“Going concern” a growing concern

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“Making every pound count can maximise outcomes for our young people”, are the opening lines used by Lord Agnew to encourage the readers of the new Academies Financial Handbook for September 2018. However, many organisations counting every pound might say that they are required to do more with fewer resources.

In a recent benchmarking report from Kreston UK the financial advisors across the UK provided information to look at trends in the Academy sector. The report is a useful tool which an Academy or trust may use to see where its finances fit in with in the bigger picture.

However the report also highlighted worrying trends in the sector such as the multitude of trusts showing a deficit in the budget, high percentages of staff costs, and eroding trust reserves. Having looked at the report we have summarised some possible strategies to help.

  1. Consider the advantages and the disadvantages of MATs
    There has been a steady increase in then number of MATs, particularly as a result of academies falling below academic or financial targets. There are advantages associated with this: MATs have the ability to help an academy achieve a better performance, and MATs have developed a strong negotiating position and are able to ask for grants in order to cover the risk of assisting poorly performing schools. But it is crucial to consider whether an academy joining a trust is always the right decision. Trusts are facing increasing financial pressure, and an academy joining a trust only adds to this pressure. Expansion should thus be carefully considered: the trust should review the academy joining, and the academy should review the trust.
  2. Centralise MAT accounting functions
    Data shows that the centralised and partly centralised trusts perform significantly better financially than those with little centralisation. Centralised structures also appear to be better at negotiating additional funds for taking on weaker schools. Centralised accounting functions allow for closer scrutiny and greater control of costs.
  3. Be creative in finance management
    Financial pressures mean that the relationship between the Head/CEO and Business Manager/CFO has become increasingly important. The management of academies must reflect this change, and must empower their finance teams to perform their roles effectively. The role of the Business Manager is crucial, and they must have influence over key financial decisions, close control on the trusts finances, and the ability to improve the efficiency of spending. Similarly, the role of trusts in maximizing profits should not be overlooked. There have been cases of trusts using their negotiating skills in order to gain sources of income from a variety of resources, and this important role of the trust should be encouraged.
  4. Review your governance
    Good governance is critical to enable trusts to raise standards through holding the leadership to account. Trusts have a responsibility to ensure continuous improvement, and should implement measures in order to improve trustee evaluation and performance. Trusts should make it a priority to conduct a full governance review annually in order to improve internal practice. Trusts should also conduct a governance and skills audit to address areas of deficiency.
  5. Be bold and make difficult decisions
    The great pressures – financial and otherwise – faced by academies mean that difficult decisions will need to be made. Trusts should conduct frequent reviews in order to ensure that they have the balance of teachers to pupils just right, and should be prepared to make changes if necessary. Trusts may need to decide whether roles like LSAs are affordable. Trusts may also need to decide whether avoiding costs like building upkeep is a short term solution. How a Trust responds and which decisions they make will vary greatly across academies.

For more information on how we can help your organisation, please call Tony McPhillips on 0191 211 7908 or email [email protected].