And suddenly, all we have is virtual schools…

15 April 2020

Hot on the heels of having to fund a 7%+ increase in Teachers Pension employers’ contributions, schools are now having to contend with coronavirus. They will need to act swiftly and think creatively to manage the added financial stresses.

The events of recent weeks are unprecedented. Almost all businesses are in lockdown and either shut entirely or working on a virtual basis only. That includes all independent schools.

From our experience I can see independent school clients coping in several different ways. Many have set up an almost total virtual school operation, others are using websites to disseminate content with some online provision. One client, who runs an independent special school, had, by 23rd March, dropped off full work packs with laptops, textbooks and other materials to all students. From then onwards, they have provided taught lessons for three hours each morning, with supported home learning in the afternoons.

We have now come to the end of the spring term so, for most schools, the number of days lost since lockdown started is relatively small. But as we consider the summer term – one without any GCSE or A-Level examinations – it is far from clear how parents are going to respond to the invoices for fees landing on their door mats. And many who would want to pay, may not be able to at this time. They might be furloughed on much less pay, or even have been made redundant. Savings might tide some over for a short while but choosing between school fees and having food on the family table might mean schools lose students unless they can find a way to help reduce fees.

There are some straightforward measures schools should consider to try to achieve this.

Check business interruption insurance as there may be support there, although this should only be viewed as a partial solution as it is unlikely to cover all costs. Claims are likely to take some time to process so the earlier you submit one, the sooner you will get some funds back.

If you have not been able to offer much in terms of a virtual offering prior to Easter what can you offer for the summer term? Consider furloughing less essential staff, and offering a virtual provision at lower cost to pass on that saving to parents. You need to be looking at financial models with varying sensitivities. What is the impact if half of parents pay nothing for example? How could you cut costs to manage in that situation?

Boarding schools, short of any small residual offerings for key workers’ children, are not likely to be offering any boarding facilities at all, so realistically that cannot be charged for. What costs associated with that can be eliminated for now – House mothers and fathers, cleaners and catering staff to go on furlough perhaps?

These are difficult decisions but there is government support here to cover 80% of wages up to £2500 per month, an annual equivalent of £30k per annum. This is outright support – not a grant – so looking carefully at how you might access it in preference to government-backed, or other loans is important.

One client who relies on international students has had to completely restructure what it will be offering in terms of curriculum, cutting costs and staff as much as possible. They also understand that, even once schools can reopen, their international market, particularly from the Far East, is going to take some time to recover. Instead, they are looking to Europe to see if they can build more market share there.

Clearly some schools have strong reserves and perhaps large historical endowments. The value of investments has been hit and dividend and income returns are not likely to be what they were for some time to come, but you will want to avoid having to sell investments at such low prices unless necessary. If your endowment is not expendable, you may also need to ask for charity commission permission to realise any part of it to help you through this crisis.

If you have six months’ running costs in liquid funds then you will have time to run your different scenario forecasts and look carefully at how you want to play this, but many schools may not have this sort of contingency to fall back on.

So, decide on what policies you are going to adopt. If you have modelled a cut down operation with some staff on furlough, what drop in fees can you pass on? Communicate that to parents as soon as you can. Are there optional add-ons you could offer to those parents who might be able to pay for them while leaving the pared-down version for those who cannot afford any more?

Those of you that are charities can ask parents to consider making income donations to enhance the basic fee level. Since you will not be delivering your usual services for the extra funding you could then claim gift aid for that part of the consideration.

Action is key, this is not a time to dither!

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Alyson Howard FCCA DChA CF is Education and Not-for-Profit Partner at MHA MacIntyre Hudson. She can be contacted directly at alyson.howard@mhllp.co.uk

This artcle was originally published in the April 2020 edition of Independent Schools Magazine with a link to the edition here: http://www.independentschoolsmagazine.co.uk/issues/2020-apr/index.html?utm_medium=email&utm_campaign=April%20E-magazine&utm_content=April%20E magazine+CID_26939c1b3d42e918d5f3367b83670883&utm_source=E%20magazine&utm_term=View%20Magazine