Finding investors, grants & more
While income and expenses are both important for budgeting (and we’ll address these in the next section on business plans & budget), it is the income side of the balance sheet that generally causes the most stress as school owners prepare to open.
In this section we provide guidelines for what funding will be required and why, ideas for where initial and ongoing funding can come from, and reminders on some basic finance resources you’ll need to have in place.
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While your overall budget will provide a plan for full-year spending (and is discussed in detail in the business plan section), common up-front costs for new schools include:
Down payment or deposit for your facility
Furniture and classroom supplies
First month(s) salaries
A general rule of thumb for determining how much money you need when starting a school is to think about the frequency and quantity of tuition payments you're going to be expecting.
For example, if you're expecting to collect $50,000 in tuition twice per year, you should have about $50,000 in start-up funds to keep your school running until the tuition money comes in. If you plan to collect the $100,000 all at once, experts recommend having $100,000 in start-up money to tide you over until all the tuition has been collected.
Perhaps you’re starting a school with the money you’ve been saving up for some time and you’re willing to invest it until the time comes that you can pay yourself back? Great! Be sure to keep detailed records and set yourself a reasonable timeline or milestone at which point you’ll pay yourself back.
Finding and applying for grants is hard work but can result in helpful contributions to your school. Our associations and organizations listing includes some good starting points for researching grants available to private schools.
The Small Business Administration offers some funding opportunities for starting a small business, but the criteria can be quite stringent. It is worth investigating if you qualify, but know that it is difficult to make this your primary source of funding.
Bank & institutional loans
Getting a business loan or line of credit can be a good option but requires planning. Most lenders will want to see a detailed business plan, as well as some kind of collateral as assurance you’ll pay them back. For more information on financing your start-up funds, the National Association of Independent Schools has a thorough guide on financing capital projects.
Many private schools fall under an umbrella or a national organization, or have a religious affiliation. In many cases, these organizations have some funding resources available to their member schools. See our list of associations and organizations for links to those resources.
Equity partners are essentially investors in your school who give their money in exchange for partial control over the business. Partners are considered a relatively risky move, because you’re giving up some of your decision-making power to someone else. Before involving an equity partner, you’ll want to ensure you and the investor are on the same page when it comes to how decisions will be made and what your strategic vision is.
Venture capital / seed funding organizations
These types of organizations look for the “next big thing” and invest at the early stages, hoping to profit off of the initial surge of success of a business. The key to securing this kind of funding is to think about how your school is differentiated from any other options in your area. Why is your school going to succeed and what makes it something special and worth investing in?
School tuition is the most common, and most obvious, source of recurring funding. As your student body grows, so will the pool of money coming in from tuition, allowing you to fund many of the items you’ll need to keep your school operating from year to year.
Once you’ve worked on your business plan and budget you’ll probably have a decent idea of the operating costs involved in running your school and can start to think about what you might need to charge for tuition in order to pay the bills.
That said, you’ll also want to research and consider competitive tuition rates for other schools in your area. You’ll probably encounter some resistance if you try to charge 2 or 3 times what other similar schools are charging, so having an idea of the market can help you have reasonable expectations. Just researching your potential competitors by calling or visiting their website is a great place to start. Additionally, data is available on average tuition by state and by large towns and counties. This should get you into the right ballpark and you can fine tune your budget and projected expenses from there.
Involving the community in your school can also help with recurring funding. Many local businesses are happy to sponsor schools and their various programs and activities. This happens frequently with school sports teams but could also apply to general school sponsorship, and programs for arts, STEM, leadership development, etc. In exchange for sponsorship many schools provide visibility for sponsors on assembly programs, t-shirts, banners, or on the sign in front of the school. Simple arrangements can help secure income throughout the year.
Federal & State Funding Sources
The US Department of Education has a several options for private schools looking for additional funding support:
Title I funds - One option is for your school to become a supplemental educational services provider. Basically, if your school offers after school tutoring or other enrichment services, you can open these services up to public school students, and the federal government will provide support. Your school can apply to be a part of this program through your individual state department of education, for which you can find contact information on our state-specific resource pages. You can also read more about Title I here.
NCLB - There are also funds available through various sections of No Child Left Behind (NCLB), depending on the services your school offers, and the eligibility of the students enrolled in your school. The Department of Education has a guide to NCLB for private schools that can help you determine what you might qualify for once you know what your student body looks like.
Grants – The US Department of Education provides this list of organization and agencies that offer grants to schools that can come in handy if you meet specific criteria. There is a little bit of legwork behind researching these grants, but they’re good ways to find funding if you’ve got the time to invest.
Vouchers & tax credits - Many states provide tuition support through voucher programs and state subsidies. Check out our state-specific pages for information specific to your state.
While we’re on the subject of funding, there’s a chance you’ll find families who are interested in attending your school but can’t afford tuition or need financial assistance to do so. While your school may be able to offer discounts or scholarships for families, you may not be able to afford to do so in all cases – after all, you are trying to cover your expenses and tuition dollars help with that.
There are some private foundations that offer scholarships to students who would like to attend private school. Amazon has lots of books that can help parents find financial aid for their students, too. Additionally, you’ll find more resources on our state specific pages.
It is critical that as the owner of your school you keep separate accounts for business and personal use. Mixing of personal and business expenses or revenue can pose not just ethical concerns, but can get you into trouble legally and even void the legal protections provided by formation of a corporation.
Many business owners choose to open business accounts at a different institution than the one where their personal accounts are located. This is a great safeguard to ensure that your bank doesn’t incorrectly link personal and business accounts together, which can sometimes happen for services such as overdraft protection without full transparency for bank customers.
It is always advisable to consult with an accountant when opening and operating your school. Depending on how you are structured, there are likely tax or other implications for how you receive and distribute funds, for how certain expenses are categorized, for payroll, and much more.
Be sure you find an accountant with experience working with businesses. Some accountants do provide services for both personal and business accounting. If you have a personal accountant that can do both, that’s great. But if your personal accountant doesn’t work regularly with businesses, it is important to find somebody who specializes.
Finally, requirements for non-for-profit corporations can be materially different than traditional for-profit businesses. If you are operating as a non-profit entity, be sure to find an accountant that focuses on non-profit clients.
Just as you need different bank accounts for personal and business use, you also need different accounting software. While it may seem easy to just add an additional checking account to your personal finance package, business accounting software will help you keep track of vendors, payments to employees and contractors, provide financial reports, and a range of other details that are critical when it comes time to paying taxes, applying for credit, and assessing the financial health of your school.
Three of the most popular packages for business accounting include:
Quickbooks Online - https://quickbooks.intuit.com/
Probably the best-known name in accounting software, Quickbooks by Intuit has evolved from desktop software to an online platform, with multiple subscription options depending on your specific needs.
Xero - https://www.xero.com
This New Zealand-based company is newer to the market, and has earned numerous industry accolades as they built their platform from the ground-up as a modern, cloud-based platform with all the bells & whistles you might want.
Freshbooks - https://www.freshbooks.com/
Freshbooks is another cloud-based offering that has earned high praise. With their focus on small business and an emphasis on simplicity and ease-of-use, this is another good choice for new schools.