Improve long-term financial stability Part 1 (Insights for Principals Series)

In every strategic plan Insight Plus has ever produced for a school, the issue of prudential management and long term financial security has been a critical component.  This recent crisis has provided a timely opportunity to review and reflect on numerous aspects of a school’s operations and none so important as the school’s financial standing –  particularly as technological demands and expenses increase. As Benjamin Franklin once said, ‘Beware of little expenses. A small leak will sink a great ship.’ The following tips are designed to help you think a little more carefully about the long term sustainability of your school.

  • Beware the “Boiled Frog” syndrome. It is a well known fact that a frog will immediately jump out of a bowl of boiling water, but paradoxically when placed in a bowl of cold water it will remain there and gradually succumb to the heat as the water boils. Many Principals and Board members fail to detect subtle, but nonetheless important, changes in costs and profitability until a situation arises such as COVID-19.
  • You can’t fix what you don’t measure. Increase the emphasis on collecting quantitative information to diagnose the current situation and frequently monitor all your Financial Performance Indicators. Analyse the financial position of your school at the moment compared to where you want it to be in the future (despite the prevailing economic conditions). Then assess the size of the gap. Take action to join the two.
  • Assess the usefulness of your accounting information and reporting systems. Be objective in your assessment. The nature of financial accounting is such that it can group costs into categories that may not directly reflect the operations of the school or do not provide sufficient insight into where costs are actually blowing out.
  • Keep budgets under tight control. The real value of budgets is not just the help they provide in assessing financial performance but how they can help to make sensible financial decisions. View budgets in this way and you will be less tempted to cut them without having thought clearly about the ‘knock on’ effects.
  • Rationalise despite the challenges. In prosperous times schools can unwittingly accumulate large and often expensive or unviable programs. Take the opportunity to review, rationalise or refocus wherever you can.
  • Avoid discounting. It is tempting during a downturn, when you encounter cases of hardship among parents, to lower financial contributions set for all, e.g. fees, levies or ‘donations’. Be aware of the longer term effects of your immediate decisions, especially the way in you will have conditioned parents to expect those contribution levels to remain at the new level even when economic conditions have improved.
  • Manage costs and overheads carefully. Caution and timing are essential. You must strike a balance between delaying new costs (such as proposed building projects and scheduled maintenance programs) for as long as possible and jeopardising the future growth and health of the school. The long-term costs to the reputation and perceptions of your school could easily outweigh the short-term savings.

Leave a reply

Your email address will not be published. Required fields are marked *