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Managing Finances
& Funding for
Educational Institutions
Host: Dani Hao
With: Scott Rolfs & Marvin Lagunsad
Introductions
Scott Rolfs
Managing Director and Group Head of
Charter Schools and Nonprofits
srolfs@ziegler.com
Marvin Lagunsad
Solutions Consultant - Private Institutions
and Charter Schools
marvin@procurify.com
Dani Hao
Host - Communications Manager
at Procurify
dani.hao@procurify.com
Webinar Agenda
1. Financing Options Overview
2. How Can We Secure a Loan?
3. Debt Capacity
4. Calculating Liquidity & Cash On Hand
5. Common Problems in Charter Schools
6. Fostering a Good Spend Culture
7. Tools and Processes to Help Your School
Our Mission: Advancing health, wealth & well-being through tailored financial solutions
Source: Number of financings and par amount through Thomson Reuters Financial Securities Data
Ziegler’s School Financing Throughout the Years
STILL A GREAT TIME TO BORROW: 10-YEAR TREASURY HISTORY (1968-2018)
Source: Federal Reserve, Bloomberg & U.S. Department of Treasury
Current Yield - 2.83 as of
April, 2018
Financing Options Overview
Part I
Advantages of Tax-Exempt Bonds
• IRS provides a borrowing cost “subsidy” to investors on
behalf of the school
• Single or double tax-exempt depending on issuing authority
used
• 30 or 35-year fixed rate financing with no balloons or resets
• 100% Loan-to-Value financing possible
Other Financing or Building Acquisition Vehicles
• Conventional bank loan
• Leasing of facilities (short-term)
• Lease-to-own programs with purchase options
• New Markets Tax Credits
• Private funding
How can my school qualify for a loan?
Part II
• Document the academic achievement of your school
• Document the “demand” for your product
• Show enrollment growth trends
• Maintain detailed wait-lists
• Highlight your Board of Directors and industry resources (CPA, etc.)
• Have a well-thought out borrowing request that meets industry metrics
Three Key Metrics to Understand
• Mortgage Payment as a Percentage of Expenses
• Earnings before Interest, Depreciation, Amortization (EBIDA)
• Days Cash on Hand (DCOH)
What Lenders Look For
Calculating Debt Capacity Part I - Percentage of Expenses Test
What percentage of our expenses would the proposed mortgage payment be?
• Example: Hypothetical School Financial Model
• In the example the school depicted on the right has
$4,700,000 of annual expenses
• Industry metrics recommend that a mortgage payment not
exceed 15-20% of expenses
• Using $4,700,000 as the expense base, that would allow a
mortgage payment between:
✓ $705,000 (15%) to $940,000 (20%)
• Schools that exceed 20% generally are putting undue strain
on the ability to fund daily operations
• Some lenders use a similar model but at percentage of
revenues. Under that metric the acceptable mortgage
payment could be:
✓ $750,000 (15%) to $1,000,000 (20%)
Calculating Debt Capacity Part II - Debt Service Coverage Test
How much free cash flow does the school generate that
could be used for a mortgage?
• Lenders like to know if the school can generate EBIDA
(Earnings before Interest, Depreciation, Amortization) in
order to pay a mortgage.
• The sample school depicted in the table is generating
$500,000 in EBIDA.
• Most lenders like schools to achieve a 1.10 to 1.00x Debt
Service Coverage Ratio (DSCR) measured annually.
• If the school on the right had annual mortgage payments of
$450,000 per year, its DSCR would be 1.11x and would
satisfy this test. ($500,000/$450,000 = 1.11x)
• If this same school had required mortgage payments of
$600,000 per year, its DSCR ratio would be 0.83x and it
would be in covenant default on its loan. ($500,000/$600,000
= 0.83x)
Calculating Debt Capacity Part II (Continued)
Can the school below afford to borrow money for a
building?
• The table on the right has a new scenario. This
school spends $500,000 more on annual
programming (materials, supplies, etc.) than the first
school.
• As a result this school loses money. Even adding
back depreciation and interest, this school has no
EBIDA to pay on a mortgage.
• Schools with no historical or current EBIDA may still
be able to borrow if realistic growth projections with
a new building are provided.
• If this school doesn’t correct course on spending, it
may run out of cash and cease operations in the
future.
All You Need to Know About Liquidity
What is “Days Cash on Hand” or DCOH?
• Lenders like to see that borrowers have a cash cushion to pay regular and unanticipated
expenses
• This cash cushion can also be used in case State/District per-pupil payments are reduced
or delayed
• Schools that are not able to pay their bills on a timely basis are at risk of losing needed
services, employees and ultimately earn a poor credit rating
All You Need to Know About Liquidity
How is DCOH Calculated?
DAYS CASH ON HAND = Unrestricted Cash and Investments
[Expenses - (Depreciation + Amortization)] x 365
Example
Unrestricted Cash: $ 500,000
Total Expenses: $4,700,000
Depreciation/Amortization: $200,000
$500,000
[$4,700,000 – ($200,000)] *365 = 40.5 DAYS CASH ON HAND
All You Need to Know About Liquidity
Days Cash on Hand formula can also be calculated using an alternate method
• Take total expenses (less depreciation/amortization) of $4,500,000 and divide by 365 = $12,328 per day cash
run rate
• Note that this daily run rate is an average. In some days, weeks, months expenditures will be higher or lower.
• Take the unrestricted cash balance and divide by the daily run rate. $500,000/$12,328 =40.5 days cash on hand
What amount of unrestricted cash should we maintain?
• Most lenders like a school to maintain at least 45 days cash on hand
• Higher is better - schools with 60, 90 or 120 days cash on hand obtain lower mortgage/bond rates
• Dynamic between spending on students and cash reserves must be balanced. Too high a DCOH and your State
or District might question if enough is being spent on classroom learning
• Control of your expenses and fostering a healthy Spend Culture is critical here.
Fostering A Good Spend Culture
Part III
About Procurify
We are a software that helps you get the most out of your organizational spend.
● Control, track and report your
organization's spend.
● Robust request to approve
functionality
● Purchase order management
● RFQ/vendor management
● Authenticate Deliveries
● Free native mobile app for
requests/approvals/receiving
● All-in-one platform!
Procurify and Schools
Some of our proud partners and users of our platform.
Every organization and every person has a spend culture.
Spend culture is a set of shared beliefs and practices that informs a person how, why and
when money should be spent.
Whether planned or random, all organizations have a spend culture.
Culture is fluid. It evolves with time and with each additional person. Understanding your
spend culture and how it affects the people who work in your organization will influence how
much value you get out of your spending.
What is Spend Culture?
● Stakeholder Management
● Spend Visibility
● Lack of Accountability
● Compliance and Regulatory Standards
Main Problems for
Charter Schools
1. Give all team members visibility into all
stages of the purchasing process
1. Ability to adjust approvals based on certain
dollar thresholds
1. Empower schools to have autonomy to
manage purchasing, but provide
boundaries and limitations that are put in
place to ensure better spend control
Timely Communication With
Stakeholders
● Add clear and transparent steps to
the purchasing process improves
accountability
● Match the stage of the purchasing
process to a direct person
Set Clear Role Expectations
● Tracking budgets and spend in real-
time can help your organization be
fiscally responsible
● Improve system of financial
forecasting, and be able to better filter
through purchase requests to make
better buying decisions
Smart Budget Allocation
● Make sure that all important documentation
is easily accessible in one place
○ One cabinet for all invoices
○ Google drive
● Making sure there is a clear audit trail,
adds that extra layer of visibility and ease
of communication for tracking
Centralize All Documents
● Empower your organization by introducing set of best practices to
cultivate responsible habits and behaviours
● Implement tools and processes that can help empower your team, but
manage accountability through checks and balances
● Find a better way to manage and track your spend, which can help
save time, money, and resources, that can be used to accomplish
other organization goals
Cultivating Spend Culture
Q&A
Scott Rolfs
Managing Director and Group Head of
Charter Schools and Nonprofits
srolfs@ziegler.com
Marvin Lagunsad
Solutions Consultant - Private
Institutions and Charter Schools
marvin@procurify.com
Dani Hao
Host - Communications Manager
dani.hao@procurify.com
Please feel free to reach out to the speakers via their emails if you’d like a complimentary
demo of Procurify or advisory services from Scott’s team at Ziegler.
ABOUT ZIEGLER
• Ziegler is a privately-held investment bank, capital markets and proprietary investments firm
• A registered broker dealer with SIPC & FINRA
• Ziegler provides its clients with capital raising, strategic advisory services, fixed-income trading and
research
• Founded in 1902, Ziegler specializes in the healthcare, senior living and educational sectors as well as
general municipal finance
DISCLAIMERS FROM ZIEGLER
Investment banking and capital markets services offered through B.C. Ziegler and Company. FHA mortgage banking services are provided through Ziegler
Financing Corporation which is not a registered broker/dealer. Ziegler Financing Corporation and B.C. Ziegler and Company are affiliated and referral fees may be
paid by either entity for services provided.
This presentation was prepared based upon information provided to Ziegler Investment Banking (ZIB) and contains certain financial information, including audited
and unaudited information, certain statistical information and explanations of such information in narrative form (the “Information”). ZIB believes this information to
be correct as of the date or dates contained herein. However, the financial affairs change constantly, and such changes may be material. Today’s discussion may
contain forward-looking statements, which may or may not come to fruition depending on certain circumstances, including those outside the control of
management. Please be advised that ZIB has not undertaken, assumed no duty and are not obligated to update the Information. In addition, please be advised
that past financial results do not predict future financial performance. The material in this presentation is designed to present potential financing structures and
options for discussion, however it does not represent a commitment to underwrite bonds, place debt or provide financing and thus should not be relied upon as a
promise of financing or underwriting commitment.
Thank
you!

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How To Manage Finances & Funding for Educational Institutions

  • 1. Managing Finances & Funding for Educational Institutions Host: Dani Hao With: Scott Rolfs & Marvin Lagunsad
  • 2. Introductions Scott Rolfs Managing Director and Group Head of Charter Schools and Nonprofits srolfs@ziegler.com Marvin Lagunsad Solutions Consultant - Private Institutions and Charter Schools marvin@procurify.com Dani Hao Host - Communications Manager at Procurify dani.hao@procurify.com
  • 3. Webinar Agenda 1. Financing Options Overview 2. How Can We Secure a Loan? 3. Debt Capacity 4. Calculating Liquidity & Cash On Hand 5. Common Problems in Charter Schools 6. Fostering a Good Spend Culture 7. Tools and Processes to Help Your School
  • 4. Our Mission: Advancing health, wealth & well-being through tailored financial solutions Source: Number of financings and par amount through Thomson Reuters Financial Securities Data
  • 5. Ziegler’s School Financing Throughout the Years
  • 6. STILL A GREAT TIME TO BORROW: 10-YEAR TREASURY HISTORY (1968-2018) Source: Federal Reserve, Bloomberg & U.S. Department of Treasury Current Yield - 2.83 as of April, 2018
  • 8. Advantages of Tax-Exempt Bonds • IRS provides a borrowing cost “subsidy” to investors on behalf of the school • Single or double tax-exempt depending on issuing authority used • 30 or 35-year fixed rate financing with no balloons or resets • 100% Loan-to-Value financing possible
  • 9. Other Financing or Building Acquisition Vehicles • Conventional bank loan • Leasing of facilities (short-term) • Lease-to-own programs with purchase options • New Markets Tax Credits • Private funding
  • 10. How can my school qualify for a loan? Part II
  • 11. • Document the academic achievement of your school • Document the “demand” for your product • Show enrollment growth trends • Maintain detailed wait-lists • Highlight your Board of Directors and industry resources (CPA, etc.) • Have a well-thought out borrowing request that meets industry metrics Three Key Metrics to Understand • Mortgage Payment as a Percentage of Expenses • Earnings before Interest, Depreciation, Amortization (EBIDA) • Days Cash on Hand (DCOH) What Lenders Look For
  • 12. Calculating Debt Capacity Part I - Percentage of Expenses Test What percentage of our expenses would the proposed mortgage payment be? • Example: Hypothetical School Financial Model • In the example the school depicted on the right has $4,700,000 of annual expenses • Industry metrics recommend that a mortgage payment not exceed 15-20% of expenses • Using $4,700,000 as the expense base, that would allow a mortgage payment between: ✓ $705,000 (15%) to $940,000 (20%) • Schools that exceed 20% generally are putting undue strain on the ability to fund daily operations • Some lenders use a similar model but at percentage of revenues. Under that metric the acceptable mortgage payment could be: ✓ $750,000 (15%) to $1,000,000 (20%)
  • 13. Calculating Debt Capacity Part II - Debt Service Coverage Test How much free cash flow does the school generate that could be used for a mortgage? • Lenders like to know if the school can generate EBIDA (Earnings before Interest, Depreciation, Amortization) in order to pay a mortgage. • The sample school depicted in the table is generating $500,000 in EBIDA. • Most lenders like schools to achieve a 1.10 to 1.00x Debt Service Coverage Ratio (DSCR) measured annually. • If the school on the right had annual mortgage payments of $450,000 per year, its DSCR would be 1.11x and would satisfy this test. ($500,000/$450,000 = 1.11x) • If this same school had required mortgage payments of $600,000 per year, its DSCR ratio would be 0.83x and it would be in covenant default on its loan. ($500,000/$600,000 = 0.83x)
  • 14. Calculating Debt Capacity Part II (Continued) Can the school below afford to borrow money for a building? • The table on the right has a new scenario. This school spends $500,000 more on annual programming (materials, supplies, etc.) than the first school. • As a result this school loses money. Even adding back depreciation and interest, this school has no EBIDA to pay on a mortgage. • Schools with no historical or current EBIDA may still be able to borrow if realistic growth projections with a new building are provided. • If this school doesn’t correct course on spending, it may run out of cash and cease operations in the future.
  • 15. All You Need to Know About Liquidity What is “Days Cash on Hand” or DCOH? • Lenders like to see that borrowers have a cash cushion to pay regular and unanticipated expenses • This cash cushion can also be used in case State/District per-pupil payments are reduced or delayed • Schools that are not able to pay their bills on a timely basis are at risk of losing needed services, employees and ultimately earn a poor credit rating
  • 16. All You Need to Know About Liquidity How is DCOH Calculated? DAYS CASH ON HAND = Unrestricted Cash and Investments [Expenses - (Depreciation + Amortization)] x 365 Example Unrestricted Cash: $ 500,000 Total Expenses: $4,700,000 Depreciation/Amortization: $200,000 $500,000 [$4,700,000 – ($200,000)] *365 = 40.5 DAYS CASH ON HAND
  • 17. All You Need to Know About Liquidity Days Cash on Hand formula can also be calculated using an alternate method • Take total expenses (less depreciation/amortization) of $4,500,000 and divide by 365 = $12,328 per day cash run rate • Note that this daily run rate is an average. In some days, weeks, months expenditures will be higher or lower. • Take the unrestricted cash balance and divide by the daily run rate. $500,000/$12,328 =40.5 days cash on hand What amount of unrestricted cash should we maintain? • Most lenders like a school to maintain at least 45 days cash on hand • Higher is better - schools with 60, 90 or 120 days cash on hand obtain lower mortgage/bond rates • Dynamic between spending on students and cash reserves must be balanced. Too high a DCOH and your State or District might question if enough is being spent on classroom learning • Control of your expenses and fostering a healthy Spend Culture is critical here.
  • 18. Fostering A Good Spend Culture Part III
  • 19. About Procurify We are a software that helps you get the most out of your organizational spend. ● Control, track and report your organization's spend. ● Robust request to approve functionality ● Purchase order management ● RFQ/vendor management ● Authenticate Deliveries ● Free native mobile app for requests/approvals/receiving ● All-in-one platform!
  • 20. Procurify and Schools Some of our proud partners and users of our platform.
  • 21. Every organization and every person has a spend culture. Spend culture is a set of shared beliefs and practices that informs a person how, why and when money should be spent. Whether planned or random, all organizations have a spend culture. Culture is fluid. It evolves with time and with each additional person. Understanding your spend culture and how it affects the people who work in your organization will influence how much value you get out of your spending. What is Spend Culture?
  • 22. ● Stakeholder Management ● Spend Visibility ● Lack of Accountability ● Compliance and Regulatory Standards Main Problems for Charter Schools
  • 23. 1. Give all team members visibility into all stages of the purchasing process 1. Ability to adjust approvals based on certain dollar thresholds 1. Empower schools to have autonomy to manage purchasing, but provide boundaries and limitations that are put in place to ensure better spend control Timely Communication With Stakeholders
  • 24. ● Add clear and transparent steps to the purchasing process improves accountability ● Match the stage of the purchasing process to a direct person Set Clear Role Expectations
  • 25. ● Tracking budgets and spend in real- time can help your organization be fiscally responsible ● Improve system of financial forecasting, and be able to better filter through purchase requests to make better buying decisions Smart Budget Allocation
  • 26. ● Make sure that all important documentation is easily accessible in one place ○ One cabinet for all invoices ○ Google drive ● Making sure there is a clear audit trail, adds that extra layer of visibility and ease of communication for tracking Centralize All Documents
  • 27. ● Empower your organization by introducing set of best practices to cultivate responsible habits and behaviours ● Implement tools and processes that can help empower your team, but manage accountability through checks and balances ● Find a better way to manage and track your spend, which can help save time, money, and resources, that can be used to accomplish other organization goals Cultivating Spend Culture
  • 28. Q&A Scott Rolfs Managing Director and Group Head of Charter Schools and Nonprofits srolfs@ziegler.com Marvin Lagunsad Solutions Consultant - Private Institutions and Charter Schools marvin@procurify.com Dani Hao Host - Communications Manager dani.hao@procurify.com Please feel free to reach out to the speakers via their emails if you’d like a complimentary demo of Procurify or advisory services from Scott’s team at Ziegler.
  • 29. ABOUT ZIEGLER • Ziegler is a privately-held investment bank, capital markets and proprietary investments firm • A registered broker dealer with SIPC & FINRA • Ziegler provides its clients with capital raising, strategic advisory services, fixed-income trading and research • Founded in 1902, Ziegler specializes in the healthcare, senior living and educational sectors as well as general municipal finance DISCLAIMERS FROM ZIEGLER Investment banking and capital markets services offered through B.C. Ziegler and Company. FHA mortgage banking services are provided through Ziegler Financing Corporation which is not a registered broker/dealer. Ziegler Financing Corporation and B.C. Ziegler and Company are affiliated and referral fees may be paid by either entity for services provided. This presentation was prepared based upon information provided to Ziegler Investment Banking (ZIB) and contains certain financial information, including audited and unaudited information, certain statistical information and explanations of such information in narrative form (the “Information”). ZIB believes this information to be correct as of the date or dates contained herein. However, the financial affairs change constantly, and such changes may be material. Today’s discussion may contain forward-looking statements, which may or may not come to fruition depending on certain circumstances, including those outside the control of management. Please be advised that ZIB has not undertaken, assumed no duty and are not obligated to update the Information. In addition, please be advised that past financial results do not predict future financial performance. The material in this presentation is designed to present potential financing structures and options for discussion, however it does not represent a commitment to underwrite bonds, place debt or provide financing and thus should not be relied upon as a promise of financing or underwriting commitment.

Editor's Notes

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  3. Notes for Marvin, try to bring up more pain points to discuss, things like having different processes per school, letting each school manage things individually without a standardized process can lead to miscommunications, going over budget,
  4. One of the reasons why Procurify began was simply to invite a better way to do things, and purchasing or spend management aren’t often front of mind for most people, but we find that being fiscally responsible can drastically help schools accomplish their goals to expand or improve their environments
  5. One of the key takeaways from Scott is that it’s important for charter’s schools to really start thinking about something we at procurify like to call spend culture
  6. We’re going to outline a few of the main areas of opportunity that we’ve seen working with charter schools, so we can better discuss how Procurify can integrate with your workflow, and help improve the current processes you might have As Scott mentioned, showing your stakeholders that you’re being fiscally responsible is extremely important, and you can do this by increasing the visibility into your spend, and tracking expenses and budgets in real time Not only is spend visibility important when it comes to giving your stakeholders insight into your spend plans, but is important when following any compliance guidelines or requirements Accounting teams are spending countless hours during audits or expense reports having to track down emails, receipts, requests, and other documentation, that the efficient organization of documents can help save so much time and money Because most charter schools don’t have a standardized process, we’re finding that when accounting teams are going back to follow up with people to find those receipts, purchase orders, or invoices, that there’s a significant lack of accountability Having different processes for schools with multiple locations can often lead to miscommunication, unecessary spend, and going over budgets Following up with people gets significantly easier when you can see a name attached to a purchase request, or packing slip Not only is it important to track accountability, but being able to manage and store invoices, purchase requests, and really all data regarding purchases is extremely important when it comes to showcasing that your charter school is following standard and compliance such as being able to prove that you’ve taken the necessary steps before moving forward with larger purchases
  7. A key feature of Procurify is that through providing team members with visibility into all stages of the purchasing, which can help improve spending decisions by providing that transparency, it is also key in timely communication with staekholders Stakeholders and any board of directors can be looped into the purchasing cycle through different approval routing systems, so that any purchase requests above a certain dollar threshold have to include any decision making parties Implementing a standardized process and stages for purchasing can help empower schools and staff members with the autonomy to manage their purchasing, but also provides checks and balances to ensure that they are staying within their boundaries, limitations and budgets
  8. Without a standardized process for purchasing and spend, a lack of accountability often comes in to play Implementing a clear process with stages for purchasing (purchase request, approvals, procurement, and then receiving the shipment) can help set clear and transparent role expectations This helps improve accountability by matching the stage of the purchasing process to a direct person This can also help speed up the process for purchasing for charter schools that find a bottle neck in purchasing to approval, as you can clearly communicate with the correct party for the next stage in the purchasing cycle
  9. As Scott mentioned earlier, setting budgets and being strategic with budget allocation is extremely important Procurify helps with tracking budgets and spend in real time which can help ensure your organization is being fiscally responsible The ability to see your pipeline and cash flow for money leaving the organization can help with financial forecasting and is a good way to provide evidence for your daily cash on hand and helps organizations like Zeigler determine whether or not your organization is being strategic with their spend
  10. With that being said, this is why the centralization of all documents such as invoices, purchase orders, requests, and approvals is an important part in being fiscally responsible, and being able to provide the documentation to prove this Having all documents accessible in one place makes it easier for teams to navigate through any spend documentation during audits, or requests for more funding Using a tool like Procurify can also help ensure there is a clear audit trail, which gives extra visibility into any changes during the purchasing process, whether this means a change of vendors, change of item quantity, negotiated cost, etc.
  11. All of the points previously mentioned ultimately add up to your organization taking a pro-active, rather than reactive approach to their spend culture and management, and really cultivating what Procurify defines as spend culture Procurify helps to empower organizations by introducing best practices to cultivate responsible spend habits and behaviours A tool like Procurify also helps implement the resources and processes that help manage accountability through checks and balances, while still empowering teams to make good buying decisions Adding a front-end, user friendly process, can help open so many doors and provide opportunities for growth, expansion, and ultimately the ability to accomplish organizational goals that may not have initially seemed feasible Whether or not your organization decides to take on implementing a tool like Procurify, or is looking to approach Scott and the team at Zeigler for financial opportunities, maintaining a positive spend culture is important for organizations to really thrive and continue to grow in the future
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