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Friday Guest Column: Agreeing to Duck the Discussion about Profit

June 06, 2008 2 min read
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Alan J Carter is CEO of the tutoring provider University Instructors

There’s an old business adage my grandfather (who lived for 102 years and was always worth listening to) taught me years ago: “When your outflow exceeds your income, your upkeep becomes your downfall.” He wasn’t speaking of income and expenses on a P/L statement but rather about something far more important to the success of any business endeavor - ‘cashflow’. An operation can look great ‘on paper’ and still struggle with trivial little day to day issues like meeting payroll, paying rent, keeping the lights on, and funding expansion.
The dilemma isn’t insufficient revenues, but rather insufficient cashflow to bridge long collection cycles. Businesses routinely struggle with collection issues. However, given the documentation requirements and endemic slow-pay nature of K-12 school districts, those who provide SES face additional risks for which they must account in their financial planning. They need what’s called ‘operating capital’. In the business world, operating capital comes from investors, lenders, or a little thing called ‘retained earnings’ (which is another way of describing profits left in the business to pay for future business needs).

I am not attempting to conduct a class in Accounting 101, but rather to call attention to a common issue faced by any outside organization that desires to provided services within K-12 education: Unless the venture is owned or supported by a virtual ATM machine, ‘Profit’ is an absolutely necessary component of both survival and growth – even for non-profit organizations! Profitable Non-profits? Isn’t that an oxymoron like ‘Jumbo Shrimp’, or ‘Government Intelligence’? Not really…what a normal business calls ‘retained earnings’, non-profits call ‘retained surplus’. Profit – Surplus…it’s all the same. It’s what remains after one subtracts expenses from income. If nothing remains, the organization may survive but it will never grow.

Let’s stop kidding ourselves, “If it looks like a duck, swims like a duck and quacks like a duck, it’s probably a duck” (Aflac, 2001). When you dig deep enough, it appears that every adult in K-12 education profits in one manner or another, whether it be surplus wages (teacher retirement/savings accounts), non-profit retained surplus, or for-profit retained earnings. It’s all a matter of setting aside cash for future needs. When a teacher retires, s/he uses the retirement fund to pay for lifestyle upkeep. When a non-profit needs funds to cover payroll or buy a new computer to keep track of SES attendance, they dip into their retained surplus. When a for-profit provider needs funds to bridge A/R collection cycles or expands SES to other districts or states, it relies upon retained earnings.

If all stakeholders can stop arguing over the semantics of what’s ‘left over’ and agree that everyone has a legitimate place in facing the daunting issues in K-12 education, true collaborations can begin. The return on investment for those collaborations will be young people who reach their highest potential – a result from which we will all profit.

The opinions expressed in edbizbuzz are strictly those of the author(s) and do not reflect the opinions or endorsement of Editorial Projects in Education, or any of its publications.

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