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Three Levers of School Financial Sustainability

What is School Financial Sustainability?
My research [1] indicates a financially sustainable non-government school is one that generates annual net cash from operations (operating surplus) sufficient to fund both depreciation and debt servicing (in most cases associated with prior reinvestment). Using a dam analogy, the annual operating surplus (rainfall) should be sufficient to fund the cash (water) flowing out via the floodgates for asset reinvestment (depreciation as partial proxy) and debt servicing, whilst maintaining an adequate reservoir to cover uncertainty (periods of drought). See Figure 1 below.

Figure 1: Schools must sustainably fund reinvestment (depreciation and debt servicing) and maintain an adequate reservoir.

Depreciation alone is not a sufficient proxy for asset reinvestment
Based on a sample of 340 schools over six years, average capital expenditure was double the depreciation, but it was close to the sum of depreciation plus loan repayments. This supports my sustainability theory that annual operating surplus must fund both depreciation and loan repayments. I welcome readers feedback as this is central to my PhD research.

Three key questions
School governors, principals and business managers should ask three key questions:

  1. What operating surplus do we need and how do we best influence it?
  2. What cash reserves should we maintain?
  3. What is our sustainable reinvestment, debt, and debt servicing? [2]
    [2] Seven in 10 parents (70%) said their choice of school was totally or highly influenced by the look of the school and facilities on offer. 

How to answer these questions
By participating in the Somerset Education Financial Survey for Schools (FSS) you can compare your school’s relative operating surplus, cash reserves, reinvestment, debt, and debt serviceability over time and against similar schools, informing your decision on the three key questions. My research indicates most schools that consistently participate in the FSS have sound or improved financial health.

The FSS provides school owners, governors, principals, and business managers with simple, factual trend and comparative analyses to identify changing circumstances plus areas that will have the greatest impact on improved financial performance. This helps to govern with confidence and reduce financial worries.

Step 1 is to complete data for the 2021 school-year here which takes about one hour. We encourage completion of the survey now because this helps with the sample sizes when schools start generating reports from August 2022.

Special Early Bird participation offer!
Early Bird* participation starts from A$680 (plus GST) per school (half price for schools < 200 enrolments)
*Early Bird price—Survey completed and invoice requested prior to 30 September 2022.

Any questions?
For more information about the FSS or our budgeting and reporting tools, please do not hesitate to contact us at info@somerseteducation.net or call on 1300 781 968 (from outside Australia +61 7 3263 5300).

If I can help in any way with the financial governance of your school, please contact me directly at john@somerseteducation.net or mobile 0417 618 899.

Kindest regards


  
John Somerset 

John Somerset is a Chartered Accountant. He has extensive knowledge of the independent school sector and is past President of Independent Schools Queensland and a past board member of the Independent Schools Australia.

References: 

[1] PhD research, John Somerset

[2] What Parents Want: Independent Schools Queensland survey report (April 2022)

Disclaimer: We publish this article only for non-government schools in Australia. All material should be regarded as information only and individuals should rely on their own enquiries when formulating decisions for themselves or their clients. In no way do we warrant or guarantee any changed circumstances for a school from use or non-use of this material. As a member of the Institute of Chartered Accountants Australia and New Zealand, the firm participates in a national liability capping scheme. Accordingly, our liability is limited by a scheme approved under professional standards.

® Somerset Education is a registered trade mark.

Language of money: How to read your audited accounts

Part of the Somerset Education Breakfast Summit Series 2022 

Webinar on Friday, 27 May 2022, 7:00am—8:00am (AEST)
Presented by:  John Somerset, FCA, Director, Somerset Education, Australia

Best suited to School Principals and Board Members (but all welcome) 
Our obligation— School principals and many Board Members are not formally trained in finance and accounting, yet you need to understand the money to make an informed contribution to what seems to be constant financial decisions required for your school.

I totally understand people with ‘non-financial’ backgrounds
I did not study accounting at school, so in the first year of my Bachelor of Commerce I could not understand the strange language people were talking. A secret between you and me, the only subject I failed in my academic career was Accounting 101. Thankfully my repeat was led by a wonderful teacher, and I never looked back. So, for the non-financial people, I totally understand.

What I’ll cover in this Webinar
Now that you have the 2021 audited accounts, I thought training on how to read them would be timely.

In this 60-minute session we will cover:

  • Legal obligations concerning finances
  • Attributes of a financially sustainable school
  • Common reports  Financial Position, Financial Performance, Cash Flows
  • Cash verse accrual accounting
  • Turn information into knowledge using ratio analysis
  • How to confidently challenge financial information presented.

A recent presentation on this topic received a satisfaction rating of 4.6 out or 5 stars!
We covered these topics as part of a full-day financial literacy workshop conducted with Association of Heads of Independent Schools Australia (AHISA) in April receiving an average satisfaction rating of 4.6 out of 5 stars.

“I thoroughly recommend this course to aspirant and current principals. As a principal I am very protective of my time, this course was well worth the investment”.

About the Presenter:
John Somerset FCADirector, Somerset Education
John’s passion is financial viability and sustainability of non-government schools. He has 36 years Chartered Accounting experience, with 27 years specialising in schools including past President of Independent Schools Queensland and a past board member of the Independent Schools Australia. John runs the annual Financial Survey for Schools (FSS) which, with between 600 to 700 participants, is the largest in Australia and New Zealand.

About the Breakfast Summit Series:
The Somerset Education Breakfast Seminar Series was created in 2021 by John Somerset FCA, Director, Somerset Education. The aim of the ‘live’ webinars is to introduce school governors, principals, and business managers to the latest thinking, innovative concepts, and new ideas to ensure their organisations are making well-informed decisions about financial risk to ensure the financial viability and sustainability of their school. Post-webinar, all registrants receive 30-day access to the webinar recording and speaker slides.

Register here: Somerset Education Webinar 
Registration fee:
$99.00 AUD (inc gst) per Registrant*
*Note: Please register even if you’re unable to attend the ‘live’ webinar as the recording is available to all Registrants up to thirty days after webinar.

For more information about our Breakfast Summit Series, please do not hesitate to contact us via email or call on 1300 781 968.

Kindest regards


  
John Somerset is a Chartered Accountant. He has extensive knowledge of the independent school sector and is past President of Independent Schools Queensland and a past board member of the Independent Schools Australia.

The Financial Survey for Schools is Now Open

FSS has over 27 years of school data
We are proud of our 27 year history of operating the Financial Survey for Schools (FSS) which is now ready to receive your 2021 school-year data. Thank you to the almost 700 schools that participate each year.

Here’s a link to the survey: https://somersetedu.com/isfps/survey.asp

FSS continues to help business managers and finance committees to govern with confidence
Annual participation in the FSS helps business managers and finance committees simply and factually present their school’s trend and comparative financial health to the board and principal by using ratio analysis to identify changes in past and future performance/risks (Historical Report and SKI Report) plus identifying possible improvements in financial sustainability if required (Comparative Survey Report).

Although we cannot promise changes in performance, schools that participate annually in the FSS and use the reports in the financial governance of their schools often show improved and/or maintain sound operating surpluses, working capital (cash reserves) and debt servicing.

Many schools complete the Financial Survey for Schools at the same time as completing the Commonwealth Financial Questionnaire (FQ) which became available last week. The FSS data entry is in line with the FQ so it is easy to complete and a great double check of your FQ submission including a Myschool estimator.

Your data entry deadlines and participation packages
Please aim to complete data entry by 31 July 2022 so that you and others can generate reports from 1 August 2022 to inform strategic discussion and the 2023 school budgeting process in a timely way.

The discounted package price for the Survey Report (compare with peers), Historical Report (your trends 2016 to 2021) and SKI Report (your future trends to 2026) is $1,650 including GST ($825 for schools with less than 200 enrolments). Otherwise single report participation starts from $748 including GST ($374 for schools with less than 200 enrolments).

We ensure your school data is confidential
FSS participant names and data are held in confidence by Somerset Education which we know is important to you. Reports are generated in a format which respects that confidentiality.

Ongoing support
Also annual participation means I am only a phone call away to discuss your school’s performance with you, in an informed and efficient way.

Any questions?
If you have any questions in relation to the survey please contact Cathryn, our survey administrator at survey@somerseteducation.net or telephone 1300 781 968 (from outside Australia +61 7 3263 5300). To assist you with accessing the Portal, here are the step-by-step instructions: Navigating the Somerset Education Portal.

If I can help in any way with the financial governance of your school, please contact me at john@somerseteducation.net or mobile 0417 618 899.

We look forward to your ongoing support, or if new to the survey, we warmly welcome you joining in.

Kindest regards


  
John Somerset and the Survey Team

John Somerset is a Chartered Accountant. He has extensive knowledge of the independent school sector and is past President of Independent Schools Queensland and a past board member of the Independent Schools Australia.

Breakfast Summit Series: Unleash the Power of the Financial Survey for Schools

Presented by: John Somerset, FCA, Director, Somerset Education, Australia

Webinar on Wednesday, 30 March 2022, 7:00am—8:00am (AEST)

Our challenge – how can we clearly and simply present financial information to the Board and Principal so that everyone understands the school’s past, present and proposed future financial health to better inform decisions being made now?

I received several calls in the past month seeking information like: “How many staff, by category, should I have for the size of my school?”, I could answer this in 30 seconds using the Staff Estimator on the Somerset Education Financial Survey for Schools Portal. Another question was: “How can I increase my operating surplus to adequately fund the extra debt taken on this year due to reinvestment in buildings?” Again, the FSS could answer this in about 1 minute. You can easily do this yourself. I realised we needed a training session to demonstrate how to unleash the power in the FSS.

In this workshop, you will learn how to maximise use of the Somerset Education Financial Survey for Schools (FSS) to clearly present the school’s financial and operational strengths and weaknesses, so the Board and Principal understand the financial risks and can take appropriate action to manage the risks.

In this 60-minute session we will cover:

  • Attributes of a financially sustainable school including a simple explanation for the Board and Principal
  • Navigating the Somerset FSS portal including an overview of the tools
  • Selecting an appropriate sample of schools with which to compare your school’s performance
  • Using the Historical Report to highlight important trends in your school’s performance
  • Using the Comparative Report to identify and quantify strengths and weaknesses
  • Using the Vertical Analysis to graph sample distributions for all 60 + ratios
  • Using the Staff Estimator to indicate number of staff, by category, for the average school of your size
  • Use the Somerset Key Indicator (SKI) Report to assess future financial health
  • New tools under development (Scenario SKI Report) – we welcome your feedback.

About the Presenter:
John Somerset FCADirector, Somerset Education
John’s passion is financial viability and sustainability of non-government schools. He has 36 years Chartered Accounting experience, with 26 years specialising in schools including past President of Independent Schools Queensland and a past board member of the Independent Schools Australia. John runs the annual Financial Survey for Schools (FSS) which, with between 600 to 700 participants, is the largest in Australia and New Zealand.

About the Breakfast Summit Series:
The Somerset Education Breakfast Seminar Series was created in 2021 by John Somerset FCA, Director, Somerset Education. The aim of the ‘live’ webinars is to introduce school governors, principals, and business managers to the latest thinking, innovative concepts, and new ideas to ensure their organisations are making well-informed decisions about financial risk to ensure the financial viability and sustainability of their school. Post-webinar, all registrants receive 30-day access to the webinar recording and speaker slides.

Register via Somerset Education Events
Registration fee:
$99.00 AUD (inc gst) per Registrant*
*Note: Please register even if you’re unable to attend the ‘live’ webinar as the recording is available to all Registrants up to thirty days after webinar.

“We are thinking of children and communities adversely affected by natural disasters and world events.”
John Somerset

For more information about our Breakfast Summit Series, please do not hesitate to contact us via email or call on 1300 781 968.

Kindest regards


  
John Somerset is a Chartered Accountant. He has extensive knowledge of the independent school sector and is past President of Independent Schools Queensland and a past board member of the Independent Schools Australia.

School Fees Increase to Ensure Long-Term Sustainability

 

As we start the school year in 2022, it’s shaping up to be another challenging year and I congratulate the sector for its continual adaption to these changing circumstances.

Based on a survey of 538 schools, the recently released, Edstart School Fees Report 2022 indicates schools are returning to a national average fee increase of 2.9% for 2022. The temporary lower increases in 2021 were unsustainable.

School revenue must change with expenses to ensure long-term sustainability
Somerset Education’s Financial Survey for Schools (FSS) captures and benchmarks financial data from about 650 non-government schools each year. The FSS indicates wages comprise 79% of costs in schools – which we must not forget contributes significantly to tax revenue/public purse. Wages and other costs continue to rise at or above CPI, so school revenue must similarly rise to ensure long-term sustainability.

Operating surpluses are crucial to sustainably reinvest in facilities and equipment 
Schools need adequate operating surpluses to ensure they can sustainably reinvest in crucial facilities and equipment and also to service loans used to fund buildings and equipment that the students enjoy. Using a personal analogy, after paying living costs, our wages/net income needs to be sufficient to ensure we can repay the home loan and periodically replace the TV, dishwasher, car etc.

Schools will have to catch up in 2022
The 2021 FSS, which is based on 2020 school-year data, indicated minimal increase and even some decreases in the average cost per student from 2019 to 2020. It seems schools temporarily cut operating expenses in response to very uncertain times as the COVID-19 pandemic evolved. This allowed the sector to do their very best to accommodate financial pressure on parents/care givers during the uncertain times. Using our personal analogy again, this temporary cost reduction in schools is like not maintaining the house or servicing the car while financial conditions are uncertain. But this is not sustainable and schools will have to catch up with what they held back on in 2020.

There may be a larger increase in cost per student in 2021 and 2022 
I look forward to receiving the 2021 school-year data which will arrive from April as the 2021 school audits are completed. I would not be surprised to see a rather large increase in cost per student from 2020 to 2021 due to this catch up in deferred expenses. As you know, costs have increased considerably during 2021 and 2022 due to labour shortages, transport disruptions, extra COVID-related costs eg, cleaning.

Now more than ever schools should participate in the FSS so that governors, principals, and business managers can analyse trends in their school’s financial performance, benchmark with peers to identify strengths and weaknesses, to ensure adequate operating surpluses which fund reinvestment, debt servicing, and strategic goals.

With 27 years’ experience and over 1,000 school clients, I sincerely hope Somerset Education can continue to help your school to govern with confidence in the year ahead.

If you have any queries about Somerset Education’s Financial Survey for Schools or Edstart School Fees Report 2022please don’t hesitate to email or call us on 1300 781 968.

Best wishes for a successful 2022!

Kindest regards


  
John and the Team

John Somerset is a Chartered Accountant. He has extensive knowledge of the independent school sector and is past President of Independent Schools Queensland and a past board member of the Independent Schools Australia.

UPCOMING EVENTS:
Somerset Education Breakfast Seminar Series 2022Webinar, 2022 dates to be advised (7am-9am).
Australian Conference of Lutheran Education—Conference, 6-8 July 2022, Melbourne, Victoria.

Best wishes for a successful 2022

As we head towards the holiday season, it’s time to reflect on another challenging year and look forward to a successful 2022!
Thank you to the schools that participated in this year’s Somerset Education Financial Survey for Schools (FSS). We again had over 600 schools in the survey representing 71% of enrolments in Australian Independent schools.

The data from the survey indicates the Independent Schools sector is sustainably navigating these challenging times with the 2020 school-year data indicating:

  • 1.7% increase in enrolments which is the highest since we started recording this metric five years ago
  • Maintaining a five-year average Net Operating Margin of 13% (relative operating surplus)
  • Debt relatively unchanged at $8,400 Debt per student
  • Stronger Working Capital Ratio of 1.3, and
  • Our new measure indicating an average 2.9 Months Expenditure held in Cash Reserves.

During 2020 schools appeared to look for operating savings and held off on capital investment to wisely conserve resources. I suspect 2021 and beyond will show some catch up.

I encourage schools to carefully manage risk during these uncertain times by:

  • Using the FSS to analyse trends in your school’s key metrics, identify and quantify operational strengths and weakness to inform strategy
  • Modeling strategic scenarios at least five years into the future using the Somerset School Budget Model and Somerset Key Indicator (SKI) Report, and
  • Actively monitor actual to budget performance on a regular basis using our one-page Board Report, responding to adverse variations in a timely manner.

I thank the Somerset Education Team for sharing their skills to provide a professional and personal service to our school clients. I value being able to call a business and talk directly to a real person to assist with a query and trust that has been your experience with us. I sincerely hope we helped your school to govern with confidence.

The office will be closed from 5pm Friday 17 December 2021 and re-opening on Monday 17 January 2022. However if you have queries during this time, please email or call us on 1300 781 968 and we will do our best to respond in a timely manner.

Best wishes for a safe and joyful year-end rest and a successful 2022!

Kindest regards

John and the Team

John Somerset is a Chartered Accountant. He has extensive knowledge of the independent school sector and is past President of Independent Schools Queensland and a past board member of the Independent Schools Australia.

UPCOMING EVENTS:
Somerset Education Breakfast Seminar Series 2022Webinar, 2022 dates to be advised (7am-9am).
Australian Conference of Lutheran Education—Conference, 6-8 July 2022, Melbourne, Victoria.

Breakfast Summit Series 2021: A Fresh Look at Strategic Planning

Presented by: Andy Van Schaack, PhD, Associate Professor of the Practice, Vanderbilt University, USA; and John Somerset, FCA, Director, Somerset Education, Australia

Webinar on Wednesday, 29 September 2021, 7:00am—9:00am

The challenge — what economic, technological, and societal forces will shape the environment your school operates within, 5 or even 10 years from now? How can you and your team credibly predict and responsibly plan for the future?

In this workshop, you will learn a systematic, five-step approach to scenario forecasting that will enable you and your team to develop specific, actionable plans for the future — plans that will minimize risk and maximize opportunity for your organization no matter what the future holds.

Reference to forecasting is strategic forecasting, not financial forecasting. This session is best suited to school Governors, Principals, and Business Managers.

In the first hour:
• Attributes of a financially sustainable independent school
• Accounting for non-accountants
• Using the Financial Survey for Schools (FSS) to identify and quantify strengths and weaknesses to inform strategy.

In the second hour:
• Brief introduction to the concept of forecasting
• Detailed description of the five-step scenario forecasting process
• Next steps: Applying the process to your organization.

“Whoever does not know how to take care of the future in the present will depend upon the uncertainties of that very future.”
Seneca, Roman philosopher, 45BC – 65 AD

About the Presenters:
Andy Van Schaack, PhD
Associate Professor of the Practice, Vanderbilt University, USA
Dr Andy Van Schaack is a professor at Vanderbilt University with appointments in the Schools of Education and Engineering. As Chief Scientist of several Silicon Valley-based companies, he earned over a dozen patents. In 2017 he was awarded Vanderbilt University’s Teacher of the Year award. Most recently, he was selected to be a Fulbright Scholar to Austria in 2022.

John Somerset
Director, Somerset Education
John’s passion is financial viability and sustainability of non-government schools. He has 36 years Chartered Accounting experience, with 26 years specialising in schools including past President of Independent Schools Queensland and a past board member of the Independent Schools Australia. John runs the annual Financial Survey for Schools (FSS) which, with up to 700 participants, is the largest in Australia and New Zealand.

Register via Somerset Education Events.
Registration fees:
$90.00 AUD (+gst) per School/Organisation (up to three Registrants.)
Additional Registrants: $45.00 AUD (+gst) per Registrant.
Tax Invoice will be emailed after registration.

For more information about our Breakfast Summit Series, please do not hesitate to contact us via email or call on 1300 781 968.

Kindest regards


  
John Somerset is a Chartered Accountant. He has extensive knowledge of the independent school sector and is past President of Independent Schools Queensland and a past board member of the Independent Schools Australia.

UPCOMING EVENTS:
Somerset Education Breakfast Summit SeriesWebinar, Wednesday, 29 September 2021 (7:00am-9:00am).

The 2021 (2020 school-year) Financial Survey for Schools Reports… Now available!

The Financial Survey for Schools (FSS) Reports help identify and quantify your school’s financial risks, strengths and weaknesses — crucial for strategic planning and budgeting.

There are some exciting improvements to the reports this year, but no material changes because feedback from participants is to leave it as is. However I do enjoy continually improving the reports as I learn more about school financial sustainability from my research.

Please log into the Somerset Portal and then:

  1. Select a sample of similar schools
  2. Generate your reports.

To date over 500 schools have logged in to populate the survey. So if you haven’t yet completed it we encourage you to do so as soon as possible.

Don’t forget you can enter/change data and re-generate reports at any time until April 2022.

We sincerely thank schools for participating in the survey, which is the largest of its type in Australia and New Zealand, and trust that the reports help individual school and sector financial sustainability.

For more information about the FSS or our budgeting and reporting tools, please do not hesitate to contact us via email or call on 1300 781 968.

 

Kindest regards
  

John Somerset is a Chartered Accountant. He has extensive knowledge of the independent school sector and is past President of Independent Schools Queensland and a past board member of the Independent Schools Australia.

UPCOMING EVENT:
More details—with registration link—to follow:

Somerset Education Breakfast Summit SeriesWebinar, Wednesday, 29 September 2021 (7am-9am).

Outstanding Results from the Financial Survey for Schools

Feedback from last year’s survey indicated schools loved the format and on-line portal requesting it not to change, 93% rate the survey 4 to 5 stars (out of 5 stars), and 100% recommend it to others.

Figure 1: Results of survey conducted by Somerset Education, April 2021. 

Section 1 “Enter Financial data – 2020 School Year” on the Somerset portal  is open to receive your 2020 school-year data and remains open until April next year. We do encourage completion by 31 July to allow adequate samples for when the 2020 school-year reports are available from Monday 2 August (target date).

Please note that sections 2 to 7 of the Somerset portal will be disabled from 15 July to 31 July so we can prepare the portal for the current year’s reporting. So please make sure you have saved last year’s reports before then.

We look forward to seeing your school in the 2021 (2020 school-year) FSS.

For more information about the FSS or our budgeting and reporting tools, please do not hesitate to contact us via email or call on 1300 781 968.

Kindest regards