Priorities when finances are beyond tight

Two key approaches are required that cover two different time frames.

First, in the short-term, priority must be given to making those payments which are most urgent and important.  These high-priority immediate expenditures typically fall into six groups:

• Wages and salaries for the staff.
• Expenses related to health and safety, including essential services such as electricity, water and internet services, and repairs to infrastructure.
• Expenses that will result in better performance and reputation, and/or generate higher income in the (hopefully near) future.
• Debt obligations, including expenses for which invoices have already been received.
• Renewal of insurance policies.
• Payments to meet regulatory requirements and obligations, such as licensing fees, accreditation fees, and other expenses necessary to maintain the school’s legal status.

Second, in the longer-term, once the immediate crisis has been averted, a more strategic level of thinking is required.  Typically, this would involve the board and senior management working together as a team to address six action areas:

• Conduct a full, thorough, critical budget review to identify areas of inefficiency or excess spending which are ‘costs’ rather than ‘investments’, combined with long-term financial sustainability planning that includes realistic revenue projections, expense controls and contingency measures that should provide protection against unforeseen future financial crises.
• Ruthlessly pursue new, diverse sources of income to reduce over-reliance on a narrow range of income such as tuition fees and government payments.  New incomes sources worth exploring may include sponsorships, partnerships with local businesses, philanthropic giving, grants from NGOs, alumni donations, establishing distance learning, expanding into adult education, rental of school facilities out-of-hours, and many others.  Seeking diverse sources of incomes is an area where board members can hopefully tap into their community networks.
• Where possible, try to negotiate cost reductions from suppliers and contractors, and in cases where that is not possible, take the difficult decision to reduce non-essential programs, optimise energy use, and explore sharing services (and therefore costs) with other schools.
• While acknowledging staff salaries are a priority in any school, the reality is that staff salaries are also typically the single largest expenditure item in most schools.  Therefore, times of financial hardship, it would be derelict not to examine staffing levels and consider options such as attrition, voluntary retirement packages, or temporary furloughs to reduce payroll expenses on the essential condition that any changes do not compromise the quality of education.
• If the school has outstanding debts, work with creditors to renegotiate repayment terms or explore debt consolidation options that may ease financial burdens.
• Monitor cash flow management and pay close attention to punctual collection of tuition fees, grants and other income, and perhaps even consider offering cash or other incentives for early payments or instalment plans for families facing financial hardship.

With strategic planning, innovative thinking, transparent and frank communication, collaboration with stakeholders, and a dose of courage, schools can usually overcome financial challenges and achieve long-term sustainability, even when the immediate financial pressures are acute.  Of course, each school’s approach needs to be tailored to its unique circumstances, but common themes for most schools include targeted cost-saving measures, revenue diversification, and transparent community engagement.

- Dr Stephen Codrington