My School or Daycare is Shut Down Due to the Pandemic, How to Avoid a Cash Crunch?

school Shut Down

EDIT 3/19/20: we update this post as we receive feedback from readers, please continue sharing

Whether your school or daycare is already voluntarily closed or not, you can expect that over the next few days or weeks, you will be mandated to close your doors or extend Spring Break closure by your local or federal authorities.

As parents regain the responsibility of looking after their children during the day due to your organization being closed and their employers requiring them to work from home, one question will start cropping up in their minds: Why am I still paying full tuition or daycare fees for a service that I am not getting?

For the time being, you may be spared by the fact that we are in the midst of regularly planned Spring Break closures, especially if you work at a school; not to mention the fact that the situation may improve over the next couple of weeks (despite what health experts are currently predicting…) and so parents are perhaps not asking questions (yet).

However, it might be wishful thinking to bet on the hope that the outbreak will abate in short order and that your classrooms will be back teeming with students in a couple of weeks the way most projections are playing out.

A more prudent approach would be to prepare for the worst case scenario, because, well.. Is there such a thing as overpreparation when it comes to a pandemic that could devastate the economy as a whole?

What Does a Worst Case Scenario Look Like?

  • Prolonged shut down of your school or daycare for weeks, and perhaps even months. In reality, you should be prepared to be closed until the end of the school year if it comes to that (we know it sounds alarmist at this stage but again, you cannot be too prepared, and current figures do not look good).
  • Reduced and/or delayed enrollment.
  • Eventually, some of your parents lose their jobs and are not able to pay their dues on time or at all.

If the above were to take place, you would be hard pressed to provide partial or full refunds for tuition and fees unless you have an action plan. And bear in mind: this is not about being greedy, commercial or hyper capitalistic – this is about the financial health of your organization and the ability to pay people who depend on it. After all, this is how great depressions happen: business closures leading to job losses leading to more business closures, and so on. We are in a tightly integrated economy and someone’s tuition fee is someone’s wage, which is someone’s wage, etc.

Actions You Can Take in Order to Avoid a Cash Crunch

  1. Come up with a remote learning approach: obviously, there are age groups where this is easier said than done, and there is no question that you can’t provide the same level of care remotely than in person. But don’t give up just yet, this is not about keeping things 100% the way they should be, it’s about mitigating loss. There are ways to teach your students remotely through video calls, and to leverage parents’ help by providing lists of homework and activities. Stay tuned for our next upcoming blog post, which will cover this topic in more detail.
  2. Establish or refine your financial plan and try to limit any cash crunch: this will be done so you can avoid layoffs. When life resumes as it inevitably will, you will need all hands on deck. Plus, your employees need you. Wherever you are in North America, it is likely that government support initiatives are coming to avoid mass layoffs. Try delaying cuts as much as you can, and for the time being that means managing your cash flows by not necessarily stopping to collect fees altogether.
  3. Communicate clearly to parents: explain that you are actively monitoring the situation and keep them informed on what you intend to do depending on different scenarios (e.g. “If this lasts just 2 weeks, we will do this; if this lasts 1 month, we will do this; if this lasts 3 months, we will do this.”). In other words, establish a policy before families start asking you to come up with one on the spot and all at once. The key concept here is to be proactive.
  4. If you rent your premises, ask your landlord for help: they could allow reduced or paused rent payments. Don’t think you have no leverage there – good commercial tenants hard to find, and if you close shop, your landlord will likely need to find another education-based organization to take over (think about how long that would take them in the current conditions! So your landlord has a vested interested in being accommodating).
  5. Similarly to point 4, reach out to any creditors you may have and ask for a delay, waiver or full out restructuring. Banks in particular are told to be as lenient as possible.

Ideas You Can Test and Implement Instead of Freezing Payment of Fees Altogether

  1. Charge your fees as usual but extend the school year by whatever number of weeks you are going to be forced to close for. If the number of weeks becomes too high, this can spill into the summer (for summer camp, and if you don’t offer one, maybe this year is a good time to start) or next school year for returning parents. There is a reason why most businesses try to offer credits as opposed to refunds, and this is to avoid cash crunches and layoffs. Do not hesitate to take a case-by-case approach, every win counts! Most parents employed by large corporations still have a job and get full pay even if they stay at home, so don’t put yourself and your employees at risk unnecessarily for people who do not yet need it. There are other ways to be fair to families in the long run, and credits are one of them.
  2. Discount fees in order to account for savings you will realize by not having students on site (food, utilities, etc.). That is an easy one as it will not have an impact on your overall cash flows, since the reduced fees will be offset by the reduced bills.
  3. If you follow the Remote Learning strategy outlined in the previous paragraph and are not feeling comfortable charging full fees for whatever reason (or if too many parents push back), you should at least charge ‘some’ fees to keep the lights on. A lot of services rendered these days take place remotely and if you come up with a remote curriculum that provides parents with a game plan and clear instructions to follow, there is definitely value in that – see it as an educational consulting fee if you will. Either way, it is one additional tool in the toolbox you have in order to charge ‘some’ fee and pay your employees.

Staff Layoffs (if unavoidable)

If you absolutely have to make tactical temporary headcount cuts, take into account who might be the most vulnerable. It may seem intuitive to let your hourly employees go first as you can just take the position that they are working 0 hours and thus aren’t getting paid, but they are also probably the people who have little to fall back on. If anything, it may make more sense to temporarily terminate some of your salaried employees who have contributed to employment insurance programs long enough to get a good chunk of their lost wage covered upon a layoff. You should also take into account your employees’ family situation (dependents, age, health, etc.). In one word, if you must make cuts, be strategic about them. Everyone will understand that this is not about performance if you explain it to them.

Conclusion

Unfortunately, there is no magic formula or canned approach towards the crisis currently unfolding, so all you can do is be creative and have contingency plans available. However, any advanced planning and strategy you do will be rewarded manyfold if the situation were to remain in limbo for an extended period of time; being relatively prepared will also dramatically reduce your level of stress.

Our word of caution is to not underestimate the number of small business organizations that go bust during a major shock, and it usually all boils down to preparation and readiness, so do not skip that piece of homework.

Always better to be safe than sorry!


PS: have tips to share with the community? Things you are doing and that we have not covered? Leave them in the comments section.

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