Challenges in the independent school sector
Tuesday April 21, 2020
Independent schools are as likely to be affected as other businesses during the ongoing pandemic. Restructuring Advisory Partner Philip Watkins, identifies the steps they should be taking to protect their future.
The widespread closure of schools across the UK has put huge pressure on governors, headteachers and bursars as they deal with an immediate and long list of challenges such as organising remote virtual learning, postponing exams, pastoral care, furloughing non-essential staff and uncertainty around when they will be able to re-open.
Fortunately, the Easter holidays may have provided some headspace. However, many will be highly conscious of their financial position with fee income coming under pressure as the salaries of both UK and international parents are affected in line with the immediate downturn in the economy.
Knowledge is power
As with any business, there are a number of steps governors and senior management teams should be taking to ensure they are in the best position to recover and thrive in future.
Principle among them is ensuring that management information is up to date and that forecasts – particularly pupil numbers and fee income – are revised and reviewed on a weekly basis alongside contemporaneous data for both the summer 2020 term and the next school year. A critical success factor will be the number of pupils on roll in September 2020 across all cohorts.
It has always been important for governors, trustees and directors to carefully document and minute their decision-making processes, supported by good financial data. At times of financial challenge this becomes ever more important, especially if there is a risk to the viability of the school in the short and long-term, and roles are likely to be impacted.
The Independent Schools’ Bursars Association, (“ISBA”) which represents nearly 1,100 schools, is producing regular updates on action schools should be taking, supported by webinars and other virtual training.
David Woodgate, the Chief Executive of ISBA said: “Now more than ever before, independent schools must ensure that they are fit for the future. The impact of COVID-19 must be assessed alongside reasonably foreseeable financial risks such as the loss of mandatory business rate relief in England, the affordability of TPS and the possibility of further rises in employer contributions, the upward pressure on salaries bills of the proposed increase in starting salaries and what this means for wage differentials, the effect of changes in the tax rules for employer provided accommodation and so on. Faster and decisive financial planning action needs to be taken urgently to ensure financial threats are addressed and remember, cash is king”.
The immediate strain on cashflows is most likely to be felt over the summer term but also to extend into the next school year if pupil numbers fall without corresponding cost savings. While the government’s Coronavirus Business Interruption Loan Scheme may be suitable for many schools, they will need to demonstrate viability and the ability to generate surpluses to repay debt over the longer term. Without demonstrating this, it will be a challenge for schools that have been running deficits to obtain or service new borrowings.
Other cash-generative opportunities could exist via surplus land sales but, in the charitable sector, this should only be on the basis that it is likely and reasonable that the overall viability of the school can be re-established and is subject to strict Charity Commission regulations.
While some schools have seen growth in recent years, others have been forced to merge, sell or close as rising costs and fee structures have vastly outstripped middle-class incomes. The COVID-19 crisis will accelerate this process, providing opportunities as well as challenges. Despite current uncertainty, it is clear that those schools that are well prepared and regularly reviewing good data will be in the best place to clear the hurdles ahead.
FRP is on hand to support you through the ongoing challenges of COVID-19. If you have any questions regarding your school then please do not hesitate to contact us.
While the government’s Coronavirus Business Interruption Loan Scheme may be suitable for many schools, they will need to demonstrate viability.Philip Watkins Restructuring Advisory