What is School Financial Sustainability?
My research  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:
- What operating surplus do we need and how do we best influence it?
- What cash reserves should we maintain?
- What is our sustainable reinvestment, debt, and debt servicing? 
 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.
For more information about the FSS or our budgeting and reporting tools, please do not hesitate to contact us at email@example.com 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 firstname.lastname@example.org or mobile 0417 618 899.
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.
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.
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