What Happens When You Assume?
(you make an “ass” out of “u” and “me”)
Last year a K-8 charter school hired us to solve their problem. They wanted to build their own new campus and expand into K-12. The school is well-performing, popular locally, and there’s a clear need for another high school option in the area. All makes sense so far.
But one of the conditions they gave us – the problem – was a hard limit on how much they could finance for the new campus. We’ll just say it was a low number for purchasing land and building a brand new construction K-12 campus for 700+ students. For context … the number would only cover about half the cost.
Whew. That’s a very large gap. We got to work (utilizing one of our basic Nonlinear Rules: “Don’t Panic”) and began exploring how we might bridge the huge gap and feasibly develop a great school. New revenue streams, partners, transferrable development rights, alternative construction methods – anything we could devise to bridge that huge gap.
This was a major challenge. We did a lot of research, experimented with space programming, modeled different financing schemes, and pulled at threads that went nowhere. The gap we were trying to solve just felt too wide.
But then it occurred to us – we had failed to follow our own advice.
We built a financial model of the school’s operations, projected enrollment and revenues, staffing and other expenses, current liabilities – everything. We conceptually designed the project, programmed the uses and spaces, reasonably estimated its capital costs, plugged in what we know to be realistic finance terms, and made some other necessary assumptions.
And all of a sudden it didn’t look so bad … our model was suggesting that the school shouldn’t be this limited in their access to capital for the new campus.
Really? It works? Immediately, we had to wonder – did we miss something? Were we wrong?
We took our model to two different charter school lenders, as well as to a capital advising firm with extensive experience in the education sector. Everyone agreed – there was no clear reason the school should be limited to that initial financing number. They were performing well enough to carry a much larger (and more realistic) project.
There really was no financing gap.
We’ll never know exactly where that one false condition came from – simple miscommunication, modeling error, or wherever. Ultimately it doesn’t matter. The lesson this whole experience reinforced was: always question your assumptions.
Sometimes the starting line simply isn’t where you think it is.
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