You are probably in the process of creating your financial budget for the upcoming academic year. Historically you may have created either one budget scenario, or possibly a best and worst case scenario. What this period of uncertainty shows is that independent schools need a flexible budget model for the upcoming academic year.

Since the start of 2020, we have seen dramatic educational changes and challenges for schools. Schools have overcome the introduction of remote learning, additional cleaning requirements and the impacts of social distancing impacts. Schools have not faced such a volume of changes for many years. From a financial perspective, schools have faced increased staffing costs due to the introduction of bubbles, increased cleaning costs, food wastage with overnight announcements of lockdowns, and discounts to parents for periods of remote learning.

What are the main areas of uncertainty which need flexibility in your budget model?

Pupil numbers and fees

It is unlikely that you will know the exact financial circumstances of all the parents with pupils at your school. However, it would be wise to assume that some of them have felt a negative financial impact following the pandemic. This will either be through reducing trading in their own businesses, or furlough/redundancy from their employers. These parents may be facing hard choices around the continuing affordability of sending their children to an independent school.

You will require some flexibility around the number of pupils included in your financial model. Flexibility around the number and fee % of bursaries/scholarships offered is also appropriate. Finally, you may want to include an option for discounts for periods of remote learning within the model.

Staffing

The introduction of bubbles has led to increased staff costs for many schools over the last year. Your model requires the flexibility to retain your current structure or to transition back towards your standard model. With staffing being a large proportion of costs, this area requires modelling as accurately as possible.

Extra-curricular activities

The uncertainty over future lockdowns and changes in parent commitments may impact the take-up of extra-curricular activities. The ability to model varying take-up rates provides the visibility of financial impacts and whether events should be held. Trips and specifically foreign excursions will need greater scrutiny due to the current uncertainty over the travel roadmap.

Cleaning costs

The more rigorous cleaning requirements in schools has led to an increase in costs. An assumption will be required to confirm whether this will be applicable for the full upcoming academic year or for a shorter period of time.

Other costs

You will require some different assumptions for price increases covering the various types of other costs incurred by schools. Utility costs consistently increase at a higher rate than the general level of inflation. Insurance and fuel are other costs which are likely to increase at a higher rate as well. Most other costs can have a general inflationary increase applied.

 

What should I be checking in our financial model?

You want to understand that the model utilised for your school(s) has some key driver data, which when updated, automatically adjusts the model. This means an updated profit/loss and cash flow position can be provided immediately. Ask the owner of your model if this is the case, and how quickly they can provide the answer to several scenarios. When building the financial model they should have asked you what the key drivers are!

 

Why is the flexible model important?

A flexible model enables you to quickly establish the impacts of various changes, providing the range of outcomes across these scenarios. This provides the visibility to establish whether your expectations are aligned to what is likely to occur. The range provides you with best and worst case scenarios, and then you can choose where you want your financial budget to reach across the scale.

The ability to understand the impacts both on profit and cash flow for varying scenarios provides you the opportunity to make the right strategic financial decisions based on the information you have available. This is vital to ensuring the smooth running of your school(s), both in the short term, but also to achieve your longer-term financial goals. This is why independent schools need a flexible budget model.

What if our model is not flexible?

The first option would be to ask the current model owner if they are able to update their current model to something more flexible. You already have a relationship with them and they understand the intricacies of your business.

If they are unable to build a flexible and integrated model for you, or you require other finance support, Enrich Accounting would be happy to assist. Contact Paul at Enrich Accounting here, at paul@enrichaccounting.co.uk or on 07403 407455.