Recently we met with John Somerset from Somerset Education who will be presenting the ‘Aon Financial Governance Seminar on Friday 19 June in Wellington. The programme will be of interest and relevance to Boards, new and aspiring Principals, and other senior leaders keen to strengthen their financial literacy. John’s mission is to empower schools with financial confidence and strategic insights. In this article he shares his thoughts on school financial health.
Independent schools are balancing a variety of financial responsibilities. There are a number of stakeholders with financial expectations that Independent Schools need to meet including those paying fees to the school, the government because they provide public money by way of grants, bankers as they provide loans and they have shareholder expectations, but most importantly, the community because the government has effectively outsourced some of their education responsibilities to a private provider.
There are many who believe that independent schools should not be subsidised by government and that the funds provided to these schools could be better spent in the government school system. On the other hand, there are those who believe that the government should provide equal funding for every child of school age irrespective of which school they attend. So it is a contested matter.
There is a growing fear that privatisation and globalisation are breaking down the traditional accountability arrangements that give us confidence in our governments. Therefore the threat of financial failure of an independent school exacerbates that fear. Public accountability theory raises a need to ensure funding provided to private players is appropriately spent and achieves schooling obligations ultimately responsible for by government.
Given that the provision of government funds to independent schools is contested, confidence in the way they are operated is an important public accountability issue. School closures have an adverse effect on social good and undermine consumer confidence in the independent schools’ sector.
Financial failure/insolvency is the greatest risk for independent schools. If an independent school fails, this will undermine community confidence in the Independent sector and therefore could have an impact on all independent schools. If the community loses confidence, this may adversely affect enrolments in independent schools because caregivers will not want to risk having their children’s education disrupted by the sudden closure of their school. All this will undermine public confidence in the use of government funds which would likely result in political tensions.
Prevention is much better than cure. John recommends annual participation in the Financial Survey for Schools (FSS) that he has been running for over 30 years. This is an annual financial health check of your school (like going for an annual checkup with your doctor). The FSS calculates up to 60 ratios for your school, compares results with similar schools and, assuming you participate each year, you can also compare the trend in key ratios for your school. It is identification of adverse trends and responding in a timely manner that is the best safeguard for school financial health.
Other important times to meet with a financial governance consultant such as John is when the school is planning significant capital expenditure which usually involves increased debt. There are financial tools that can assess the financial risk of what the school is proposing and strategies can be developed to help mitigate that risk. Far better to do this BEFORE embarking on the project because at that stage it is still on all paper. Once you sign the contract and borrow the money, it is much more difficult to manage the risk.
If you have a significant reduction in enrolments this will adversely affect the school’s financial health and depending on the amount of debt the school holds, a school could quickly find itself in financial stress. It is times like this where it is important to contact a consultant.
Australian and New Zealand independent schools are very similar in many ways. The main difference is that New Zealand schools, on average, receive significantly less government funding than Australian schools which on average receive 50% of their recurrent funding from government grants. But the positive for New Zealand schools is that you are not as exposed to the risk associated with governments playing around with thatfunding. Another major difference is that school fees in Australia are GST free, but New Zealand schools need to charge and remit GST on your fees.
Financial literacy training for Principal and Senior Management and Board members is the most important action a school can take to ensure financial adeptness
To register for this seminar visit here.
