What school decision makers must do now to maintain financial viability

So much has changed in the world around us…

COVID-19 has severely impacted school operations, the effects of which schools may feel for some time yet. With parents seeking fee discounts and deferrals, coupled with the obvious impacts on the international student market, many schools are left facing financial viability concerns. What can you do as a school decision maker to put your school in the best position for the future, post COVID-19 and beyond? Here are the three critical areas that need your attention.

1. Financial planning including scenario planning

A robust forecast is essential. With the typical budget cycle now upon us, this year’s planning processes may need to look a little different. With the current situation including Victoria moving back to home schooling for the next 6 weeks (minimum), forecasting may be difficult. This is why undertaking scenario planning and ongoing review is crucial to staying ahead of the curve.

• Plan early and challenge underlying assumptions – Early action and robust planning will be the key to navigate through the crisis. Historical performance may no longer be a sound basis for future expectations, so take a fresh set of eyes to challenge past assumptions, and to build the forecast pathway forward.
• Include downside scenarios – Assessing and planning for downside scenarios (eg. what if 50% of school fees are not paid; what if enrolments decline by 20%?) will ensure you have the resources and plans in place to weather future uncertainties.
• Protect student enrolments –Anticipation of declining enrolments is evident. Gaining a better understanding of the demographic of parents and forecasting likely scenarios.
• Outside point of view – Independent preparation or review is recommended to assist in stress testing key assumptions (in Victoria, from 1 July 2021, this will be a mandatory requirement under the new Guidelines to the Minimum Standards and Requirements for School Registration).
• Anticipate funding requirements – Stakeholders (Banks in particular), who may be required to provide additional financial assistance, will require a robust plan underpinned by a strong financial forecast to give comfort and clarity. A robust plan will maximise your opportunity to access any necessary additional funding support.

2. Focus on cash

• Fee collections – Consider the school’s current policy around non-payment of fees. Is this appropriate in the current environment? Can fee discounts be offered to encourage payment and secure earlier cash flows?
• Creditor payments – Can payments be delayed or negotiated?
• Landlords – Can lease terms be re-negotiated?
• Banks – Consideration of loan restructures or requests for further credit may be appropriate. Banks faced with requests for additional support will require evidence of sound financial planning.
• JobKeeper 1.0 & other stimulus packages – Have you availed yourself of current Federal and/or State stimulus packages, including under the current JobKeeper regime? Is there any risk to an unfavourable ATO audit on these payments? A JobKeeper Assurance review may protect the school against hefty fines or repayments required if you have any concerns.
• JobKeeper 2.0 – Have you also considered the school’s eligibility for assistance under JobKeeper 2.0 which will run until the end of March 2021? To be eligible for JobKeeper 2.0, tighter turnover tests will need to be met which include meeting the decline in turnover test for the two prior quarters. For further details read the earlier article circulated on this topic.

3. Operating model design, workforce planning & cost reduction

This is a timely opportunity to step back and ensure that enabling functions, processes and technology are adding value and are designed around supporting delivery of the school’s strategy, teachers and ultimately student outcomes. Consider opportunities to improve efficiencies and/or strategically reduce cost.

These include:

• Role mapping and analysis – Understand what activities are currently performed within each department and who is responsible and accountable. Role analysis will identify areas of duplication across processes, and highlight opportunities for a more efficient allocation of resources.
• Cost reduction opportunities – Take a bird’s eye view and conduct an analysis of all school expenditure. Highlight potential cost reduction opportunities and consider more efficient way to do the same activity. This should include where internal and external resources are used, casuals and contractors.  
• Strategic Procurement / Contracts – Consider key procurement contracts and explore opportunities to consolidate providers, re-negotiate or go to market to secure a better deal.
• Technology and processes – Whilst cost may not be the main driver here, it is a good opportunity to look at the systems landscape, particularly where manual processing leads to inefficiency. Identify opportunities to streamline, support better self-service and enhance reporting.

Need support putting in place these processes and safeguards in your school? Grant Thornton’s full-service education team provides comprehensive support to Australian independent schools by offering integrated services across audit, accounting, tax, financial advisory and consulting. Many of our team sit on school boards, therefore experience and understand the day-to-day challenges and opportunities that exist in the sector.