All schools must balance the books. As a modern school leader, you can’t simply be a headteacher, leading a group of professionals in their practice; you must also be a chief executive.
As recent financial crises remind us, a chief executive who doesn’t understand how their organisation’s finances work can put not only their own reputation, but the future of their whole organisation in jeopardy.
I have worked with school leaders in senior independent schools and prep schools, in secondary and primary academies, in schools which are part of charities and in international schools owned by commercial operators. Financial skills vary widely.
So how does each type of school rate in terms of financial acumen, and where are the blind spots?
State-funded academy schools
Academies have brought a new era of financial autonomy. Just as in an NHS Trust or other body delivering a service with public funding, those in charge are “accounting officers”. This may sound as if the head should simply be doing the bookkeeping, but in fact being the accounting officer comes with a serious list of responsibilities.
The role means being in charge of public money and often comes with a financial handbook of biblical proportions, covering everything from tendering rules and conflicts of interest to cash handling. A basic understanding of financial processes and the systems your school uses, such as Sage for accounting or ADP for payroll, will help to demystify finance.
Anyone who works in a state-funded school will also know that the monies they receive are delivered via a byzantine set of funding streams. Some are per pupil or activity-related, some are block grants; some recur and some appear and disappear again the following year; some are for general use; and some, like the pupil premium, must be ring fenced for specific purposes.
An academy head may have limited control over increasing this income but they must understand how it works - and how it may change - if they want to avoid jettisoning important initiatives.
However, although there may be a lack of clarity on income, academy heads often have an intuitive grasp of cost control. With the bulk of budgets being absorbed by salaries, the limited sums that remain are closely scrutinised in a constant effort to stretch money just a little further.
Academy heads therefore need training in two areas: they must have a basic grounding in financial reporting and core systems so they can discharge their duties as accounting officers, and they need a detailed grasp of Education Funding Agency (EFA), local authority and other relevant funding streams.
Independent schools
If an academy head’s training needs are technical in nature, independent schools are quite the opposite. Running a private fee-charging school is, financially, more straightforward and flexible than receiving public money. Moreover, heads in fee-paying schools often have a strong grasp of the top line (that is to say, gross revenues).
The gap for independent school heads is more often in financial and business management as it relates to the bottom line. A decade of above-inflation fee rises mean that many senior leadership teams and heads have little managerial experience of businesses with flat revenues. As a result, cost drivers are not always well understood and monitored, and the culture of controlling costs can be weak.
At independent schools, the business case for new buildings or technology may attract little scrutiny or challenge. For example, schools may use expensive niche or bespoke software to monitor admissions, track pupils or for fundraising when, used correctly, products such as Excel could just as easily do the job. Knowing what is possible with core tools is vital if you are to challenge new spend; you don’t need to know how to do everything, just the limits of what is possible with the tools you already have.
In an environment of relative plenty, expenses proliferate, from sports coaches to curriculum additions and timetable reductions for teachers. The willingness to navigate tough financial discussions, whether that is with a parent struggling to pay the fees or a staff member trying to negotiate an allowance, is often absent. It has been rather too easy to solve cost pressures by simply increasing fees. This culture of financial largesse risks leaving a school and its top team ill prepared for any crisis or downturn.
Aspiring heads surprisingly often have little or no idea how to fathom whether the charming and architecturally impressive school they are eagerly applying to is in robust health or over-extended in debt, with growing deficits and potentially heading for an existential financial crisis. And if an incoming head can’t decipher the books, how equipped are they to be its chief executive?
Commercial international schools
There is one category of school that exposes financial illiteracy faster than any other: the international school run by a commercial operator. This is especially true for schools in start-up or early stage.
A head will typically be dealing with an owner who wishes to make a return on their investment. Owners’ expectations of financial reporting and rigour will have more in common with the corporate sector than a UK not-for-profit.
With a recently built school, there is very likely to be a debt repayment requirement so familiarity with cash flows as well as profit-and-loss statements and balance sheets will be vital. International school heads without the requisite skills will find commercial operators less forgiving than a UK charity governing body. A lack of financial skills, and the misunderstandings between head and owner that can result, have shortened many international headships.
Ultimately heads should undertake financial training to ensure they make the right choices - both for their own careers and for the pupils and staff who depend on them.
Stephen Crouch is group finance and operations director of the Wellington College Group, and bursar of Wellington College
