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Tuning in to Cash Flows

May 21st, 2020

By Lisa Whittington

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CBOs facing abruptly altered rhythms of cash flow should consider the following strategies for evaluating and adapting to their institution’s changing needs.

The webcast “Treasury Considerations in Unpredictable Times” provided a wide range of helpful guidance as business officers in higher education reevaluate their cash flow analyses and revenue projections. The session was co-hosted by Lysa Teal, NACUBO’s interim vice president, finance and administration, and Ron Maples, NAUCBO Consultant and retired treasurer of the University of Tennessee System. As business officers recalibrate to the new normal of cash flows that are rapidly changing, sometimes by the day, many are performing cash forecasting and comparing cash needs to available cash on hand on a more frequent basis than ever before—going from monthly to weekly, or even daily.

“It’s important to make sure we are communicating that these things are going to be changing, and all we can do right now is anticipate,” Teal said. She recommended being conservative in revenue assumptions and generous in expenditure assumptions, given that none of us have been here before, and we don’t know where the bottom is.

“Most of the business officers I know underbudget revenues and overbudget expenditures, and that discipline will serve us well at this time,” agreed Maples. “But the real question is do we know our cash, and who in the organization knows that number.” According to Maples, the first item of business is to develop a plan to establish cash requirements. While most business officers know their expected revenues and expenses, the unexpected closing of physical campuses for spring, summer, and potentially fall 2020 semesters and the cancelation of most auxiliary revenue-generating activities—like the NCAA basketball tournament—mean new cash flow projections are required.

With most schools planning to be fully online for the summer and some considering virtual learning in the fall, many institutions are wondering whether they should offer a different tuition rate for online semesters, Maples said. While Maples predicted that most schools will keep normal rates until the future becomes more clear, NACUBO Vice President for Consulting Jim Hundrieser suggested that it couldn’t hurt to model different cash flow rates and see how charging variable rates would impact your institution. And if you make any changes to fees for online courses, Teal added, make sure to get them approved by your board.

Lines of Credit

If your institution doesn’t have a line of credit yet, Teal said opening one may be worth considering for some private institutions, since low interest rates might make it easier to borrow and get higher returns. However, Teal strongly recommended getting board approval as soon as possible. Institutions that open or change a line of credit are entering into an obligation and will need to pay that loan back eventually. She urged CBOs to avoid getting into a position where they need board approval and don’t have the loan ready or cash on hand to make payroll or cover other critical expenses. Teal also recommended that business officers test their lines of credit by making sure all the correct documentation is in place.

However, CBOs must be sure to thoroughly evaluate their options before borrowing, as it comes with significant caveats— although loans may help your institution get through the immediate issue of low revenue, they won’t resolve the long-term issue of not having as many resources as before. “A credit line doesn’t solve problem, just kicks it down the road,” said Teal, unlike gifts. And for public institutions, borrowing operating funds is not even an option on the table, as state schools are forbidden from taking out loans of this type. Now that many schools are refunding students and increasing their credit lines, this will likely increase long-term financial strain on higher education institutions.


“This may be a liquidity crisis as opposed to a credit crisis,” Maples said. Some operating cash investments are maturing, and with some regions potentially heading toward record-low enrollment and many students unsure of their enrollment plans for fall 2020, many CBOs are converting to cash to meet liquidity needs instead of reinvesting. While reinvesting could help somewhat on payroll days, returns are still likely to be low, and maintaining liquidity remains essential. CBOs may want to stress test different scenarios to see how much operating cash their institution needs to have on hand—enough to cover one month, two months, or perhaps even more.

“For our nonendowment funds, [we should] protect the safety of our principle, protect our cash, and monitor our markets for impact on liquidity,” Maples said.

Endowment Spending and Other Considerations

“This is a good time to take a deep breath and remember that you have endowment spending planned for a reason,” Maples said. Think carefully and review your spending rate before deviating from that plan. To mitigate volatility in the stock markets, consider setting up a multiyear spending plan.

Likewise, he advised communicating often with your bank. Protect assets from fraudsters and criminals, be careful with your money, and be sure to watch it closely.

Communication Is Key

This is a very stressful time for CBOs, but you are in a position to make key decisions. “Communication with your colleagues, supervisors, and the entire organization is critical at this point, in large part because we are all in unknown territory,” Teal said. The best you can do as a decision-maker is to communicate and educate those involved in long-term changes at the organization; it’s absolutely critical that you have conversations in the near-term to make sure everyone’s on the same page, especially your board.

The third webcast in NACUBO’s free-to members series Unprecedented Times: Responding to the COVID-19 Crisis, called “Treasury Considerations in Unpredictable Times,” is available to view on-demand by registering here.

Click here for Business Officer’s articles about the impact of COVID-19 on colleges and universities.

LISA WHITTINGTON is associate editor, Business Officer magazine.

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