Home' Independence : Independence Vol 38 No 2 Oct 2013 Contents VOL 38 NO 2 OCTOBER 2013 INDEPENDENCE 73
by subtracting the school's total cash
expenditure for the year from its annual
income from all sources.
Total school income could include
income from tuition and perhaps
boarding fees, income from uniform and
bookshops, canteens, grants, fundraising
events, donations, interest on deposits,
rents and so on. Cash can be spent
on a number of different categories
of expenditure, including recurrent
expenditure, capital expenditure and the
repayment of debt.
Is a cash deficit a cause for alarm and
is a cash surplus cause for celebration?
The answer is maybe yes or maybe no!
A cash surplus can be a good indicator
that the school is in a position to save
for future development or reduce debt;
however, beware if the cash surplus was
only achieved because of borrowings.
A deficit may not be all bad news if
it was caused by an investment in
infrastructure for example, especially if
debt levels were at modest levels before
the infrastructure investment was made.
A one-off cash deficit or even deficits
that last for just a few years may not be
too alarming, but if a deficit is part of an
entrenched trend, radical action must be
taken to avoid exhausting cash reserves
or accumulating debt.
4. Are there financial projections
for at least the next five years?
A useful check to see if a sudden
accounting or cash deficit is part of a
longer-term trend is to ask to see any
financial projections for future years as
well as the assumptions they are built on.
The further forecasts are away from the
present the less accurate they are likely
to be, but if sensible assumptions have
been made you should be able to see
future trends concerning accounting and
cash surpluses or deficits.
Such trends can highlight a need to
revisit strategic directions in terms of
capital investment, enrolment growth
and changes in the school's size and
Personally, I like to see a series of
forward projections where such things
as projected enrolments, delaying or
bringing forward capital projects or
debt repayments are varied. This type
of sensitivity analysis can give a range
of different outcomes as a result of
conservative or optimistic assumptions
being made about key variables.
5. How accurate have past budget
This is an important question on two
counts. First, the answer will help
determine the level of confidence
you will have in your Business
Manager's current and future budgets.
Second, along with the answer to a
supplementary question, it may tell you
something about the way your Business
Manager thinks. The supplementary
question is, 'Were actual outcomes
mostly more favourable or less
favourable than budgeted outcomes?'
A common answer is that actual
outcomes have been better than
budgeted outcomes. This is because
most accountants and Business
Managers come from a cautious tribe.
If past budgets have consistently been
too optimistic, it may have been a case
of the Business Manager wanting to
convince his or her Principal and Board
that poor financial outcomes were about
to be turned around and improve. Or
perhaps the Business Manager was
under pressure to fuel the ambitions
of the previous Principal and Board.
Some Boards and Principals like to
leave monuments as a legacy to their
involvement with a school.
While generally I would prefer to
work with a conservative rather than
overly optimistic Business Manager, I
am also aware of the negative impact
a strongly conservative Business
Manager can have on the development
and quality of a school. Good schools
must engage with change if they are
to remain good schools. They need to
pursue continuous improvement in their
teaching and learning programs and
this will need investment in technology
and the infrastructure to support those
programs. If Business Managers become
too conservative they can create too
much caution and doubt about positive
investment and act as drag chains to
essential change and progress.
6. How much debt does the school
have and is there a Board policy
about debt levels?
The majority of independent schools
take on debt to finance the cost of large
infrastructure projects, arguing that
these projects benefit not only current
families but also future students and
Appropriate levels of debt may depend
on factors such as a school's location,
competitive pressures, the level of
interest rates, a Board's level of risk
aversion, the perceived benefits that
can be achieved with debt financed
investment, and where the school is in
terms of its history.
When the financial data of groups of
schools are compared and benchmarked
against averages it is not uncommon
for debt to be expressed in terms of
debt per student. It might be useful to
compare your own school's debt per
student figure to the average figure for
all schools, but it is only really useful
if your school is close to average. For
example, a debt per student of say
$6,000 may be quite appropriate for a
large high-income school but may be far
too high for a small low-fee school.
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