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Howard Jackson: "Making five-year projections can help to prevent possible deficits and help by ensuring that potential future cuts are carefully factored in to the overarching financial strategy"

Staying out of the red

Howard Jackson from HCSS Education looks at effective forecasting for academies

Posted by Stephanie Broad | July 05, 2016 | Law, finance, HR

In the last few years, the education sector has experienced a considerable amount of ambiguity and turmoil. With the government announcing its plans for forced academisation and then back-peddling just weeks later, it is unsurprising that school staff have been left with considerable doubt as to what the future will hold. In addition, despite the government asserting that the amount of money given to a school for each pupil would remain constant until 2019-2010, school leaders are reporting rising costs and inflation, which makes it more difficult for them to successfully plan for the future. Here Howard Jackson, head of Education & Founder of HCSS Education, discusses why so many schools are falling into deficit and why it is important for all schools and academies to forecast effectively and factor potential cuts into the budget.

Back in March 2016, a study by the Association of School and College Leaders (ASCL) found that nearly 90% of school leaders expected that the financial pressures they would experience over the next 12 months would have a negative effect on their ability to provide top quality education. The Institute of Fiscal Studies also warned that spending per pupil could fall by eight per cent over the next few years, meaning it is increasingly likely that an increasing number of academies will end up falling into the red. 

One of the recurring challenges for academies, when it comes to coping with financial pressures, is balancing the budget. In 2015, the National Association of Head Teachers conducted research which worryingly found that two thirds of school leaders would not be able to balance their budget in four years’ time. This begs the following questions: What exactly is causing this bleak outlook, what is leading schools into deficit, and most importantly what can be done to rectify this issue?

In a landscape of uncertainty and ever-growing pressure on schools to perform and deliver an exceptional standard of education, HCSS conducted our own research to try to cut through the noise and really understand the key budgetary issues facing schools and academies. We surveyed 265 schools leaders; 170 from maintained schools and 95 from academies, and asked them a number of questions about their financial planning, funding and the strategies they have in place to prevent a deficit. 

As part of our research, we asked both academies and schools questions to determine how they were coping with their finances. The results found that a staggering 93% of both schools and academies reported that they felt funding is decreasing. This drop in funding is having a powerful knock-on effect on the overall finances of schools, with more than a third of schools and academies reporting that they had suffered a budget deficit in the past three years.

As such, this has led to more than half (51%) of schools and academies feeling ‘very concerned’ about their futures. However, what is probably most concerning given these concerns is that as many as 13% of schools and academies do not have currently have a three to five-year budget in place. 

So what can be done to keep schools out of the red?

These results suggest that schools and academies are being put under increased pressure to stretch the budget and to do more with less money –while trying to raise standards. It is clear just how difficult it is to balance the budget; as both schools and academies are really struggling to make do with the available funding and the rising costs of the likes of teacher’s pay and pensions.

To try to prepare for the future as best as possible it is recommended that school leaders forecast effectively to make sure they are continually reviewing the budget and constantly looking ahead. Making five-year projections can help to prevent possible deficits and help by ensuring that potential future cuts are carefully factored in to the overarching financial strategy. 

With so many different variables affecting the budget such as staffing costs and changes in pupil numbers, it is difficult to factor all considerations accurately into one spreadsheet. With this in mind, it is recommended that academies invest in a robust financial management system as they can help to simplify operations, ensure accuracy and allow all budgetary information to be viewed securely from one central place.   

There are a number of these systems available but it is recommended that academies invest in one that has been tailored specifically to the education sector and adapted for their specific needs. These custom-built solutions can enable academies to forecast effectively and understand their financial position in the short, medium and long term.    

Based on our findings, it is clear that both schools and academies are finding it increasingly difficult to keep their head above water when it comes to managing finances. Due to increasingly tight margins, school leaders should forecast potential cuts and adopt a hard-nosed approach to ensure the school or academy is able to stay out of the red. Adopting software that is tailored for the education sector can help to future-proof an academy by ensuring it is able to stay on top of its finances and can focus on providing the best quality education to its students.    

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