hard. Even if you get enough money, it all comes at one time.
So it’s nice actually from a financial cash flow management to have funding that’s coming from different sources at different times in the year. Many schools find that a real blessing, really helpful. I’m gonna leave with just some questions, but these are some questions that I think could be really helpful for you to ask in your school as you’re thinking about the financial model that best supports a faithful and flourishing Christian school in your setting.
One is, what does our community actually look like? What about household income, employment, church membership, whether there are competing options for other schools? Because that will impact how you think about one of those funding sources in terms of tuition and what’s the right fit. I do know some places where it’s very high household income and private schools that have a low tuition, parents think there must be something wrong with it, so they won’t send their kid there.
I know some schools that actually have to have a higher tuition because they wouldn’t get students because of it. And then if there are some families that come and they can’t afford the tuition, then they can still offer some scholarships to them. The second question, though, is who is the school for?
I’m not saying in some aspirational way. Who’s enrolled right now, and who are you created to serve? Who do you believe you’re well-positioned and called to serve? That may lead you to think about the financial model a little differently as you answer that question. A third question would be: what is our relationship to the congregation?
The relationship from an educational ministry standpoint, what does the congregation expect? Is there going to be some kind of annual giving from the congregation where members are contributing or even it comes through the offering plate essentially, and that’s one of those sources of annual fund that’s contributing?
I do know congregations that meet annually, and they make a pledge on how much as a congregation they’re going to commit to help fund the school, and then the school budgets according to that, and that answers how many students they can enroll. That’s different than how a lot of schools work. I’m just saying there are some that do that.
Others, the congregation commits a certain amount each year to the school budget, and then the school budgets and expects that. So as long as the offering gifts come in enough to cover that, then they have at least some predictable source of what we would call a kind of annual fund in a school. Now, there are many independent Christian schools that aren’t tied to an individual congregation.
Maybe there are multiple congregations or individual Christians that give regularly. But what is our relationship to the congregation? Another one is this: what is our giving history? Not what do we raise, but what have people actually given in recent past? So you have some kind of benchmark. You can set goals for growing that over time, but it’s also important to be realistic with where you are and not create some aspirational budget where now you have to go out and somehow raise a million dollars in order to keep your doors open when you’ve never raised more than $500 in the past.
We want to live in the real world, and thinking about the past is good, and then you can also set some goals for the future, but be responsible in your budgeting. Another question would be, is there a natural third source operation that’s available for our facility, given our staff, given our community needs?
That’s always one that’s intriguing to think about. It’s not an easy one to get going, and there are very few Christian schools today that actually operate a third source funding. But the sky’s the limit, really. There are so many different paths and opportunities for third source funding of some type.
And then what does our state actually offer? What are the funding resources that are available? What strings are attached? What restrictions are there? How stable and predictable is it over time? You can understand that source. Then you can also say, how long do we have to do this planning? What’s our planning horizon?
A school planning three years can build a different model than one that’s planning for thirty years, or one that says, “We have to figure this out in the next six months or we’re gonna close.” Those are three completely different scenarios, and I think that is useful for us to think about. You get the idea here.
What I’m talking about, and I know this sounds like it’s all about finance, and you’re saying, “Wait a second, this is a podcast on faithful and flourishing Christian schools, and you really didn’t talk about Jesus very much, or you didn’t even talk about the Word of God very much.” There’s a lot in God’s Word about generosity.
There’s a lot in God’s Word about finance, and I encourage spending time in the Scriptures and being well-versed in it. But I will say that biblical wisdom, reading the Book of Proverbs, biblical wisdom, not just Proverbs, so the whole Scriptures are full of biblical wisdom, but biblical wisdom can lead to thinking through these things in a way that honors God and loves your neighbor.
Because what we’re trying to do here is not, again, just build the strongest financial model. We’re trying to create a financial model that helps strengthen and sustain our mission, that gives us some stability from which to live out our mission to love God and our neighbors in this community. And as I said at the beginning, God makes no guarantees of earthly strength and stability in all ways. But we can try to be good stewards of the resources granted to us.
And oftentimes there are more resources available to us than we realize. We just need to take the time to do some careful learning and thinking. I hope you find this useful, and I look forward to your comments.
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