Financial Management Amidst the Coronavirus: Lessons Learned
Mr. David “Dave” McConnell
Interim Chief Financial Officer
Oklahoma City University (Oklahoma City, Oklahoma)
Since retiring in 2011, I have been on four Registry assignments as a Chief Financial Officer totaling 7.5 years of service. This after 42 years of working in a number of positions in higher education. I worked at schools with multi-billion dollar endowments and those whose lack of finances ended up forcing them to close this past year. My Registry assignments ran the gamut of public universities dependent upon state support and small private institutions that relied almost exclusively on tuition and auxiliary enterprise revenues. The lessons learned from these environments in many ways provided a foundation of knowledge and experience that serves me well during this time of the pandemic. In three of my four Registry assignments, my services were extended in order to complete a goal or provide stability while the school was in transition.
When I started my most current assignment at Oklahoma City University, it was to provide leadership for six months while the university conducted its search for a permanent CFO. The search did not provide a strong applicant pool and so I was asked to extend through the end of the calendar year and two weeks later would I stay the entire fiscal year. This came as we recognized a significant financial challenge and at the same time we started a recapitalization of the institution’s debt. We successfully weathered the financial crisis, received an investment grade rating on our credit worthiness, consolidated our debt into a $90 million instrument, covenant free, that reduced our annual debt service by $2 million. Things were looking good when Covid-19 hit and the world as we knew it was turned upside down.
COVID-19 exposed how thin our liquidity position was and how fragile we were with respect to meeting the fixed obligations of the University. What follows are three summary lessons learned that in hindsight should have been more front and center even before the pandemic:
1) In a pandemic, you cannot have enough liquidity to manage the adjustments you often have to make on the fly.
- Closing the campus meant refunding room and board revenues and negotiating a refund from our foodservice contractor
- Converting to an online teaching environment in less than two weeks requires a massive effort by faculty, IT, and your centers for teaching and learning excellence; or whatever you call it on your campus.
- Crash courses on converting from in person to online teaching and learning must occur.
2) Rethink your overall budget process to be prepared to make adjustments as a result of changes in enrollment, gift giving, and sales of auxiliary services.
- Prepare multiple budget scenarios based on how you will be delivering academic content:
- Are you reducing tuition and fees if you go totally online?
- Will you have any on campus housing and foodservice operations?
- You need to check with all entities that conduct special events, summer conferences, workshops.
- Will you need to change your draw schedule on endowment distributions?
- Is your operating line of credit sufficient to meet short term needs?
- Assess non-essential expenses and plan for strategic reductions rather than across the board reductions which could negatively impact revenue producing programs.
3) Activate your campus Emergency Operations Committee (EOC).
- Is membership of EOC up to date?
- Do you need to add content experts to the EOC?
- Does your health service or clinic have direct contact with State Health agencies?
4) Identify areas within the budget that could be adjusted in case of lower enrollment so that you can quickly adjust spending to reflect loss of revenue.
- Doing so quickly will minimize dramatic cuts later in the year.
The real challenge for all of us is to be nimble and to foster a solutions mentality as we navigate our way through a COVID-19 world. It is likely to be with us for several years and to think otherwise may keep you from making tough decisions early on. We as CFOs cannot afford to spend down reserves as if this event will pass quickly and things will return to normal just as quickly.