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May 14, 2010

Finances for Higher Ed – Don’t Worship the God of Endowment Fundraising when Liquidity is Your Saving Grace

Tomorrow I will speak with a several higher education professionals about major issues in higher education finance. Number one on my list is liquidity.

The market implosion of 2008 was a necessary reminder that wealth without liquidity is no guarantee of stability. While 2008 brought declines of 30-40% for many universities, declines of 10-20% are more typical and we have seen them at least once a decade.

I’m concerned that higher education still worships at the altar of endowment fundraising when its real problem is inadequate working capital and a disproportionate use of endowment distributions to support inflexible expenses like payroll. The ratings agencies have recognized this problem, although their recommendations have swung a bit too far in penalizing variable rate debt.

My new book, More Than Just Money: Practical and Provocative Steps to Nonprofit Success (available this summer) devotes seven chapters to these issues in a detailed section on financial management. To pre-order the book, please register here.

In the mean time, check out chapter 15 in my first book on nonprofit board finance, Linking Mission to Money®: Finance for Nonprofit Board Members, which discusses the downside of endowment dependence. Get a copy now! Don’t wait to link your mission to money.