Private schools in the UK are under pressure as fees and operations are hit by the coronavirus lockdown. Managing cash flow will be key for a sector already under stress, explains Alistair Wardell.
The global economy faces significant challenges as a result of the COVID-19 situation with businesses across the UK affected in ways never previously anticipated and the independent schools’ sector is no exception.
School leaders need to act quickly to ensure they are taking correct measures, at the right time to formulate a robust strategy for moving forward as an economically sustainable business. From experience, the emotional investment will drive a strong desire to continue to deliver high quality education, thus providing a long-term and stable future for their pupils and staff, but stakeholders will be looking for financial certainty. Today’s unknown and rapidly changing commercial landscape means bursars and head teachers, faced with unraveling the myriad of complexities presented, will need a strong economic aptitude to successfully navigate their way to success. This is by no means an easy task.
Under coronavirus lockdown measures the closure of all schools presents a challenge to the financial sustainability of the independent schools’ sector. The imminent expected flow of summer term fees may be delayed or reduced through the COVID-19 impact on international pupils unable to travel, decreased parental income and fee suspension as a result of home schooling. This is coupled with the loss of extra-curricula revenue from recruitment fairs, summer schools and social events, and while some private schools may have reserves to see them through in the short term, a number of others may already foresee financial shortages in the coming weeks. For some, COVID-19 may be the final straw, coming on top of existing threats in the sector, including rising costs, greater competition for recruiting students and last year's 40% rise in employer’s teacher pension contributions.
There was an article in the Financial Times highlighting the gravitas of the situation including the somber news that several schools were planning to shut unless they can find new owners or funding. The commentary covered a list of troubles within the sector – fee freezes, fee discounts, parental frustrations, concerned head teachers, non-returning pupils, lack of new recruits, closures and consolidations to name just a few. Despite the advantage and opportunity typically associated with the independent school market, the future is now looking highly ominous.
The call for action is now and I would encourage heads of independent schools and the board of governors to engage with their financial and business advisors to assess the impacts and ensure they are prepared to:
analyse the likely risks involved and implement steps to avoid these – seek professional help to mitigate such occurrences
access cash and financial support from banks, funders and investors – adopt a professional approach to address and overcome the challenges of the credit process
build flexibility into the plan - the outlook is uncertain and innovative thinking is required to overcome the challenges ahead
consider the need to adapt resources – think furlough, redeployment or contract reviews
Private school fees and operations under pressure
Whilst all schools are under significant pressure as a direct result of the COVID-19 situation, for private schools it is the financial pressure, fundamental to the overall stability of their existence, that will be vital to address. While private schools still have staff, maintenance and pension costs to pay, managing cashflow will be key and is likely to remain one of the biggest issues they are facing.
They are being asked to offer refunds or rebates on fees for the summer term and some are already freezing fees for the September intake. Fee discounts from 10% to as high as 50%1 for the summer term have been offered as schools have closed. Any school able to reduce fees will be taking a significant financial hit.
At the same time, educational operations have been forced to undergo radical changes, as teachers scramble to provide remote learning. Whilst furlough provides many businesses with a means to continue to trade, whilst easing some of the financial pressure, for private schools this practice is hampered. If they wish to continue to operate a fully functioning faculty, they need to retain their teachers – undoubtedly one of their most costly resources. Compounding this, there are few savings from having pupils off-site and with most fee income spent on the provision of education and building maintenance, even small cuts to fees may leave private schools struggling.
Mitigating the financial risks
Having a strategy is key to success and early action and engagement is crucial. With uncertainty around when private schools will re-open, the economic impact on pupil numbers for 2020-21, the lack of international pupil recruitment and issues around future sustainability, the challenges that lie ahead for independent schools remain serious.
We advise getting in touch with your financial and business advisors as soon as possible to assess the situation, making any necessary adjustments and putting next steps in place. Things to consider include:
guidance and support to successfully access government funding including job retention scheme, CBILS and CLBILS
advice on cash management including negotiation with suppliers and other creditors
help to identify areas of potential savings
guidance on legal, charitable and trust requirements
accelerated M&A, if schools are no longer able to operate on a standalone basis
financial or operational due diligence for schools that are considering merging with or acquiring other schools
guidance on a day to day basis by turnaround professionals
assistance with securing equity funding if required.