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.
Best wishes for a successful 2022!
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.
Somerset Education Breakfast Seminar Series 2022—Webinar, 2022 dates to be advised (7am-9am).
Australian Conference of Lutheran Education—Conference, 6-8 July 2022, Melbourne, Victoria.