A clear focus on cash will be essential for colleges and education institutions this winter
Leaders in education are used to operating in an acutely challenging environment, and that’s before you even get to the incredibly lean financials most colleges are used to. Now we’re facing a financial cliff edge and public service organisations are bracing themselves to feel the devastating sting of rising energy costs, interest rates and inflation.
Earlier this month, almost 200 further education colleges backed an Association of Colleges (AOC) letter to Government which suggested that expected increased energy costs would, on their own, threaten colleges’ solvency. Support has been announced but with the guarantee only in effect for six months, leaders are still worrying about how to cope. David Hughes the chief executive of the AOC called the temporary support a “sticking plaster”.
Four-day week?
South Essex College has moved to a four-day week across its campuses to save cash, as it anticipates a doubling of energy bills despite the announced support. It looks like unless more support is offered, many others might also follow suit.
As they manage the issue, I would encourage education institutions’ financial leaders to focus on cash. Colleges are not for-profit institutions. They don’t have shareholders; their strategic success is – and should be – measured in terms of student outcomes, not profitability. From a financial perspective, cash is king. Solvency is all about cash. That’s why, whilst I was in DfE, we favoured cash-focused forecasting as a means of tracking solvency risk.
Thinking and planning
Leaders will also need to think and plan around the many and complex ways in which the current economic context will impact their position. The impact of rising energy costs and inflation will be felt in most parts of institutions’ cost base – as suppliers, for all things, pass their own input cost pressures on to their customers. Institutions will either need to find a way to increase salaries – or risk losing valued colleagues.
Students will also be feeling this increased financial pressure. Inflation and the cost-of-living crisis will impact their current and potential students. It seems inevitable that there will be at least some impact on enrolments and retention rates, as students and their families manage their own financial position.
Alongside the above, institutions will need to service debt and whatever deficit reduction payments have been imposed on them by the Local Government Pension Scheme (LGPS). Financial leaders across these institutions will also want to continue finding some cash to make capital investments – to at least maintain, and ideally improve, their learning environment. Officials in DfE will be working very hard to have relevant capital available. A good way of practically doing this is for institutions to run two separate cash flows and bank accounts: one for operations which are hopefully more predictable, and one for capital which should be fewer but often much larger movements where timing changes could cause significant strain.
These steps aren’t easy
These steps aren’t easy at the best of times, and with the economic climate we’re facing, the challenges further education leaders and their teams will have to overcome are massive. All staff have a part to play in financial control and communicating this widely will be key. Holding at least 45 days’ cash is crucial but many colleges already struggle with this, and it will become even more difficult. This watermark is what allows leaders to focus on strategy instead of reactive tactics which can lead to a downward spiral of tactical action.
The main takeaways for leaders as they tackle these challenges are as follows:
- Cash is king: Focus on cash. Report on cash. Forecast cash. Discuss your financial health with your board and stakeholders in terms of cash.
- Be strategic, not reactive: Act strategically to manage and improve your position. Identify and focus on the actions that will drive sustained financial health.
- Keep communication open: Manage your stakeholders regularly, openly and honestly. Nobody likes surprises less than financial stakeholders; work with them, as partners, to manage and improve your position.
By Matthew Atkinson, Partner at MH&A
Matthew Atkinson is a partner at MH&A specialising in corporate finance, restructuring and options reviews for clients in and around the public sector. He uses his banking, advisory and government leadership experience to help clients with the challenges and opportunities they face regarding governance, acquisition strategy, transactions, merger integration, financing, and forecasting.
Prior to joining MH&A he was the Director of Provider Market Oversight in the ESFA an arm’s length body to the Department for Education. He was also the restructuring lead for the Department for Education and a member of the Investment Committee.
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