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19 Mar 2018 | Filed under: Cost Management | Tagged: , , ,

What is affecting the financial sustainability of Academy Trusts?

Accountants Bishop Fleming have just released their Academies Benchmark Report 2018, which identifies some unwelcome trends:

  • 55% of trusts are in deficit (before depreciation),
  • Funding per pupil is falling for single academy trusts but rising for multi-academy trusts (MATs),
  • Cash balances have increased whilst free reserves have fallen – cash cannot be relied on to measure financial stability,
  • While staff costs have remained steady, there is increasing pressure due to the shortage of teachers and increasing pensions and benefits.

The report’s conclusions are clear and should provide a good read for anyone engaged in the management of academy trust finances.

I do not wish to gainsay the report’s findings, however, there are some points made in the report that I believe should be expanded.

“Centralised trusts are producing surpluses at a time when it is becoming more difficult to do so”

MATs with a centralised or partially centralised accounting function are ’performing significantly better financially’ than those with little or no centralisation.

While the report makes this point in the context of ability to negotiate better funding when taking on weaker schools, surely it should not be a surprise that centralised accounting functions are better able to identify efficiencies and exploit the economies of scale delivered by managing the MAT’s finances as a larger unit?

“How many trusts know what the break-even level of pupils is for their current structure?”

A commercial approach to MAT finances helps, even when enforced by growing deficits. All sustainable businesses quantify their output break-even costs as it enables informed decisions, goals and strategies to balance income and spending.

Deferring maintenance and capital spending

There appears to be a trend towards deferring maintenance and capital projects. That these funds can be used to offset funding shortfalls is an obvious conclusion and supported by the data.

However, it may well be that a contributing cause of this trend is the extra burden placed on MAT leadership to properly define and justify these projects, and then manage their proper execution.

Non-Staff Costs – no more easy savings?

The report assumes that, as non-staff costs have remained constant over the past year, “easy” savings have been made and there is little scope to increase these savings without reducing service and supply levels.

I will take the term “easy savings” and apply it to the context of busy and committed business managers who are doing the best they know how to. In my experience, most business managers and finance directors are candid about which non-staff costs they have properly under management, and which they can’t due to constraints of knowledge, time, resource etc.

Outsourced expertise is valuable

Auditel helps business managers and finance directors manage all their non-staff costs and find the savings that aren’t “easy”, but are sustainable, by providing expert advice and knowledge on a cost-effective, outsourced basis.

In addition, Auditel affiliates have helped many schools properly define, justify and manage maintenance and capital projects.

Please call or drop me an email if you would like a discussion on how we provide this service to over 150 schools and colleges around the UK.

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