CFOs: Navigating Choppy Waters in EducationMyCFO Blog | MyCFO Blog

CFOs: Navigating Choppy Waters in Education

S. Venkat and Abhiram Kandoor explain why education businesses need good CFOs

While the education sector has seen explosive growth in recent times, investments by PE funds and emergence of organised corporates, the sector is also faced with challenges due to government intervention, rules and regulations covering partnerships, capacity building and even pricing and requirements of large upfront capital investments. Whether it is pre-primary, K12, higher education skills or online assessment businesses, navigating choppy business waters without a good CFO at the helm can be daunting for management.

Let us highlight areas where a professional CFO can combine his/ her functional skill sets, with an understanding of sectoral nuances and ‘intrapreneurial’ spirit to help businesses in education achieve sustainable and scalable growth.

The education sector is a study in paradoxes. While investments have been made based on perceived market size and revenue projections, often with high exposures to ‘hard’ infrastructure like land and building, several institutions find it tough to meet the minimum requisite capacity utilisation. At such a juncture, a CFO could greatly benefit the educational institutions in managing business metrics better and in providing innovative solutions to make it a bankable business venture to attract the right kind and quantum of investment. Here are some of the ways:

360 Degree Measurement: Using financial and non financial metrics to drive financial results

Unlike traditional manufacturing businesses, the value (benefit) from a customer standpoint may often not be easy to quantify. Most educational institutions have a limited ability to measure and communicate value add to customers (students or parents) at different stages during the course. Apart from initial high capex costs, Institutions add to their service portfolio to differentiate themselves from competition – day care with play group, international curriculum with an Indian syllabus, management courses with core degree courses, leading to increased product mix complexity. Most institutions in higher education have a poor understanding of costing/pricing by course and lack clear visibility of which courses in their porfolio are making money. Decisions to expand in new geographic locations are not always scientific, leading to sub-optimal allocation of capital and management resources in unprofitable locations. In pre-primary, franchising is a favoured route, but the franchisor does not always have robust measurement tools to help franchisees acheive and maintain positive cashflows quickly, resulting in frachisee turnover and business disruptions.

The CFO can provide valuable input by identifying, measuring and comparing some key financial and non-financial metrics which could provide the management with an insight on the direction they should steer.

A good CFO should take the lead in measuring all metrics as follows: Product, site level profitability, inquiry to student conversion ratio, drop out ratio, break even calculations in capex intensive projects, pricing trends for courses over years, placement percentages, faculty rating, infrastructure rating, marketing spends to students converted ratios, sales/ profit mix by site/ franchisee and average salary after course completion. While a CFO may not be responsible to improve each of these metrics by himself, he does play a key role in holding up a mirror to management and business units, to help them view their own performance objectively. A good CFO understands that better control over metrics helps ultimately in delivering good financial results.

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