18 finance


Schools face the finance challenge


’Education, education, education’ – it is always a hot topic but never more than at present. Parents and those responsible for school operations have an increasing range of options and difficulties to deal with


There is the ever-present state-vs-private education debate, which has become more blurred with the recent coalition policy of extending the criteria for schools seeking academy status and introducing the option of free schools (allowing parents to set up their own new schools). In addition, given the recent High Court decision, there is uncertainty surrounding the ’Building Schools for the Future’ programme.


One thing though remains absolutely clear – all parents and school operators, whether local authorities, central government or private, will be subject to ever-increasing financial constraints and the need to ensure that rigorous and appropriate financial controls are imposed is greater than ever.


Trevor O’Sullivan and Craig Aitchison of Grant Thornton have significant experience of schools in distress. They have led a number of high-profile school turnarounds including Wentworth College in Bournemouth, Bolitho School in Penzance and St Ursula’s in Bristol. Their work also encompasses early assistance to schools to evaluate their current operational and financial position and the most appropriate strategy to be followed to deliver management’s objectives, including mergers, acquisitions and restructuring.


From their experience, there are a number of common early warning signs of impending financial difficulty and key actions to ensuring ongoing viability.


Early warning signs of financial difficulty


Falling pupil numbers


This, particularly in the early key stage years, will have an ongoing detrimental impact.


Weakening cashflow Reducing cash surpluses or increasing bank overdraft requirements are early indicators of potential long-term difficulties. Stretching creditor payments or suppliers placing your school ’on stop’ are causes for more immediate concern.


www.businessmag.co.uk


Timely identification of issues will maximise both the options available to rectify the situation and the timetable to take corrective action.


Essential management action to ensure success


Robust forecasting


Financial forecasting based on realistic assumptions is key. All commercial organisations, including schools, should have a 13-week rolling cashflow forecast together with an annual, monthly linked profit and loss account, cashflow and balance sheet forecast. This will allow you to identify and address any future funding shortfalls.


Act on signs of distress Trevor O’Sullivan


Management organisations in difficulty often seek to explain problems as ’one-off’ or ’exceptional’. Avoid inaction or delayed action, which can lead to a substantial cash crisis and subsequent funding requests to your bank. Failure to act may well see the school close.


Prepare a plan to stabilise the business


Remain calm and take appropriate, considered action. The key to survival is conserving cash, identifying short-term sources of money, cutting costs and restricting payments to those essential to continue school operations. Saving the school from failure may require a complete change in how the business must be run.


Plan your communication with key stakeholders


Craig Aitchison Staff costs


These should not exceed 70% of fee income and if staff turnover is increasing, this could be highlighting an issue.


Fee debts


Independent schools may see parents taking longer to pay fees and an increasing number of bad debts.


Management deficiencies


It is essential that the management or trustees of the board (charity schools) have an appropriate range of skills covering, for example, finance, legal, education, property and personnel. A balance of these skills, allied to strong leadership, is more likely to ensure a successful school and a more proactive approach to identifying and addressing problems.


Communication with the bank, the Charity Commission, staff, parents, holders of property rights, key creditors and the press, all need managing. Early dialogue with the bank is essential but negotiations require confidentiality so timing is important.


Take advice


Our experience suggests that those who take early advice are more successful in implementing a coherent and achievable survival plan.


Details:


Trevor O’Sullivan 023-8038-1193 trevor.osullivan@uk.gt.com


Craig Aitchison 023-8038-1112 craig.aitchison@uk.gt.com


THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – APRIL 2011


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40