Just one year after posting a record loss, APU is profitable again
Just one year after reporting a nearly $20 million loss, Azusa Pacific has returned to the black with a gain of $4.8 million.
The university achieved this feat under the guidance of CFO Ross Allen by cutting costs wherever possible, including big portions from faculty and staff retirement plans and raises.
“It was phenomenal,” Allen said. “We laid out the changes that were required and the organization responded.”
This is Allen’s eighth time helping with a “distressed entity,” where operations of an organization need to improve for the organization to stay financially afloat.
“No other organization has responded so consistently and persistently as this organization has,” Allen said. “That’s a testament to who the people are.”
The people, mainly faculty and staff, were a huge part of the turnaround. Last year, APU cut the 403b (retirement plan) of all faculty and staff, meaning the university would not match what staff put into their retirement fund.
“The dedication of this team, the willingness to sacrifice, all of the employees bore a part of this,” Allen said. “The retirement plan was 8 percent of everybody’s compensation until last November when we suspended APU matching contributions. $5 million of the almost $25 million turnaround was from people’s 403b.”
Faculty and staff also had to deal with another setback; APU did not give out any raises last year. According to Allen, that’s another 2 percent of faculty and staff’s compensation.
However, as of Nov. 1, according to Allen, faculty and staff began to receive 2 percent raises again. The university also brought retirement plan matching back, although they are doing it at a lower percentage.
“We started at 4 percent as of July 1, 2019, so half of what it was before, with a goal to eventually get higher,” Allen said. “We continue to watch and see how we can do that. We’re sitting in a much better spot, but we’re going forward with that same intentionality and discipline.
Other significant portions of the budget cuts included the closure of the High Sierra program (which saved $1 million, and has since been replaced by the Zephyr Point Tahoe program), housing restructuring (renting out approximately half the units in Alosta Place to the public, and turning Smith Hall into office space), and staff reductions (although some positions have been refilled). Allen said the small things were important too.
“A big part was just being thoughtful about what we spent. Whether people went to travel for conferences or conventions or training, we pulled back on every area we could. Small things played a big role,” Allen said. “We said no more charging in when we went to lunch. In most organizations, you would charge that to the organization if it included business discussions. The message we had is if you do go out to lunch, you or one of your peers would be paying for it yourself.”
An important component in the turnaround was the way Allen and faculty/staff members talked about it.
“David Peck [Vice President for University Relations] used the term financial stewardship. That resonated well, that we are stewards of your, the students’, parents’ and donors’ money. That’s not our money. We are called to be good stewards of everything we have,” Allen said. “We used a consistent theme of every $20,000 is a student, because net average funding per student, after scholarships is $20,000 roughly [per year]. We used a correlation between the cost we spent and a student. Everything we could cut out or save, we did. People resonated with that and rallied around it.”
The turnaround is especially impressive when considering that APU’s incoming freshman class dropped significantly.
“Our freshman class, as everybody knows, is down. We expected that and planned for it. We’re fighting around that,” Allen said. “But the growth of other programs [graduate, regional campuses, online programs] are helping a lot. The working adults on regional campuses grew by 20 percent last year. Some of these programs, like the Doctoral Physical Therapy program, are growing rapidly.”
Although APU is no longer in the red, it is important to know how the university ended up there in the first place. Allen said he addressed this at the faculty and staff kickoff last fall.
“I made the comment that APU had operated as a mom and pop organization, and we did our budget on a spreadsheet, and there’s elements of truth to that. We have operated more informally. We’ve grown fast and been entrepreneurial, but we have not put in the systems and processes in place to support this larger organization,” Allen said. “We’re now implementing a system that will move us from Excel to a robust planning and forecasting system, which we’ll have in place for this coming year.”
According to Allen, one of APU’s biggest issues was that they did not “close their books,” or do a thorough check of profits and losses, as often as they should have. Allen added that most higher-ed organizations only close their books a couple times a year, whereas most businesses close their books every month. They also generally plan their annual spending on an annual not monthly basis.
“APU had informal processes, like is common in most of higher ed. This caused us to say, ‘No, we want more of a rigorous process,’” Allen said. “We now close the books on the fifth day of the month. The team has gotten it down, and that’s as good as any organization. When you can close the books that quickly, then we have time to look at and review it, talk about it as a leadership team.”
According to Allen, APU implemented monthly budgeting to more carefully track the university’s progress throughout the year. Allen publishes the financial reports every month on Total Access, which is accessible to all APU employees.
APU President Paul Ferguson said he is proud of the work Allen and others at the university have done in facilitating the turnaround.
“The remarkable turnaround in the financial health of APU reflects several aspects of the APU character. This turnaround has been possible by the partnership and resiliency of the APU Community in directly addressing budget challenges. This turnaround reflects the wise and talented leadership of Vice President Ross Allen and his team with budget managers across the university,” Ferguson said. “The university-wide commitment to ongoing budget discipline coupled with consensus-based strategic planning also reflects the hopeful and long term commitment of the APU Community to renewing our Christ-centered mission and impact with a strong fiscal foundation. I am so proud of the APU Community for their efforts and service during this difficult season.”
APU met with its auditors last week to discuss the school’s financial standing.
“We had a three page report from the auditors last year noting the weaknesses that APU had. We worked with them, and making sure those were documented and communicated,” Allen said. “All of those have been addressed and resolved.”
According to Allen, the university is currently in the process of getting its forbearance and waiver lifted, a financial process which has just had its legal requirements met.
Although APU is back in the black, Allen said the university is still being cautious in the way they handle all financial matters.
“Even though the turnaround was great, and we’re now positioned to be in a better position, every year you have to still achieve breakeven and not post a loss,” Allen said.
Allen and other administration members will look at which departments on campus are performing well, and which need to show improvement. According to Allen, growth is imperative.
“We have $225 million to spend. There’s a lot of choices you can make in that and they’re not easy. Each of these choices are difficult and you’ve got to weigh them against each other,” Allen said. “One of the things we’re trying to do is assess and evaluate how we can do things more effectively.”
For now, Allen is happy that APU is no longer in the red. Although he has worked through seven of these situations before, including several multi-billion dollar companies, Allen said this was the most remarkable turnaround.
“In the future, we can be a model for how to do things moving forward for other Christian private universities. They can look to us as a resource,” Allen said. “God has worked through this. He’s helped us develop things. He didn’t create this problem, but he’s helped us develop things that will be a great foundation for us going forward.”