A robust budget is the foundation of effective financial management practice. For multi-academy trusts, and particularly at a time of scarce resources, the challenges are amplified. The trust is the legal entity, holding the financial risk for all academies within it. This guide takes you through the key areas to consider in your budget planning, focusing on the MAT perspective. While reading, do consider the governance arrangements most appropriate to your situation.
Medium-term financial planning
The first place to start is a medium-term financial plan linked to your education vision for the trust. There are no multi-year funding allocations, but preparing broad-brush scenarios for your future funding options will stimulate a debate about how you might respond to different levels of funding. Combine £ per pupil and estimated pupil numbers in best, middle and worst-case scenarios.
Compare your three scenarios against the spending requirement based on a roll-forward of the current budget with adjustments for pay awards and essential inflationary pressures. This will highlight any funding gaps in a steady-state position, ready for a forward projection.
Think about your vision and priorities for the trust overall. Useful questions to ask include:
- Which aspects of your provision do you want to preserve at all costs?
- Which can you reduce or do differently?
- What changes are on the horizon, initiated by yourself or by external bodies?
- Are there any opportunities for collaborative working, across the trust or outside it?
- What is your preferred balance of centralisation versus local spending?
- Do you know whether every Academy in the trust is operating efficiently? If not, what can you do about it?
Your budget should reflect the trust’s priorities – it is there to serve you, not the other way round.
Review your reserves strategy. Do you have a consistent target in percentage terms across the whole trust? Do you identify earmarked reserves and challenge whether their intended use is a priority for the trust?
One exercise that’s often overlooked in budget setting is a SWOT analysis. Performance data and financial results tend to draw attention to strengths and weaknesses, without exploring opportunities and threats. Examining all four areas for both the constituent academies and the trust can help to identify potential responses to changing circumstances.
Examine budget monitoring records for the last full year and the most recent year-to-date. The skill of analysing and interpreting financial reports is worth developing; it can tell you a lot about the effectiveness of your financial arrangements. Separate out genuinely unavoidable pressures from those caused by poor financial control and tackle the latter. Comparing results between academies can be revealing, helping you to identify best practice to share with others, or to pick up areas of weakness that need addressing.
This self-assessment will not only enable you to realign your budget for a steady-state position, finding savings to cover genuine areas of overspending, but it will also help you understand your costs, which will help in the next stage.
If your MAT is growing, it’s particularly important to understand how costs behave as pupil numbers change. It’s worth classifying each line of your budget as fixed, variable, or stepped costs – you might be surprised at the proportion of costs that are stepped, i.e. don’t change with pupil numbers until you need to create an extra class or group. Your aim should be to educate additional pupils at a marginal cost, rather than the full unit cost that you receive for each new pupil.
Primary growth has slowed, with some schools experiencing falling rolls. The above approach also works in this situation, but it’s harder to find savings in stepped costs unless you lose a whole class, and you can’t reduce fixed costs.
Consider other potential changes: in the curriculum, the needs of pupils, restructuring or other organisational adjustments. Your self-assessment may help you estimate the financial impact of these changes.
Don’t just examine the traditional budget headings of staffing, running costs for buildings, procurement of goods and services or income. Consider broader thematic issues such as the IT strategy, SEND, behaviour, attendance, and pastoral care.
A consistent approach across the trust can be a helpful strategy, streamlining processes and generating efficiency savings. It all depends on how far you want to preserve autonomy for your constituent academies.
Reviewing budget headings
Always look at budget areas through the lens of efficiency. The above steps should lead you to some conclusions about which areas of the budget need a more in-depth review. They might vary across the different academies, but consider prioritising the areas which provide the most reward for the least effort. However, lots of small savings can mount up. Be organised: nominate a review leader to coordinate the exercise.
Asking the right questions is crucial. In our book ‘Leading a School Budget Review’, we suggest a set of questions to explore for any budget heading or thematic area:
- Why or how might waste and inefficiency occur?
- What can be done to improve efficiency?
- What is the process for making this happen?
- Are there any risks in making the changes?
- How can risk be reduced or eliminated?
- What is the expected impact of the change?
The cost of staff is by far your biggest investment, and you will want to keep it to a manageable proportion of total spending. The three main aspects to consider are the number of staff, how you deploy them, and the level of pay.
For secondary academies, Integrated Curriculum-Led Financial Planning (ICFP) is a popular method to achieve efficient deployment of teaching staff. It uses metrics such as contact time, average teacher cost, and class size to determine the right mix of staff for the desired curriculum. Primary schools have less flexibility, but still need to achieve efficiency.
In a MAT, after the initial TUPE transfer, you have flexibility to decide pay levels and responsibilities as you experience staff turnover or restructuring. But it’s still easy to let things roll on without review, e.g. the continuation of TLR allowances even where staff no longer carry out the duties.
For support staff, historical LA single status reviews have created a mixed picture. Do teaching assistant contracts reflect the hours actually worked? Is there consistency across your academies in the relationship between pay levels and responsibilities? If not, you risk equal pay claims.
Executive pay continues to be in the news, with some obvious disparities in remuneration relative to the number and size of academies within trusts. Challenges by DfE have led to some changes. How do you compare? Is the size and cost of your leadership team appropriate for how you operate? This area will come under greater scrutiny as more academies fall into deficit.
Include all types of staff in your deployment review, and keep an eye on wellbeing, avoiding overload. The key is that everyone can see the workload is distributed fairly.
The contracts register is your friend. It is crucial to anticipate contract expiry dates, especially if you plan to change specifications and/or aggregate purchasing across individual academies to achieve savings. Centralisation of procurement can be beneficial, but it’s often challenging to achieve the compromise on specifications that it requires. You will also want to consider the balance between in-house and externally procured services from an efficiency point of view.
Consider whether systems and processes are efficient across the whole trust; don’t automatically overlay old processes on new services. If entering into a new contract, consider the whole life cost, including any changes in your administrative arrangements, not just the contract price.
Some staff and governors oppose income generation in principle. But with uncertainty about future funding, surely it has to be explored, to give our pupils the best opportunities? I advocate a strategic approach in line with your vision, rather than a collection of individual fundraising initiatives.
Done effectively, income generation can make staff feel valued for their skills and talents, and can build a greater sense of community with the local area. It’s a whole topic in itself, worthy of proper investigation.
What if you can’t balance the budget?
As the trust is a legal entity, the DfE is only concerned about cumulative deficits at the trust level. You will, of course, want to ensure individual academies in deficit have a robust recovery plan which is monitored regularly.
If the whole trust is in danger of being in deficit, you need to open up discussions with ESFA. Their response will depend upon your particular circumstances, but you may qualify for additional funding, e.g. restructuring grants. Otherwise you may face a Financial Notice to Improve, which can involve the withdrawal of delegated powers. Examples are available on the DfE website, but suffice to say it is a serious position, best avoided by taking pre-emptive action as I’ve described in this article.
I hope this has given you food for thought, and I wish you every success.
Discover how SIMS Consolidated Reporting can support your MAT with Integrated Curriculum Financial Planning by bringing together your trust’s SIMS and financial data.
Julie will be guest hosting a webinar on Managing MAT Finances for Growth on 19 September 2019. Register here to attend >