Accounting

Cutting your cloth

Independent schools are under continuing pressure to retain pupil numbers as parents' disposable incomes are squeezed. David Barnes reports

As a result of the challenging economic environment, independent schools must be ruthless in their cash management to survive the coming months. One way of retaining financial control is to exercise scenario planning, as creating a model to forecast for situations enables objective decisions to be made to mitigate the impact of change. For example, the school must know the number of pupils needed to break even and the number needed to turn a profit. It must also decide on the actions it would take if numbers begin to fall, and to ensure its planning would enable these actions to be taken quickly, to correct the situation before it becomes terminal.

Once possible scenarios have been identified, governors must decide how they would tackle each problem. As an example, in the case of student numbers falling as parents struggle financially, there are several steps a school could take such as offering additional scholarships or hardship bursaries. It may be that if the school has excess capacity, finding a way to obtain some contribution would be better than losing a pupil entirely, particularly if the shortfall in income may be short-term only.

Comprehensive invoicing procedures
To ensure that the cash position of the school is maximised, the bursar should ensure all invoices are received by parents on time and that payment is made promptly, in accordance with the school's payment policies. It is therefore important that the invoicing procedure in each school is clearly understood by parents and that it is rigorously enforced.

The school must run its finances as a business and there should be stringent credit control processes in place to take action in event of late payment. The school must send reminder letters to late-paying parents and, if these are ignored, a formal solicitor’s letter should be sent. This process should be taken seriously and it is likely that parents will then follow suit; once a payment cycle begins to slip, it can be hard to regain control. Strict credit control leads to a healthier cashflow and easier to manage accounts.

Advanced fee payment 
Traditionally fees are charged at the beginning of a new term. However, bursars may consider moving the payment date of fees to the previous term, and possibly offer a prompt payment discount to act as an incentive to paying early.

Some schools may be tempted to collect fees in advance, perhaps for the entire school year in the hope that receiving the money upfront will help solve a cashflow problem. However, this option must be carefully considered and is not always wise. Although the cash position is improved through the accelerated payment, there will be a liability on the school in respect of the deferred income, and the school will need to ensure it is able to repay it in the event that the pupil is withdrawn from the school.

Cost-cutting
Actions to correct cashflow issues from falling student numbers could include taking some of the costs out of the school's operations by narrowing its activities. For example, looking at subject profitability and determining if any should be cut from the curriculum. Alternatively, closing the nursery attached to the school would reduce staff costs and free up space for activities for older children. These activities may attract potential parents who pay higher fees, but this move would need to be considered against the downside of losing the potential feeder into the junior school.

Third-party income
A school with facilities such as a theatre, a swimming pool or an ornate dining hall should offer them for hire to the local community. For example, a local amateur dramatics society could hire the theatre for their performances and the dining hall could be used as a wedding venue. Using the facilities raises additional income, creates marketing opportunities and could offer tax breaks.

Fundraising
Many schools have set up a foundation trust to encourage parents, governors and alumni to give donations towards specific projects. If this money is used wisely in a bid to improve the school, such as improving the sports facilities, it will also serve to entice new pupils and therefore bring in additional fees to the school. Schools should maintain close links with trustees and parents who comprise the PTA, to ensure that these groups work in harmony with the school's strategy and not pull in different directions.

We are entering a period of uncertainty. Take an honest look at your financial position, carry out a rigorous risk assessment exercise and ensure that the financial budgets and forecasts are tested and challenged. Proper scenario planning, with contingency plans for when changes have to be made is essential if schools are to survive and thrive in the future.

David Barnes is head of education at Grant Thornton UK LLP. 

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