Description
A Turnaround Story Of Success
Ihave consulted with proprietary
schools since 1997 and have assisted
my clients in solving a myriad of difficult
situations. I’m about to relate a story
that is in my estimation unique in its
complexity. While most issues likely
have happened somewhere before,
encountering them all in one school
was the monumental task I faced in
this turnaround case study.
A group of business associates,
who own a small career college in the
United States Midwest, have hopes to
branch the school and acquire a few
more schools, forming a nice, well
performing group of schools. The
group, which is the school’s Board,
has six equity partners and one
additional partner who received equity
for his efforts, in lieu of investing
capital for the acquisition, for manage-
ment of the school as CEO. The school
had been purchased from a family
who had owned it for 15-to-20 years,
but the school itself dates back to the
late 1950s to early 1960s. Thus, it has
an established presence and brand in
the rural/suburban community it serves.
In May 2012, I was called by the
A Turnaround Story of
Success
By Thomas Kube, Executive Director of Kube & Company
TOM KUBE is the
Executive Director of
Kube & Company, Higher
Education Management
Consultants, an industry
recognized professional
knowledge practice
specializing in executive
search, mergers and
acquisitions, operational
consulting and organi-
zational effectiveness in
higher education.
He previously served as the Executive
Director/CEO for The Council of Educational
Facility Planners (CEFPI). Prior to this, he served
as the Executive Director/CEO of the Accrediting
Commission of Career Schools and Colleges of
Technology (ACCSCT). He also served as the
Manager of Corporate Strategic Planning for the
National Headquarters of the American
Automobile Association (AAA). In all, he has held
leadership and operating positions in business
and education for more than 35 years.
Mr. Kube earned a BA degree from Colorado
State University and an MBA degree in finance
from George Mason University. He has also
studied Entrepreneurship at the Wharton School
of the University of Pennsylvania. He served as a
member of the U.S Secretary of Education’s
Financial Ratio Task Force as part of the 1997
Reauthorization of the Higher Education Act, and
has testified before the U.S. Congress on
educational research and for-profit education.
Contact Information:
Tom Kube
Executive Director
Kube & Company
Phone: (480) 451-7205
Email: [email protected]
Website: www.kubeco.com
School Operations
I visited the school in early
June and found a number of
fundamental issues that needed
to be addressed.
Board regarding their concerns that
the school was underperforming and
might be having difficulty. They were
discussing options. During the course
of the conversation, they asked me if I
would consider visiting the school,
performing a management audit and
providing a report on my findings and
any recommen-
dations. Given that I
have personally
evaluated countless
institutions and
that I enjoy evaluat-
ing various school
business models,
the answer was
easy. Yes.
I visited the school in early June
and found a number of fundamental
issues that needed to be addressed.
Here’s where the complexity begins.
For clarity I’ve focused primarily on
the business issues, although human
resources and the cultural climate of
the school were also under review.
Business issues:
• Low enrollments; there were 30
students, with an almost 100
percent drop rate on new starts
since January.
• The FY 2011 audit had been
delayed and was not completed. It
was due by June 30 and the audit
firm was not finished, primari-ly
due to turnover at
the CFO level.
• The school had no
cash funds to
sustain day-to-day
operations.
Although barely one
step away from failure,
the school had sound
fundamentals in its
curriculum, certain
core staff contributed
value and continuity, and the com-
munity needed the jobs and identity
this school provided. Shortly after my
visit I met with the Board to deliver my
report. The Board discussed various
options ranging from continuation to
closure, thanked me for the report,
and wanted some time to consider
what their next steps should be.
About a week later they contacted
me to ask if, in my professional opinion,
the school could be saved. Could a
successful turnaround be achieved? I
replied that indeed it could and I
expressed some ideas on how that
might be accomplished. The school
clearly had value to its community, to
the investments of its Board, and to
the importance of career schools in
our country’s higher education oppor-
tunities. Following their request for
me to act as an interim CEO, I agreed
to go there and work on turning the
school around in early July 2012.
At the time, I felt fortunate that the
senior staff at the school was competent
and excited for the opportunity for a
positive change in leadership and to
reinvigorate the school. Some of the
immediate business management
steps I took as the interim CEO were:
Business steps:
• Sat down with the CFO and
determined the extent of the
financial crisis gripping the
school and received an update on
Career Education Review • March 2014
12
The school had sound funda-
mentals in its curriculum,
certain core staff contributed
value and continuity, and the
community needed the jobs and
identity this school provided.
Kube’s Corollaries
Simple Advice for the off-site owner:
1. Hire honest people (check their backgrounds)
2. Never ever, ever let your CFO/Controller be a single
check signer
3. Routinely evaluate Internal Controls
4. Foster and encourage a free and frank exchange with
management
5. Visit your school – meet your employees, know your
team
6. Ask questions, after all it’s your business
7. Use a “Dashboard” with metrics you understand
8. Trust but verify
the late 2011 audit, budget and all
matters financial.
• I also hired ADP to do payroll and
engaged a Third Party Servicer to
handle Financial Aid processing
to provide professional manage-
ment and objective status reports.
• Contacted our suppliers to
arrange terms to keep receiving
course materials and pay off old
receivables.
• Met with and outlined an overall
compliance plan that focused on
state, accreditation and Title IV
issues to resolve outstanding
compliance issues.
• Requested a cash infusion by the
Board and met with the existing
audit firm to ensure a positive
report on the school’s solvency in
their next audit.
• Met with Admissions to focus on
improving their enrollment process
and help reinvigorate their efforts.
For purposes of confidentiality, the
list above is not all-inclusive but gives
a good sense of what we addressed
immediately on a list of significant
issues that challenged the sustain-
ability of the school. Findings from
additional evaluations of the business
side of the school included necessary
strategic actions such as termination
of the school’s CFO as well as accepting
the resignation of the CEO and the
Director of Compliance.
With the departure of the CEO,
CFO, and the Director of Compliance I
reconfigured staff, promoted some
bright staff members and kept the
outside auditor as a temporary CFO.
Working with the Director of Education,
fortunately for us a very competent
person, we kept the academic side in
order and helped the new Registrar
set up a better process of moni-
toring Satisfactory Progress and getting
student files current.
To recap, in late 2012 I had taken
over a floundering school, found some
of the key areas of underperformance,
made some significant personnel
changes and placed good people
there to bring those functions up to
required levels of performance and
compliance. We also engaged certain
outside entities to
bring
standardization and
consistency to the
administration of
the school. This
included replacing
the old audit firm
and engaging a
third party Title IV servicer to address
better oversight and compliance.
It was now time to prepare a budget
for FY 2013 and see if we could reason-
ably project future enrollments and
what our realistic potential as a school
should be. At this point student en-
rollment had grown to approximately
100 students. The Board also made a
capital commitment to bring us
current and to sure-up the balance
sheet of the school. Something was
definitely working.
The Financial Focus Continued…
Focusing on a budget for the school
meant that the managers had to dive
even more deeply into the operations
of the school from a prior year historical
perspective to see what we had spent,
why we had incurred the expense and
if it was appropriate going forward.
It was apparent that our findings
helped to put into perspective why
the school was woefully short on cash.
It also called into question whether
any financial aid fraud was
occurring. Our new outside audit firm
and a separate independent auditor we
engaged after the CFO was terminated
confirmed that there were no financial
Career Education Review • March 2014
13
With the departure of the
CEO, CFO, and the Director of
Compliance I reconfigured staff,
promoted some bright staff
members and kept the outside
auditor as a temporary CFO.
aid irregularities – of this we could
now be absolutely certain.
While the initial management audit
in mid-2012 found and identified a series
of significant issues contributing to
the school’s dilemma, by this time we
had identified and
captured the
primary underlying
causes that had to
be treated to restore
health to the school.
I can say on a per-
sonal note that never
before had I seen the complexity and
interrelationships of such problems in
a single entity.
So Where Did it End?
So far the story ends quite well. We
finished FY 2012 with a loss, under-
standably. We concluded FY 2013 with
a positive EBITDA that approached 20
percent of top line revenue and FY 2014
is starting out as planned. Some steps
we took in the interim are:
Human Resources steps:
• Hired a talented CFO (with school
sector background)
• Promoted a key staff member to
Financial Aid Director
• Hired a new Registrar
• Completely trained all of our
instructors for improvement in
performance
Business steps:
• Worked to improve Admissions
(2014 will have us focusing on
this area in particular)
• Set up and are using a strong set
of internal controls and manage-
ment information metrics
• We also hold regular, content-rich
Board meetings to inform the
owners about the school
What About the Compliance Stuff?
Today, the school is meeting all of
its obligations and is in full compliance.
We received a 5-year renewal from the
accrediting agency that reviews the
school. We had the Letter of Credit
released from the 2009 Change of
Ownership and received a full 5-year
certification (we were taken off
provisional certification) from the US
Department of Education. And, we
had a good final audit determination
for the 2012 audit year.
Looking forward, we are getting
poised to open another location in the
region and will work with the state
licensing authority and our accrediting
agency to do this. Most importantly,
we are doing this as a team.
Parting Thoughts
This case study is presented to show
that even a complexly dysfunctional
situation can be made whole and
normal again. However, it takes a fully
engaged Board/owner, a dedicated
management team and a shared vision
for success. We had all of these com-
ponents and got it to work.
If anyone would like to discuss this
situation further, or how specific turn-
around issues in your facility might
benefit from this story, I’m happy to
do so. I can be reached at (480) 451-
7205 or by e-mail at [email protected]
and we can continue the dialog.
Career Education Review • March 2014
14
I can say on a personal note
that never before had I seen
the complexity and inter-
relationships of such problems
in a single entity.
Today, the school is meeting
all of its obligations and is in
full compliance. We received
a 5-year renewal from the
accrediting agency that reviews
the school.
doc_321055062.pdf
A Turnaround Story Of Success
Ihave consulted with proprietary
schools since 1997 and have assisted
my clients in solving a myriad of difficult
situations. I’m about to relate a story
that is in my estimation unique in its
complexity. While most issues likely
have happened somewhere before,
encountering them all in one school
was the monumental task I faced in
this turnaround case study.
A group of business associates,
who own a small career college in the
United States Midwest, have hopes to
branch the school and acquire a few
more schools, forming a nice, well
performing group of schools. The
group, which is the school’s Board,
has six equity partners and one
additional partner who received equity
for his efforts, in lieu of investing
capital for the acquisition, for manage-
ment of the school as CEO. The school
had been purchased from a family
who had owned it for 15-to-20 years,
but the school itself dates back to the
late 1950s to early 1960s. Thus, it has
an established presence and brand in
the rural/suburban community it serves.
In May 2012, I was called by the
A Turnaround Story of
Success
By Thomas Kube, Executive Director of Kube & Company
TOM KUBE is the
Executive Director of
Kube & Company, Higher
Education Management
Consultants, an industry
recognized professional
knowledge practice
specializing in executive
search, mergers and
acquisitions, operational
consulting and organi-
zational effectiveness in
higher education.
He previously served as the Executive
Director/CEO for The Council of Educational
Facility Planners (CEFPI). Prior to this, he served
as the Executive Director/CEO of the Accrediting
Commission of Career Schools and Colleges of
Technology (ACCSCT). He also served as the
Manager of Corporate Strategic Planning for the
National Headquarters of the American
Automobile Association (AAA). In all, he has held
leadership and operating positions in business
and education for more than 35 years.
Mr. Kube earned a BA degree from Colorado
State University and an MBA degree in finance
from George Mason University. He has also
studied Entrepreneurship at the Wharton School
of the University of Pennsylvania. He served as a
member of the U.S Secretary of Education’s
Financial Ratio Task Force as part of the 1997
Reauthorization of the Higher Education Act, and
has testified before the U.S. Congress on
educational research and for-profit education.
Contact Information:
Tom Kube
Executive Director
Kube & Company
Phone: (480) 451-7205
Email: [email protected]
Website: www.kubeco.com
School Operations
I visited the school in early
June and found a number of
fundamental issues that needed
to be addressed.
Board regarding their concerns that
the school was underperforming and
might be having difficulty. They were
discussing options. During the course
of the conversation, they asked me if I
would consider visiting the school,
performing a management audit and
providing a report on my findings and
any recommen-
dations. Given that I
have personally
evaluated countless
institutions and
that I enjoy evaluat-
ing various school
business models,
the answer was
easy. Yes.
I visited the school in early June
and found a number of fundamental
issues that needed to be addressed.
Here’s where the complexity begins.
For clarity I’ve focused primarily on
the business issues, although human
resources and the cultural climate of
the school were also under review.
Business issues:
• Low enrollments; there were 30
students, with an almost 100
percent drop rate on new starts
since January.
• The FY 2011 audit had been
delayed and was not completed. It
was due by June 30 and the audit
firm was not finished, primari-ly
due to turnover at
the CFO level.
• The school had no
cash funds to
sustain day-to-day
operations.
Although barely one
step away from failure,
the school had sound
fundamentals in its
curriculum, certain
core staff contributed
value and continuity, and the com-
munity needed the jobs and identity
this school provided. Shortly after my
visit I met with the Board to deliver my
report. The Board discussed various
options ranging from continuation to
closure, thanked me for the report,
and wanted some time to consider
what their next steps should be.
About a week later they contacted
me to ask if, in my professional opinion,
the school could be saved. Could a
successful turnaround be achieved? I
replied that indeed it could and I
expressed some ideas on how that
might be accomplished. The school
clearly had value to its community, to
the investments of its Board, and to
the importance of career schools in
our country’s higher education oppor-
tunities. Following their request for
me to act as an interim CEO, I agreed
to go there and work on turning the
school around in early July 2012.
At the time, I felt fortunate that the
senior staff at the school was competent
and excited for the opportunity for a
positive change in leadership and to
reinvigorate the school. Some of the
immediate business management
steps I took as the interim CEO were:
Business steps:
• Sat down with the CFO and
determined the extent of the
financial crisis gripping the
school and received an update on
Career Education Review • March 2014
12
The school had sound funda-
mentals in its curriculum,
certain core staff contributed
value and continuity, and the
community needed the jobs and
identity this school provided.
Kube’s Corollaries
Simple Advice for the off-site owner:
1. Hire honest people (check their backgrounds)
2. Never ever, ever let your CFO/Controller be a single
check signer
3. Routinely evaluate Internal Controls
4. Foster and encourage a free and frank exchange with
management
5. Visit your school – meet your employees, know your
team
6. Ask questions, after all it’s your business
7. Use a “Dashboard” with metrics you understand
8. Trust but verify
the late 2011 audit, budget and all
matters financial.
• I also hired ADP to do payroll and
engaged a Third Party Servicer to
handle Financial Aid processing
to provide professional manage-
ment and objective status reports.
• Contacted our suppliers to
arrange terms to keep receiving
course materials and pay off old
receivables.
• Met with and outlined an overall
compliance plan that focused on
state, accreditation and Title IV
issues to resolve outstanding
compliance issues.
• Requested a cash infusion by the
Board and met with the existing
audit firm to ensure a positive
report on the school’s solvency in
their next audit.
• Met with Admissions to focus on
improving their enrollment process
and help reinvigorate their efforts.
For purposes of confidentiality, the
list above is not all-inclusive but gives
a good sense of what we addressed
immediately on a list of significant
issues that challenged the sustain-
ability of the school. Findings from
additional evaluations of the business
side of the school included necessary
strategic actions such as termination
of the school’s CFO as well as accepting
the resignation of the CEO and the
Director of Compliance.
With the departure of the CEO,
CFO, and the Director of Compliance I
reconfigured staff, promoted some
bright staff members and kept the
outside auditor as a temporary CFO.
Working with the Director of Education,
fortunately for us a very competent
person, we kept the academic side in
order and helped the new Registrar
set up a better process of moni-
toring Satisfactory Progress and getting
student files current.
To recap, in late 2012 I had taken
over a floundering school, found some
of the key areas of underperformance,
made some significant personnel
changes and placed good people
there to bring those functions up to
required levels of performance and
compliance. We also engaged certain
outside entities to
bring
standardization and
consistency to the
administration of
the school. This
included replacing
the old audit firm
and engaging a
third party Title IV servicer to address
better oversight and compliance.
It was now time to prepare a budget
for FY 2013 and see if we could reason-
ably project future enrollments and
what our realistic potential as a school
should be. At this point student en-
rollment had grown to approximately
100 students. The Board also made a
capital commitment to bring us
current and to sure-up the balance
sheet of the school. Something was
definitely working.
The Financial Focus Continued…
Focusing on a budget for the school
meant that the managers had to dive
even more deeply into the operations
of the school from a prior year historical
perspective to see what we had spent,
why we had incurred the expense and
if it was appropriate going forward.
It was apparent that our findings
helped to put into perspective why
the school was woefully short on cash.
It also called into question whether
any financial aid fraud was
occurring. Our new outside audit firm
and a separate independent auditor we
engaged after the CFO was terminated
confirmed that there were no financial
Career Education Review • March 2014
13
With the departure of the
CEO, CFO, and the Director of
Compliance I reconfigured staff,
promoted some bright staff
members and kept the outside
auditor as a temporary CFO.
aid irregularities – of this we could
now be absolutely certain.
While the initial management audit
in mid-2012 found and identified a series
of significant issues contributing to
the school’s dilemma, by this time we
had identified and
captured the
primary underlying
causes that had to
be treated to restore
health to the school.
I can say on a per-
sonal note that never
before had I seen the complexity and
interrelationships of such problems in
a single entity.
So Where Did it End?
So far the story ends quite well. We
finished FY 2012 with a loss, under-
standably. We concluded FY 2013 with
a positive EBITDA that approached 20
percent of top line revenue and FY 2014
is starting out as planned. Some steps
we took in the interim are:
Human Resources steps:
• Hired a talented CFO (with school
sector background)
• Promoted a key staff member to
Financial Aid Director
• Hired a new Registrar
• Completely trained all of our
instructors for improvement in
performance
Business steps:
• Worked to improve Admissions
(2014 will have us focusing on
this area in particular)
• Set up and are using a strong set
of internal controls and manage-
ment information metrics
• We also hold regular, content-rich
Board meetings to inform the
owners about the school
What About the Compliance Stuff?
Today, the school is meeting all of
its obligations and is in full compliance.
We received a 5-year renewal from the
accrediting agency that reviews the
school. We had the Letter of Credit
released from the 2009 Change of
Ownership and received a full 5-year
certification (we were taken off
provisional certification) from the US
Department of Education. And, we
had a good final audit determination
for the 2012 audit year.
Looking forward, we are getting
poised to open another location in the
region and will work with the state
licensing authority and our accrediting
agency to do this. Most importantly,
we are doing this as a team.
Parting Thoughts
This case study is presented to show
that even a complexly dysfunctional
situation can be made whole and
normal again. However, it takes a fully
engaged Board/owner, a dedicated
management team and a shared vision
for success. We had all of these com-
ponents and got it to work.
If anyone would like to discuss this
situation further, or how specific turn-
around issues in your facility might
benefit from this story, I’m happy to
do so. I can be reached at (480) 451-
7205 or by e-mail at [email protected]
and we can continue the dialog.
Career Education Review • March 2014
14
I can say on a personal note
that never before had I seen
the complexity and inter-
relationships of such problems
in a single entity.
Today, the school is meeting
all of its obligations and is in
full compliance. We received
a 5-year renewal from the
accrediting agency that reviews
the school.
doc_321055062.pdf