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Business Officer Magazine

Financial About-Face

The multifaceted turnaround approach of Nichols College included “friend raising,” faculty right-sizing, and a “college success course.”

By Debra M. Murphy and Susan K. Tellier

And that’s assuming that institutional operations are healthy. Add to those impending pressures the legacy of a 10-year downward spiral in enrollments and infrastructure and you have a recipe for institutional financial ruin. Such were the circumstances for Nichols College, Dudley, Massachusetts. Our small, independent business college embarked on a full-scale, five-year turnaround to move from the brink of financial disaster to financial stability.

When deficits are growing and investments are declining, the time available to manage a turnaround is short. The course of action we decided to take involved an aggressive, multifaceted approach for which garnering board support proved the linchpin of our success (see sidebar, “Talk About Your Turnaround”). While certain targeted actions were likely more effective than others, we believe it was the combination that helped move the college back to financial stability in a short time frame. As such, our approach can serve as a model for other institutions—small and large—for regrouping and regaining a financial foothold.

Develop a Doable Plan

Nichols College Stats
Founded: 1815
Full-time undergraduates: 804, fall semester 2003
Total enrollment (including evening and MBA students): 1,762, fall semester 2003
Tuition and fees: $22,562 for full-time day students, fall semester 2003
Faculty and staff: 135
Annual operating budget: $21.2 million, FY03-04
Endowment: $1.4 million, as of June 30, 2003
Web site:

From 1989 to 1998, enrollment of full-time undergraduates at Nichols College had dropped from 848 to 646. The decline in enrollments had not been offset by a significant decline in staffing, so the budget had been balanced by ignoring the physical plant and by running deficits to a loss of $1.5 million by 1998. Shortly after our arrival as president and vice president of administration in July 1998, it became apparent that the budget for FY 1998-99 had been based on an alarmingly unrealistic enrollment projection and that the resulting operating deficit would be significant—to the tune of $3.6 million. Our management team mobilized to address this crisis.

Under promise, over deliver. During the first year of our turnaround, senior staff worked to construct a realistic five-year model for eliminating the college’s deficits. We anticipated that it would take us four years to return to operating surpluses. In fact, we reached that point two years early. We intentionally developed a model designed to under promise and over deliver to manage the expectations of the board and the college community; this way, we would not have to slash needed programs to return to financial stability. The ability to deliver on stated goals was key to maintaining our team’s credibility throughout the recovery period.

Look Inward

Reconsider or reaffirm your mission. While Nichols College had a longtime commitment to providing the best practically oriented business education in New England, during the 1990s some within the leadership flirted with the idea of moving the college away from its niche as a business college and expanding into a general liberal arts college. Given that such an endeavor would have required a significant addition of faculty, library resources, and infrastructure, one priority for initiating our financial turnaround was to clearly define the mission of the college. In April 1999, the board passed a resolution confirming the institution’s commitment to business education. This action was critical because it not only refocused the college’s attention on its specialty but also silenced the voices lobbying for an expansion into the liberal arts. By clearly identifying Nichols College as serving a niche market (practical business education for the high school graduate with a B/C average), we were able to focus our efforts and demonstrate effectiveness. Today, one in 10 of our graduates is a chief executive officer or president of their own company. Our excellent placement record with good salaries for our graduates is a clear indicator of the value of a Nichols College education.

Pay attention to your curb appeal. Because prospective students and parents commonly have difficulty assessing quality issues in higher education, they are likely to judge the quality of an institution by the attractiveness of its physical plant. For us, this was a big problem because the campus had been severely neglected for more than 10 years. The most recent significant improvements had occurred in the early 1990s, when a bond issue provided funding for a new residence hall and a classroom facility. Other buildings and the grounds themselves had been allowed to decline. The sad state of our facilities made recruitment more difficult, thereby adding to the downward spiral in enrollments. Although doing so presented a financial risk for the college, we elected to initiate a new bond issue in 1999 to refinance the existing debt and to build a new residence hall and a recreational facility. This decision came at a critical juncture because it required a leap of faith on the part of investors and our local community. With regard to the latter, prior to new leadership the college had lapsed into a bad habit of not paying its bills on time. Restoring our credit rating was a first step to regaining the confidence of our community. Because of rumors that the college was in financial trouble and might close its doors, we also needed to make evident the college’s intention to invest for the long term.

New construction did much to lift the spirits of the employees and the interest of prospective students. Fundraising and leftover bond proceeds allowed us to make other significant improvements to the campus. We spent every dollar with the intention of improving facilities that would be seen and used by students and donors so as to give us the biggest image boost for the buck. At the same time, we engaged in long-range facilities planning to ensure that the college would maintain an attractive campus identity while making the best use of our resources and not putting money into buildings we might later decide to abandon.

Reach Outward

Composite Financial Index Over Time ChartReestablish critical relationships. New initiatives present a great opportunity for a capital campaign or other comprehensive fundraising. A large part of development in a turnaround is “friend raising.” In addition to rekindling the faith of investors and our local community, we recognized the need to restore the confidence of alumni and other potential donors. For years the college had neglected its alumni base and had not cultivated relationships with new graduates. Prior to launching our capital campaign in 1998, we had to track down a number of alumni with whom the college had lost touch. The results have paid off. Since 1998, contributions from alumni, friends, and foundations have grown from $1.3 million to $1.8 million in 2003.

Another neglected constituency was high school guidance counselors, many of whom expressed confusion about the focus of Nichols College based on previous discussions about expanding into a liberal arts institution. In particular, the college had abandoned recruitment efforts with private high schools—once a strong market of prospective students. We now have a full-time recruiter who has gotten us back into these markets and is reestablishing relationships with these key stakeholders. As a result, enrollments from private high school graduates have risen to 20 percent of our first-year students, up from 14 percent in 2001.

Pursue new markets. For years little change occurred in our curriculum. During enrollment declines in the 1990s, accounting was still the largest program. Within the span of five years, sport management—a program instituted in 1998—became our largest major, accounting for 16 percent of our day-student enrollments. Not only is this degree a natural fit, since so many of our students are interested in sports, it also reflects a wonderful field of growth as evidenced by the number of golf courses, hockey rinks, and workout facilities popping up across the country.

In addition, we now offer degrees in criminal justice management and business communication. During our turnaround, the college also set up its online undergraduate business and MBA degrees and pursued new markets outside our geographic area for evening undergraduate and MBA programs. In the three years that the online degrees have been offered, enrollment has grown to 454 students. A burgeoning market for these degrees is military personnel, many of whom are able to continue working on their degrees even while deployed.

One program we launched during the turnaround that did not take off was an e-commerce track. Even though some new initiatives will fizzle, in the midst of a turnaround it’s essential to remain creative and brave enough to try new ventures. The key is to monitor those initiatives closely and cut loose any that don’t succeed.

Change in Net AssetsCut programs with low enrollments. At the same time that we pursued new opportunities, we took a critical look at existing programs that were no longer attracting students. This is a particularly difficult suggestion for colleges that have a history of resistance to change. However, if the program has almost no graduates, that’s a strong sign that it may be time to eliminate it. Among the programs we cut were real estate finance and public administration. By offering faculty retraining and early retirements, we achieved these program cuts without eliminating positions.

Don’t dismiss student retention. Our admissions office costs are $1,800 per successfully recruited student. Because retention is more cost effective than recruitment, we established a department of advisors to handle all academic advising for first-year students. We provide tutoring in the academic resource center for students with specific problems and offer a “college success course” that covers such topics as test-taking skills, time management, and note taking. First-year students who entered in fall 1997 had a four-year graduation rate of 30.09 percent, compared with 36.44 percent for those entering in fall 1999. We expect to see these percentages increase as successive classes hit their four-year mark.

Review Your Operations

Stay within your core competencies. Running enterprises that aren’t essential to your main mission can cost dearly in staff time and attention deflected from your core business. Nichols College had been running a golf course for the local community for years. While the town owned the actual course, the college owned the clubhouse and parking lot. In addition to maintaining the clubhouse at our own expense, college personnel were responsible for turf management. We negotiated a settlement that got us out of the golf course business. We turned over the parking lot and clubhouse in exchange for allowing the college golf team free access to the course along with a reduced rate for other college-affiliated patrons. Our best estimates indicate that this arrangement had cost the college in the neighborhood of $400,000—a portion of which the club is reimbursing and the rest of which we forgave.

Sell excess assets. We also had significant residential real estate that didn’t fit into our long-range campus plan. Most of these properties had been willed to the college. In total, for $905,000, we sold five homes and three lots that were not contiguous to the campus. Not only did the proceeds add to our investment portfolio, but the loss of the maintenance of these buildings allowed the plant department to focus its limited resources on properties related directly to the mission of the college.

Talk About Your Turnaround

A president who is going to make tough decisions and sweeping changes needs unconditional board support. To obtain that support, the president must keep the board apprised of significant issues. Shortly after her arrival, our new president took each board member to lunch and clearly spelled out how she and the management team intended to restore Nichols College to sound financial health and accountability. Board members who had no appetite for the planned changes stepped down and were replaced by new members (frequently alumni) committed to the college’s survival. Every time a decision was needed on a controversial issue such as faculty salary re-adjustments, the president requested a group vote from the board. During the recovery years of our financial turnaround, the college’s executive committee—fully empowered to act in the full board’s absence—met with the president monthly. At the same time, the board bylaws were rewritten and the board was reorganized to work more effectively with the president and senior administrative staff.

The same kind of intensive communication taking place with the board of trustees is needed with all college personnel. During the initial two years of the turnaround, administrators shared financial data with select faculty and staff. Information regarding the college’s deficits was shared with all employees. The president held open forums each spring and fall with all college employees to discuss budgets and future plans. Each January, the president delivered a “state of the college” address. These forums included time for employees to ask questions. Such information sharing is critical, especially during the most significant crisis years, to encourage a united public front that reinforces the long-term financial stability of the institution.

Eliminate nonperforming activities. Since 1996, the college had leased a conference center in a Boston suburb 40 minutes from the campus. The concept was a sound one: to offer courses in a convenient location for Boston commuter students. The problem was that revenues generated weren’t covering the rent. Annual expenses for the lease were about $279,000, and the college was losing approximately $110,000 each year. We negotiated an exit from the lease, which included renovations for another college in town that was taking over the space. Despite these added expenses, our exit from the lease paid for itself in less than a year.

Seek facility rental opportunities. With the exception of evening programs, Nichols College does not offer summer school. Previously our facilities were idle much of the summer. During our recovery we worked hard to increase facility rentals, and we now have an almost completely full summer rental schedule. Groups include a football camp that attracts 350 children for one week, a rug-hooking group, and groups of high-achieving high school leaders. While these facility rentals generate only about $50,000 in profits, in a financial turnaround, every bit helps. An added bonus is increased exposure to the college campus by individuals with sons and daughters or grandchildren who may someday be in the market for a business college education.

Manage Your Money

Be conservative with investments. At one point in 1999, the college’s cash and investments were down to $5.3 million, of which nearly $900,000 was restricted. (Two factors contributed to a drop in investments from 1998 to 1999: First, the deficit for the fiscal year ending in June 1998 was $1.5 million; second, we paid off the college’s line of credit, which was costing more than the college was making on its investments.) After deciding that our assets were so low that we could not afford to risk them in equity investments, the investment committee of the board moved us out of the stock market in the fall of 1999. In retrospect, this was an incredibly prescient move. Once our investments exceed $10 million, which will occur soon, we will move back into equities.

Institute departmental accountability for budgets. For many years, the college had not regularly distributed financial information to its departments and had, in fact, discouraged budget amendments after the start of the fiscal year. In addition, staff and faculty could not access budget information online. Many kept their own internal spreadsheets of what they spent and essentially spent what they felt they needed without regard to an overall budget and without any real way of knowing whether they were overspending their budgets. In fall 1999, we installed new software that allowed each manager to see his or her departmental account and all transactions against that account. Department staff were trained on using the new software and were held accountable for staying within their budgets.

Join buying consortiums, and pursue cost-sharing arrangements. Massachusetts has a wide variety of buying consortiums through which we have successfully purchased big-ticket items such as electricity, fuel oil, computers, and copiers. The Massachusetts Higher Education Consortium, which we joined in 1998, saved the college $92,623 in FY03. Although we have worked hard to locate other small institutions with which to share back-office operations, we have been unsuccessful on that front. Many of the fixed costs of running a small college could be shared, such as computing, libraries, accounting, purchasing, and specialized facilities. Although these ideas have not panned out, we continue to pursue possibilities, since such arrangements would not only save expenses in sharing staff but would also add greater breadth and depth to our operations.

Reassess Your Human Assets

Review faculty salaries. In many institutions, faculty salaries are a sacred cow. At Nichols College, we discovered that senior faculty salaries were high and junior faculty salaries were low in comparison with our peer institutions. Using the annual salary survey conducted by the American Association of University Professors, the board, administration, and faculty agreed on a goal range for faculty salaries. We then lowered senior faculty salaries to the top of that range and used the proceeds to fund needed increases for the junior faculty. Equity adjustments were made annually, and in year three of our turnaround, salary increases began again with a merit pay strategy proposed by the faculty and accepted by the board and president. While nothing was actually “saved” in the process of these salary reallocations, we believe that making these adjustments allowed us to retain energetic junior faculty who otherwise might not have stayed.

Right-size faculty. We also took a critical look at our faculty composition. At the start of the turnaround, 94 percent of our faculty were tenured and 97 percent of all classes were taught by full-time faculty. These percentages were high, especially for an institution with a business-oriented curriculum. To test innovative courses and offer students real-world perspectives from working business professionals, we needed to increase our number of adjunct faculty. For starters, we approached the faculty and the board and came to agreement that an ideal model for Nichols College would be to have 65 percent of courses taught by full-time faculty and no more than 80 percent of faculty positions as tenured or tenure track. For fall 2003, 69 percent of our courses were taught by full-time faculty—a realistic range for an institution of our size and curriculum. Given that the cost to the college of a full-time faculty member teaching a single course is approximately $9,350 versus the average cost of an adjunct of $2,150, the savings resulting from this change were significant. Fortunately, we were able to accomplish these changes without faculty layoffs, largely as a result of offering early retirement incentives.

Freeze staff salaries. As we did for our faculty, for two years during our recovery we made only equity salary adjustments for staff. Needless to say, while this practice cannot be continued indefinitely, we communicated to our entire college community the necessity of this short-term action.

Hire talent, and pay for it. At the same time that we saw a need to freeze staff salaries, we recognized that the stability of senior staff during turbulent times is critical to the success of recovery plans. We hired high-quality senior staff and, to ensure they’d stay, we paid them market salaries. We also engaged in a series of staff reorganizations until we found a structure that best used the talents we had in the management group.

Manage your fringe benefits. Previously, Nichols College employees enjoyed an extremely generous health insurance program that was fully paid by the college. As premium increases reached 20 to 30 percent annually, this cost began ballooning. We adopted a cost-sharing program that will eventually have each employee paying for 25 percent of the insurance cost. We are currently in year two of this four-year plan. Because salary increases occur on January 1 of each year and health care increases occur on July 1 (and are usually known by early May), this allows time for employees to adjust to the financial impact of these health care cost increases.

Factor In Further Growth

The pace of change at Nichols College during the past five years has been phenomenal. We have regained a majority of our full-time enrollments, climbing from a low of 646 students in 1998 to 804 in 2003, with a goal to reach our optimum enrollment of 850 by 2006. Net assets and the composite financial index have also improved, in spite of the fact that the college invested approximately $12.8 million in its physical plant during our recovery period. The college is working to simultaneously address its deferred maintenance needs and build an investment portfolio that will see us through future demographic uncertainties.

During our turnaround we evolved into a dynamic, energetic group of employees who embrace the entrepreneurial spirit that we are trying to foster in our students. That single success should serve us well into and beyond the next decade.

Author Bios Debra M. Murphy is president and Susan K. Tellier is vice president of administration for Nichols College, Dudley, Massachusetts.