Independent schools have generally responded well to the challenges of the pandemic, but some schools did experience significant financial difficulties. Alistair Wardell explains how we helped our clients reopen their doors after this unprecedented crisis.
Throughout the pandemic we have seen a range of reactions by independent schools. The ones who excelled were those who were able to quickly switch to virtual classrooms and diplomatically tackle the thorny issue of potential fee reductions. Unfortunately, some schools, especially those that were already struggling, were unable to identify straightforward solutions to their problems.
We were called in by several independent schools to help them mitigate the financial impact of the pandemic. In these cases the difficulties were all caused by lockdowns and social distancing measures, but, as you will see, the resources we offered can be used to support other institutions encountering difficult financial situations in 2021.
The state of the independent education sector
There was pressure on all independent schools to reduce fees, especially for those who were slower to adapt to virtual learning. Responses to this varied: some gave discounts, some promised rebates if funds permitted, while others offered no reduction.
Among schools already suffering difficulties, there were several well-publicised closures, including Rodean Moira House, Ashdown House and St Mary’s Shaftesbury. We also know of over 30 schools that were looking for solutions or closed over the summer.
The schools that successfully reopened in this academic year were a lot more resilient and pupil numbers in many cases were higher than expected. This increase was generally found in day schools that had proven the quality of their virtual learning compared to nearby state schools.
Sales activity was relatively low in the sector during the year, with proprietors generally holding off selling until more stability returned.
Bank support for the independent education sector continues, with the high street banks being particularly helpful when the school has underlying assets.
The characteristics that make an independent school attractive to investors remains the same:
- solid earnings
- negative working capital through fees in advance
- growth potential
- location, especially during COVID-19 where settings in rural, tourist areas may impact on parents’ ability to pay fees
- boarding vs non-boarding
- quality of results and reputation.
Assisting with fundraising
In conjunction with our business consulting colleagues, we ran a ‘navigating COVID-19’ workshop for the senior management of a school client. From the workshop, it became apparent that COVID-19 had brought on a cash flow concern due to a high level of bank debt, delayed sales of some non-core assets and discounted fees for virtual learning, especially when compared to boarding fees. Our team kept in touch with them frequently over the summer to act as a sounding board to discuss financial matters and ensure they continued to dynamically navigate through this landscape. We introduced them to a specialist bridge funder that secured full funding to repay the current funder in full and also provide working capital.
Independent business review
An independent school suffered historical declines in pupil numbers and, despite the school taking proactive action at the onset of COVID-19, a significant loss was incurred. The school requested an increased overdraft from its lender. We provided an independent business review, which gave comfort to the lender and breathing space for the school to successfully obtain the increased overdraft. The new bursar who had developed the forecast was grateful for our challenge and insight on the model; this analysis is often difficult to get from governors, especially if they are focused on education rather than finance and strategy.