Beauty Link - Volume 5, Issue 1 - (Page 41)

Basics of Beauty School Budgeting PART ONE OF A TWO-PART SERIES AN INTERVIEW WITH DAVE MESKO, CPA D ave Mesko has performed hundreds of audits, due diligence and Title IV consulting engagements for proprietary and non-profit schools. He is a frequent speaker at conferences addressing the complex issues surrounding tuition fi nance and regulatory compliance. Dave recently spoke with BeautyLink about budgeting considerations for member schools. BeautyLink: What is some information schools need in order to initiate the budgeting process? DM: Marketing and admissions people should provide accurate projections on the number and timing of student enrollments anticipated in each program. The school’s education staff should provide continuing input on attendance and retention rates in order to produce a tuition revenue projection. Again, it is important to understand how much of that funding may come from Title IV monies. The salon manager should provide projections of salon revenues, which are impacted by enrollment levels as well as seasonal variations (proms, weddings) that may create spikes in revenue. The accounting department should have a good handle on projecting the recurring level expenditures such as rent and payroll, as well as those expenditures that vary according to student starts (kits, uniforms and books) and season (utility bills and perhaps advertising). Larger schools may fi nd it useful to continually update 12-month rolling budgets to alert management to negative trends, which can alert management in time to take remedial action or capitalize on positive trends. BeautyLink: What are some common misunderstandings that you see reflected in school budgeting processes? DM: Many schools manage their budgets on a “Cash Basis” whereby they strive to ensure that cash flow coming in exceeds expenses going out each month, which can be an effective way of managing their finances. Management should be mindful of the cash receipt spikes that arise from Title IV funding (typically nearly 50 percent of the student’s annual tuition during their first month, with the remaining 50 percent being paid at the mid-point of the academic year—and sparse receipts between these periods). However, schools that are accredited and whose students receive Title IV federal student aid are measured for continuing accreditation and Title IV funding based upon their “Accrual Basis” financial statements. As long as the Cash Basis revenues exceed expenses, school owners might assume their school will pass the NACCAS and DOE financial statement metrics. Such assumptions are dangerous and inaccurate. It is very common for a school’s Cash Basis financial statements to report positive income and equity, while its Accrual Basis income statement reports a loss, and its balance sheet reports much lower equity balances. Therefore, it is important to perform an Accrual Basis forecast as the school approaches the end of its fiscal year to determine if the NACCAS and DOE financial metrics will be met, even if the school fi nds its Cash Basis budgeting process to suffice in month-to-month management of the school. BeautyLink: How much do unplanned expenses impact a budget? DM: Small expenses such as replacing a washing machine are often inconsequential. However, an order from the Department of Education requiring a school to conduct a Program Review can result in a six-figure expense to retain additional expertise. Schools should always pre-scout sources of funds such as owner equity contributions, loans or bank lines of credits in the event that unplanned expenditures arise. Dave Mesco is director of the Career Colleges Group for Case | Sabatini. Learn More The online courses ML142 - Budgeting Essentials and ML141 - Finance Essentials are now available on the AACS Online Training Center at www.aacstraining.org. Members call AACS at 800-831-1086 for your VIP Discount Code. Visit the following URLs to learn more about these courses: http://bit.ly/BeautyLinkML142 and http://bit.ly/BeautyLinkML141. BE AUT YLIN K | BACK T O BAS IC S | 20 1 3 | 41 http://www.aacstraining.org http://www.bit.ly/BeautyLinkML142 http://www.naylornetwork.com/bsa-nxt/

Table of Contents for the Digital Edition of Beauty Link - Volume 5, Issue 1

Message from the aacs president and cea co-chairs
Consider this
In-Depth Report
Be Your Best Educator
Superstar graduates
A Wish for Wellness
Beauty changes lives
Perception Is Reality
Step by step
Veterans and Our Industry
Do You Manage or Lead
Multicultural corner
What’s in a Grade?
Basics of Beauty School Budgeting
A Little Friendly Competition
A student’s perspective
Reality Check
And then there’s compliance
Beauty School Boot Camp
Associate member profiles
People & places
New products & services
Upcoming 2013 events
New school members
Index to advertisers
Advertisers.com

Beauty Link - Volume 5, Issue 1

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