Financial viability is often discussed with reference to ratios, benchmarks and margins involving revenue, profit and cashflow. However, the use of these numerical markers can be confusing for non-financial people.
For a school to be financially viable, the organisation must have healthy profit margins and adequate cashflow that can be reinvested into the school’s future operations.
Culture and the day-to-day operations of a school play a huge role supporting financial objectives and should not be underestimated. It is important that all staff understand how their roles contribute to the school’s overall financial success for long term sustainability.
In my experience, too many non-government schools wait for the first deposit of government funding for the year before finalising their budgets and forecasts. This is a risky way of managing finances, especially if cashflow is tight because you are a growing/shrinking or evolving school.
The 3 drivers discussed below can be beneficial to a school’s management. Although these 3 points are non-financial in nature, they enable staff to predict revenue, manage costs and oversee the entire school’s financial performance.
1. Student Capacity
Every school should know what their optimal student enrolments are, and be working towards achieving this target. Knowing how many “bums on seats” the school has capacity for and monitoring if the school is achieving this target, will show if the current enrolment levels are acceptable, or concerning and require action.
For those schools that are not at capacity and do not have strong waiting lists, it is also important to understand what your “break-even” enrolment point is. The difference between running two small classes versus one large class or a composite class, has a huge impact on your teaching costs and bottom line.
The school executives must know what the maximum and minimum enrolments numbers are for each year level. Once you know your enrolment targets, you can plan for future viable class sizes that address educational outcomes, parent concerns and the associated teaching costs.
Having the ability to easily forecast the next school year’s enrolment numbers is vital for managing both education and finances. Students drive revenue, so you must know if your current student levels are adequate and how you are positioned for the following school/financial year.
How many extra students do you need to create an extra class?
At what minimum student number do you need to consider creating a composite class?
Monitoring your actual and forecasted student enrolment numbers compared to your targets and break-even points, will ensure your revenue is always on track.
2. Know your Market
Every non-government school is seeking to attract families from different catchment areas, and at different price points using various marketing activities from hardcopy mail-outs to Facebook ads. However, for these marketing initiatives to be effective, the school must know who their exact target market is and how to get their attention.
Many schools are not competing with other non-government schools, but trying to offer a different and unique educational experience that competes against less expensive government schools. Thus, to market effectively to your potential families, you must also know the core values and drivers of future parents.
Where are potential families with school-aged children who can afford tuition fees located?
How can you attract these families to enrol at your school?
Also know your market’s price sensitivities so you don’t price yourself out of the market. Non-government school tuition fees have grown higher than inflation over the last 10 years, and for many families are simply unaffordable. Some schools are starting to lower or freeze tuition fees as a way of attracting families who can pay the full tuition costs. Consider how increasing your tuition fees may impact current and future families and how this might flow on to future enrolment numbers.
If you know your market, and truly understand their values and price sensitivity then you can run efficient and effective marketing campaigns to maintain a healthy enrolment pipeline.
3. Accurate, Timely and Meaningful Reporting.
If you can’t measure it, you can’t manage it.
Reporting is critical at all operational levels of a school. Staff who are responsible and accountable for various school functions, must receive adequate information that assists them in their roles.
How can you expect staff to manage outcomes and make informed decisions if they do not have the right information to help them carry out their duties?
Here are some examples of the very different types of reporting across a school and how they impact on financial viability:
- Budget Holders that have access to cost centre reports that show the current year-to-date spend against their annual budget, are less likely to over-spend on their budgets as they can see how much they have already committed or spent.
- The Payroll officer receives a daily report of teacher absences and the casual teachers who covered their classes. The detail of the report lists the staff, dates, absence times and leave reason which is used to process payroll.
- The Accounts Receivable Officer uses a Debtors Aged Trial Balance (a report detailing the amount and age of debt) to determine which families have unpaid tuition fees and need contacting for follow up.
- The School canteen manager runs a report to see what the popular menu items are and the profit margins of those items. The canteen menu is amended to suit student preferences and ensure all menu items are priced correctly.
- The Registrar uses a report to show if and how many students have left the school prior to graduation, and the reason for leaving is given to the Principal each month. Any patterns or reasons for concern are investigated and corrected.
Staff should have access to instant and accurate reports that can be generated from an electronic system or software (not paper!). If staff can access this information themselves, they will be able to work autonomously and make the best decisions for the school.
The three operational points of knowing your school’s enrolment capacity, target market and implementing accurate and timely reporting play key roles in managing a school’s financial performance.
As students drive revenue, aim for full capacity and manage classes accordingly.
Profile your future parents, and know how to communicate with them effectively.
Give your staff the information they need to assist them in their roles.
To ensure your school is performing the best it can, it is essential to evaluate all aspects of its performance and not just the financial KPIs. If all operations are running smoothly and meeting their targets, then this should have a positive flow on to school profits and cash-flow.
If you are a Principal, Business Manager or Board Member and you are concerned that your school is not achieving any of the discussed points, then do not hesitate in contacting Precision Management Accounting for more information.