280. Why Asking Your Accountant "What Should I Cut?" Is the Most Dangerous Question in School Leadership

0:00Hey there. Welcome back to the Schools of Excellence podcast. There's kind of a dangerous question that every owner asks their accountant around this time of year, well really any time of year, but mainly at this time of year. And it comes from a place of I really want to be a financial steward inside of my school. But what I often tell leaders when they ask what I ask my accountant or I have a meeting with my accountant, you don't have a money problem most of the time. You have a decision making problem that's disguised as a spreadsheet. So I'll explain, okay? Because every year, like clockwork, all right, leaders sit down with their accountants and they ask this very dangerous question, what should I cut? Or the accountant comes to the leader and says here's where you have to cut, here's where things are getting difficult. Now, it feels really responsible, it feels really disciplined and it feels and looks like a

1:01leadership. It is not because what you're actually doing is you are training your business to shrink every time it feels pressure. I'm going to say that again, what you're doing when you ask questions like what should I cut? You are training your business to shrink every time it feels pressure. Your accountant is trained to do one thing and I'm not dissing on accountants here, I have an accountant, okay? But they are trained to remove emotion from numbers, it's just numbers and that's important, okay? However, if you run your school purely on a numbers lens, you will make logically correct decisions that create massive operational damage inside of the business. I see this play out at scale in a way that could like, would take your breath away. Meaning at scale where you're looking at multi-nine figures of a portfolio of schools where

2:08the business owner who's talking to me was like, well, I made this decision and like logically, I'm like, yes, logically it's correct, but you've incentivized the wrong thing and now you've created operational chaos inside of your organization. And he was bleeding a million dollars in payroll, that is not a mistake. One million dollars in payroll, he was bleeding because his accountant presented logically correct numbers, but he wasn't looking at other components, okay? Your portfolio of schools, whether you have one school, three school, five schools, 20 schools, 100 schools or 200 schools. Your school is not a spreadsheet, it is a human living, breathing organism, it's an entire relational economy. There is staff morale, there is parent trust, there is leadership capacity, there is enrollment, there's parent engagement, there's energy, there's capacity, there's consistency. None of those things will show up cleanly on a

3:08P&L, but they are actually the difference between a profitable, sustainable school that is actually available for exit if you're planning for exit or even just viability than the one that is constantly leaking money, okay? So I want to walk you through what it looks like when you cut to be safe. And if you're not watching the video version of this, I'm doing air quotes cut to be safe. By the way, we do have video versions of our podcasts on our YouTube channel, if you're a person that likes YouTube and likes to see the video version, definitely go ahead there and you can check us out on YouTube as well. So what do I mean by cut to be safe? You cut support, let's say, right? So your directors and your frontline staff start to absorb more of the pressure. When they're absorbing more pressure, it increases the amount of decisions that they have to make, which means the decision quality will automatically drop. If you start to cut training, you might have standards start drifting, drifting, which means inconsistencies will begin to return,

4:10which means you become back the system and the focal point of pressure and the shock absorber and the emotional stabilizer of the building. If you cut marketing, enrollment starts to slow, which panic follows, right? Which comes to a whole other financial conversation. And so what happens is you start to make these decisions and you end off in a worse financial situation than you were when you started. So you cut again, because you're back in that pressure place and that is how businesses literally train themselves into chronic instability. This is how businesses chronically train themselves into chronic instability. Not from bad intentions, it is from incomplete thinking processes. It is from an incomplete thinking process. So you're not making financial decisions based on reality. You're trying to make them based on a static budget. Now, accountants, they like things that are like, it's clean, it's boom, it's this, it's that, it's black, it's white, it's one, plus one, equals two. Okay, your school is constantly changing and evolving. Welcome to the world.

5:15And so that gap of the budget being the static thing versus your school being a living, breathing relational economy, that is where you hemorrhage money. So your accountant looks for revenue, expenses and profit margins. Okay, but your school is living inside fluctuating enrollment, staffing needs that keep shifting, ratios that keep me to be adjusting, changing demands throughout the day, not even the weeks, different crafts, classroom ratios, hour to hour. And so when you make decisions purely from the lens of a PNL, you're not making decisions on a version of your business that even exists far too many leaders are actually making decisions in their business, financial decisions from a reality that doesn't exist anymore in their center. Okay, so I'll give an example. Okay, you might be in a season right now where you have more kids in the door than you originally had anticipated when you created a certain budget. Now more kids means more snacks, more food,

6:20more supplies, more staffing needs, more pressure, more operational load. But your budget said, this is the budget. But oh, sweetheart, you have more mouths to feed. So if you don't adjust what happens is you overspend reactively. So there's no quality control or you under resource. So everyone starts to feel it, parents, teachers, ever, and then do retention drops. And you're like, oh, we have to go work on retention again. And you just chase your tail all day long. Both of these are leaks. Here's another example. What if you have an enrollment dip? Okay, but your spending doesn't adjust to it. So you're still ordering the same amount of supplies with the same amount of frequency and the same amount of, we'll have just in case inventory. So you have excess latex gloves, snacks, materials, cleaning supply, office supply, art supply, overstaffed. Now none of that feels

7:23extreme. But when it's constant and consistent and on questions and unadjusted, that's a leak. And no one's doing this because they're reckless. It's you're just not recalibrating on rhythm when this next shift happens because you're operating from a static budget. Okay. Profit does not get lost by giant obvious mistakes. And I say this all the time. Profit gets lost in not adjusting fast enough in not aligning decisions with current reality quickly enough. And not knowing which money leak actually matters now. So most leaders are asking, what should I cut? The better question to ask is where is money leaking right now based on our current operating reality? That's a different question. It's a lot of what I do with clients when we do our

8:23increase your profit workshop, which is available. And you could click the link in the show notes to learn more about that. So your accountant doesn't catch this because your accountant doesn't see that your toddler room is over capacity this month. Your accountant doesn't see that your scathing schedule is actually misaligned to peak hours that you have going on in this current season. Your accountant doesn't see that you're ordering like you're full and fully enrolled when you're not. They see totals. They see the spreadsheet and their fancy inputs that they put inside there. You live in patterns. What's going on now? Where's it repeating? So when you defer numbers without applying to operational truth and reality of your center, you make these clean decisions that look really clean on a spreadsheet, but they create the messiest chaotic outcomes for your operating system in your school. So when leaders think about how do I increase my profit?

9:25They look at what expense do I have to cut? I need to watch payroll. I need to reduce waste. That's not a complete picture, my friends, okay? Because profit is actually lost in very different places. It's lost in underutilized spaces. It's lost in inefficient scheduling. It's lost in overstaffing at the wrong time and understaffing at the wrong time. It's lost in reactive purchasing and admin inefficiencies in food waste. Those are not visible on a snapshot of a P&L review. So leaders cut what's visible and then ignore what's actually leaking. Your school, your business, okay, with humans, right? Again, relational economy, requires human-based decisions, which means sometimes you invest when it doesn't make sense on paper. Sometimes you keep a role in the company because it protects leadership capacity. Sometimes you choose stability over short-term margin. Your accountant cannot make those

10:26decisions for you because they do not live inside of the spreadsheet. They live inside of the economy of your school with humans. And you are the final authority on your business, not the spreadsheet. But we don't want to make these decisions because we're tapped out, we're exhausted, we're fatigued, we're overwhelmed, we made so many. So we just want to outsource this decision to someone who really is smart and knowledgeable. Your accountant is smart and knowledgeable, but you're actually deferring a decision or trying to delegate a decision that's not to be delegated. It actually belongs to you. So when your only lens of the world is, of financial decisions is what do I cut? You miss where your profit is actually going. And you're likely, if you're like the hundreds of other clients that we've worked with when we've worked to them on how to increase their profit, you're sitting on two to five percent more profit than you actually are aware of. Not from cutting things, but by closing leaks that you cannot actually see.

11:27That's what I do in the increase your profit workshop. This is not theory, this is not budgeting advice. You don't need to bring PNLs and going to show you where the money actually is escaping inside of your operation and how to reclaim it. Okay. And so far too often, we over complicate something that could be a lot simpler to do predictably, reliably and consistently. So I want to invite you to click the link in the show notes to check out our increase your profit workshop. It is for 20 owners. Once we fill it, we close it because this is more customized and nuanced. And so I take a lot of questions. We did this in early January. It was phenomenal for all the owners that came. And I hope that you can join us to be part of it. You could click the link in the show notes and I hope to see you there. Hey there, if you're the one who notices problems before anyone else does, this is for you. You're the one who sees things first, the tension in the room, the teacher sleeping who just might quit. You're ready tracking the

12:30consequences, who will be upset, who will push back. So even on days that look fine or feel calm, your body doesn't fully stand down. You go to sleep tired and you wake up already bracing. Not because today is chaotic or any day is chaotic, but because something could go wrong. And you know you'll be the one that's holding it. It's the responsibility that can sometimes feel crushing. You stay alert, reliable and steady because you've seen what happens when things are in health, when communication slip, when standards soften, when everyone assume someone else will step in. And because you're so good at holding it, more of it finds its way to you, quietly, gradually, until no one sees how heavy it's become. This is not burnout and this is not a discipline problem. It's what I call the invisible weight of leadership. If you see yourself in this, or even if your breath changed just a little bit, that's enough. And if you want to keep going

13:34and learn more, the opening chapter of my book, this can't be normal. What to do when success starts to feel like survival. My book continues this conversation. You can go ahead and download chapter one for free and continue this dialogue. If you are loving the schools of excellence podcasts and have gone any value out of it for your school, I would love if you can do two things for me. One, subscribe to the show so you never miss an episode. And two, can you please leave us a review. Reviews help other school leaders know that this is the place to learn how to build a school of excellence. And I would be so grateful if you can do that for us. Your help and support makes this show to be able to listen by the thousands of other school leaders all around the world. Thanks so much for listening, for giving us your time and attention each and every week. And I appreciate that you have joined us.