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Using Data to Drive Your Decisions

Based on the almost 700 schools that participate in the ASBA/Somerset Non-Government Schools’ Financial Performance Survey (FPS), I estimate the following usual results for the average independent day school of 500 enrolments

  • $11.4 million gross recurrent income (54% grants, 46% fees and other)
  • $10.0 million in recurrent cash expenses (excludes interest and depreciation)
  • $4.0 million in debt
  • $140,000 interest expenses
  • $1.3 million operating cash surplus after servicing interest expense
  • 100% of the operating surplus is spent on debt repayment and campus facilities
  • Debtors (fees owed) between $200,000 to $400,000
  • About 60 FTE staff. (probably closer to 100 persons).

I appreciate the significant affect the Covid-19 pandemic is having on many parents/care-giver’s abilities to pay school fees. On average 77% of a school’s expenditure is staff wages and most are working harder than ever at this time. The temporary and necessary switch to off-campus delivery will not significantly reduce operating costs. However, there is growing public demand for fee reductions. Schools are responding to parent’s financial stress and other demands with extended payment terms and/or fee concessions.

I estimate that if total 2020 recurrent income banked reduces by 20% due to fee concessions, loss of enrolments, increased debtors (fees owed), without a reduction in expenses, this could result in an operating cash deficit of ($1 million) for 2020, before debt servicing and reinvestment in campus facilities and equipment.

I therefore urge schools to update cashflow forecasts on a regular basis to help inform decisions and ensure the school has adequate cash and loan facilities, particularly at historical low points of June and December.

Staff Estimator
My Masters research identified a crucial attribute of a financially sustainable independent school is the ability to adapt to changing circumstance. With 77% of school expenditure being staff wages, if a school experiences a decline in enrolments it is important to adjust staff numbers to help maintain a financially sustainable school.

We have developed a staff estimator allowing schools that participate in the FPS to select a sample of similar schools which pre-populates sample average staffing ratios. Users simply enter their current student and staff numbers and then “what-if” enrolment numbers. Sample averages are applied against the “what-if” enrolments to estimate staff numbers by category. See the demonstration video here.

I urge schools to participate in the FPS, which is now receiving 2019 school-year data. But if you haven’t yet participated, we developed a complimentary Excel version of the Staff Estimator that estimates staff numbers based on changed enrolments, assuming the school maintains current student/staff ratios. Find the Staff Estimator here.

Geo Mapping of Demographic data
Somerset Education and Spectrum Analysis Australia Pty Ltd are excited to announce that we have formed an alliance to give schools the ability to access web-based demographic mapping information for strategic decision making via the FPS.

Spectrum Analysis have been providing demographics, data analysis and mapping services both nationally and internationally across a range of industry sectors since 1996 and have been working with a variety of non-government schools in Australia for the past 11 years to support better school marketing, enrolment and community development goals.

The FPS, accessed via the Somerset Education website, allows Somerset Education clients access to complimentary demographic geo mapping resources and the ability to subscribe to Geo Mapping Plus.
See the demonstration video here.

I sincerely hope all readers are keeping well and that this information helps you to navigate these difficult times.

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 Council of Australia.

UPCOMING EVENTS:
WESTPAC School financial Governance breakfast, Melbourne—14 May 2020. POSTPONED
AIS SA School Financial Workshop for Principals, Business Managers and Governors, Adelaide—15 May 2020 and 16 May 2020. POSTPONED
VRQA School Financial Governance workshop (video will be posted), Melbourne—19 August 2020.
National Summit on Planning New Christian Schools, King’s Christian College, Gold Coast—4 September 2020 and 5 September 2020.
AHISA Financial Governance Masterclass for Principals, Melbourne—13 April 2021. NEW DATE

Opportunities, Gratitude, and Challenges

Opportunities

My wife attended her usual Tuesday morning Yoga class from home, complete with data projector and laptop to allow the video session. The unprecedented times that we are experiencing is forcing rapid process re-engineering, an exciting outcome from these circumstances.

Many schools are fast-tracking on-line delivery to allow continued provision of educational services. Some of my clients have been delivering 100% on-line for many years, and it is common practice for me to present to Board meetings by video conference. Somerset Education has not had a physical office for over a decade, all staff working remotely, so our office is fully operational if you need assistance. Over the past week, operating in this way has become the norm for most people. I am not suggesting this will or should remain the norm but can’t help seeing the opportunities.

Costs in Independent schools have increased by 4.4% per annum over the past five years partly driven by an 8% increase in staff over the same period. Besides the current pandemic threat, other threats to the non-government school sector include affordability and supply of teachers. Re-thinking delivery processes may be an opportunity to address these threats.

Gratitude

Last year I attended a presentation by Hugh Van Cuylenburg, The Resilience Project. Hugh spent time with a community in India with no running water or electricity yet the community was happy. One contributing factor was gratitude.

When many businesses are closing, due to lack of customers (airlines) or unable to service customers (food and entertainment), we can be thankful for the 1.3 million students in the non-government school sector still needing and accessing education services.  It’s just the delivery that is disrupted for now.

Challenges

It is natural to worry and feel overloaded with the coronavirus and the flow-on social and economic effects. As best we can, we need to calm ourselves and focus on the tasks ahead. Immediate matters to address include:

  1. Parents and guardians who have lost income may need extended payment terms and/or more permanent concessions depending on prospects of returning to usual work / income.
  2. How should you advertise fee help to target those who really need it and stem enrolment loss which will impact October 2020 and January 2021 grants?
  3. For a school of 500 enrolments with fee income of $5.5 million, if debtors increased from 5% of fees to 33% of fees this could take $1.6 million out of cashflow. Calculate scenarios for your school. If you have the Somerset Education School Budget model, simply change Fee Collection % and Concessions in the FEE INCOME sheet and this instantly updates the 12-month and 10-year CASHFLOW, FINANCIAL POSITION and COMP INCOME.
  4. Present scenarios to the board and consider how this can be funded. Do you have unused loan facilities that can be drawn down now? Contact your state Association of Independent Schools or Catholic Schools Office for advice on emergency funding.
  5. Will your financier defer loan servicing for the coming six months? Several major banks have already notified their willingness to do this. Can you avail of government guarantees to support short-term cash flow funding? Further information: Australian Government / The Treasury website—SME Guarantee Scheme and Support For Business.
  6. If your school experiences a significant and permanent loss of enrolments, use the staffing ratios in the ASBA/Somerset Non-Government Schools’ Financial Performance Survey (FPS) to indicate required adjustments. As a guide, the 2019 FPS indicated the average non-government school of 500 enrolments had a total of 57.5 FTE staff. But that differs depending on SES and total income.
  7. Consider how process re-engineering may improve efficiencies going forward. On-line schools operate with significantly less staff and physical facilities. Not saying you will become an on-line school, but maybe a hybrid.
  8. Ask all departments to look at their budgets to determine what non-essentials can be removed
  9. Put on hold non-essential professional development. But consider PD that is a worthy investment for a re-engineered school.
  10. Assuming schooling continues as a mixture of on-campus and on-line, how do you manage boarding and other staff for which there is no work? Is leave without pay a possibility or can staff be re-deployed into new roles created by re-engineered operations so that you can retain specialised and trained staff when schooling returns to normal, however that may look in the future.
  11. How can school assets, people and equipment be re-purposed at this time to help others, for example food delivery to those in isolation, boarding kitchens to help Meals on Wheels?
  12. Depending on contracts, can you defer non-essential capital expenditure?

The above are a few matters that I have considered in my thinking about the tasks ahead. I hope they help, and I encourage you to please share other suggestions with me.

Regarding the current year FPS, we expect by Wednesday 1st April you can start entering 2019 school-year data via the Somerset Education School portal.   Apart from a few days for testing, the survey is open 24/7 all year for data entry and report generation.   But we do encourage as many schools as possible to complete 2019 school-year data entry by 31 July 2020 so we can release 2019 school-year benchmarking reports on 1 August 2020.

For our own well-being, it is important to find a moment to be still, disconnect and find time to re-charge.  Contemplation and a walk may help clarity.

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 Council of Australia.

UPCOMING EVENTS:
AHISA Financial Governance Masterclass for Principals, Melbourne—15 April 2020. POSTPONED
WESTPAC School financial Governance breakfast, Melbourne—14 May 2020. POSTPONED
AIS SA School Financial Workshop for Principals, Business Managers and Governors, Adelaide—15 May 2020 and 16 May 2020.
VRQA School Financial Governance workshop, Melbourne—19 August 2020.
National Summit on Planning New Christian Schools, King’s Christian College, Gold Coast—4 September 2020 and 5 September 2020

Accounting for your customers

Accounting For Your Customers

Welcome back to another school year which I am sure for executive and management started much earlier than now, however the past week has seen the return of most students apart from those affected by fires and/or the coronavirus. How do your school’s 2020 enrolments compare with budget and the previous year?

The January/February 2020 edition of Harvard Business Review included a focus on the importance of Accounting for Customers including understanding customer retention, value proposition, satisfaction and forecasting the inflow of new customers to predict revenue. Non-government schools have been doing this for years including analysing demographics, enrolment churn (students leaving/total enrolments), inquiry to enrolment conversion and parent and student satisfaction.

Because student numbers are a crucial driver of a financially viable and sustainable non-government school, if your 2020 enrolments are not as expected, how can your school adapt to these changed circumstances?

The 2019 (2018 school year) ASBA/Somerset Non-Government Schools’ Financial Performance Survey (FPS) indicated an average 0.9% increase in enrolments for Independent schools from 2017 to 2018. However, figure 1 (below) shows the number of schools with increased enrolments was almost matched by schools that experienced reduced enrolments.

Figure 1: Average change in enrolments for independent schools that participate in the FPS.

If your school has experienced a reduction in enrolments, Figure 1 indicates that you are not alone. But I encourage you to use the FPS to identify and quantify strengths and weaknesses and respond to these changed circumstances in a timely manner. For more information please see How to identify and quantify financial strengths and weaknesses.

As always, we very much look forward to another year of the FPS and contributing to individual school and sector financial viability and sustainability.

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 Council of Australia.

UPCOMING EVENTS:
AHISA Financial Governance Masterclass for Principals, Melbourne—15 April 2020.
WESTPAC School financial Governance breakfast, Melbourne—14 May 2020.
AIS SA School Financial Workshop for Principals, Business Managers and Governors, Adelaide—15 May 2020 and 16 May 2020.
VRQA School Financial Governance workshop, Melbourne—19 August 2020.

Greetings From John Somerset

 

Thank you for listening and best wishes for 2020

This is my final blog post for 2019 as our office is closed until Monday 13th January 2020. Although we will be monitoring emails and calls over this time, please excuse any delay in our response.

I take this opportunity to thank you so very much for your support, or for just listening, during 2019 and hope we have positively contributed to the financial sustainability of your school and the sector this year.

I have now commenced my PhD, Predicting financial sustainability of Non-Government Schools, and hope to share this research with you through various posts during 2020 and the years to come.

But for now I wish you a relaxing, safe and joyful break over the December/January period and hope that 2020 is all that you want it to be.

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 Council of Australia.

Is Your School Recession Ready?

 

Recession ready?
BLOG by John Somerset 

Along with the Financial Performance Survey, another of my passions is motor vehicles. I am Treasurer of a local drivers’ club and I am a long-term member of the RACQ. In the latest RACQ Road Ahead magazine an article by Nathanael Watts, RACQ Financial Analyst, discussed how to prepare for the possibility of a recession. I couldn’t help thinking about its applicability to school business.

The article talked about interest rate cuts sparking recession fears – a recession being two consecutive quarters of negative economic growth. The main symptoms are a rise in unemployment due to less demand for goods and services. The RBA is trying to stimulate the economy with a record low Official Cash Rate with further cuts predicted. Nathanael mentioned when consumer confidence is down people are less willing to spend their money for fear of losing their job, which can result in reduced business profitability and job losses – a downward spiral.

Nathanael’s three tips, and how they can apply to schools, are:

  1. Try to build a savings buffer to help weather the impacts. The 2019 (2018 school-year) ASBA/Somerset Non-Government Schools’ Financial Performance Survey (FPS) indicates that the average school has a Working Capital ratio of 1.1. This means they have $1.10 in current assets for every $1.00 in current liabilities. My research on Defining a Financially Sustainable Independent School in Australia indicated that not-for-profits should consider holding at least three months of trading expenses in cash reserves. That may be more than required for a school due to the predictability of cash flows from government grants and also the national average Working Capital ratio of 1.1 is measured at December, the lowest point for cash reserves for a school with significant Commonwealth Grants expected in January.
  2. Try not to resort to debt. The 2019 FPS indicated average debt of $7,800 per student with a median debt of $6,000 per student. This indicates the average independent school of 500 students has total debt of between $3 million to $4 million. Hopefully the debt is incurred for capital purchases, not to fund recurrent operations as that would be a warning that you are not trading with an adequate operating surplus. The average independent school has a Net Operating Margin of 12.7%, meaning $127,000 operating surplus before interest and depreciation for every $1 million of gross recurrent income from Fees, Grants, and Other income.
  3. Review your budget and identify savings. At this time of the year, schools should be preparing their 2020 budget. Use the FPS to compare your financial performance with a sample of similar schools. It will help identify and quantify strengths and weaknesses. My research indicated that schools with relatively high costs are more financially sustainable, because there are more savings to be had in the event of a financial shock. So if your costs are relatively high, look at that as a positive buffer. Use the FPS to build cost-saving strategies into your 2020 budget and assess its reasonableness.

The FPS is a wonderful tool available to independent schools. I encourage schools to participate every year to help identify changing circumstances, identify and quantify strengths and weaknesses, and respond in a timely manner

 

 

 

 

 

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 Council of Australia.

UPCOMING EVENT: Cole Connect Seminar ‘Effective Reporting in Schools’—John Somerset Masterclass: ADELAIDE (Thursday, 14 November, 2019 / 9:30am—4:30pm) 
A free morning seminar followed by an open round-table Q&A session with panel presenters (9:30am—12:30pm: FREE) for Business Managers and their Teams followed by the John Somerset Masterclass (1:30pm—4:00pm: $150) after an enjoyable lunch. John is hopeful that this masterclass will provide a school-specific action plan to take back to your Board. Bookings essential.

A Synthesis of Parts

A Synthesis of Parts

I enjoy observing and learning from other professionals. A recent trip to the ophthalmologist reinforced the notion of an outcome being greater than the sum of the parts. My ophthalmologist is very effectively practicing in his 70’s with the help of analytical tools and his team. I walked into the surgery earlier this year, someone did the administration, one expert conducted a series of tests and then another expert carried out different tests. The reports were handed to my doctor who, relying on the information and his extensive knowledge, proclaimed all was good and gave some background of his prognosis. I expressed my amazement with the process to which he replied: “I synthesize the information” which perfectly explained what had just occurred.

This is also true in your world as an education professional, and in my world as an analyst of school financial sustainability. The ASBA/Somerset
Non-Government Schools’ Financial Performance Survey (FPS) is like the machines used by the medical experts to turn data into information which facilitates diagnosis and treatment.

Each year about 700 schools log into the FPS at Somerset Education and enter financial, student and staff data and select a sample of similar schools. The report calculates key ratios for that school, compares the results with similar schools, identifies and quantifies strengths and weaknesses, graphs results and inserts explanatory text based on relative performance. This is like the medical analyses where my results are compared with the expected/normal range to inform the doctor about my relative health and suggest best treatments if required.

A key attribute of a financially sustainable school is the ability of the school to respond to changing circumstances. Annual participation in the survey helps to identify changing circumstance to which you can then make informed adaptation. I therefore urge schools to participate every year.

If your school is experiencing changes including in enrolments, capital expenditure and debt levels, you might consider asking us to synthesize the reports and present to the school board. Our most popular method is via video conference and we consistently achieve a satisfaction rating of 9+ out of 10.
So, I recommend:

  1. Your school participates each year in the FPS health check;
  2. Respond to adverse trends in a timely manner to help prevent financial stress; and
  3. Consider asking us to synthesize and present your results.

With the help of the FPS, other analytical tools and my team, I hope to be like my ophthalmologist, still contributing to my profession for many years to come.

 

 

 

 

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 Council of Australia.
ASBA2019 Conference The Somerset Education team look forward to seeing you at the ASBA2019 Conference in Hobart coming up 01-04 October 2019—Booth 62. Please bring along your Financial Performance Reports and have a chat to John and Helen. John Somerset will be presenting at the New Business Managers Workshop at 1.00pm Tuesday 01 October 2019.

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Financial Performance Survey Reports

The 2019 (2018 school-year) ASBA/Somerset Non-Government Schools’ Financial Performance Survey (FPS) Reports are now available.

Please log into the Somerset Portal by clicking the button below to

Select a sample of similar schools
Generate your reports

If you have requested a powerpoint presentation, we will be forwarding these over the coming weeks because, although enjoyable to prepare, they are quite time consuming.

 

 

Here is a short video with tips for selecting a good comparative report sample

 

Survey Now Open!!

Survey Now Open!!

ASBA/Somerset Non-Government Schools’ Financial Performance Survey 2018 school-year reports available soon.

The ASBA/Somerset Non-Government Schools Financial Performance Survey has been operating for more than 25 years. It includes about 700 schools, has a satisfaction rating of 98%, and 100% of participants recommend it to others. The report compares a school’s performance with similar schools to help assess financial viability and sustainability, identify and quantify strengths and weaknesses and foster continual improvement.

Financial viability/sustainability is an essential enabler of the educational services provided by schools and is a key responsibility of school governors and senior management.

Research indicates that the use of comparative and trend ratios and benchmarks is a crucial attribute of a financially sustainable school. Also important is the ability for the school to adapt to changing circumstances, which an analysis of ratio trends helps to identify.

For more information about the survey click here.

We encourage participation to help maintain and continually improve individual school and sector sustainability.

To date over 360 schools have logged in to complete 2018 school-year data. Although data can be entered at any time, we request that you complete 2018 data entry in July 2019 to allow reporting from August 2019.

Next week we will disable the 2017 School-Year Reports to make way for 2018 School-Year Reports which we plan to have available by 29 July 2019. During this time you are still able to access the 2018 school-year data entry.

Participation in the survey starts from $682 including GST ($341 including GST for schools with less than 200 enrolments).

For new participants, simply email us with your signature block and Lisa (Our office manager) will respond with a 6 digit School ID and password.

If you have any questions in relation to the survey, please email us or call on
1300 781 968.

Kindest regards

John Somerset FCA