Over half of UK pupils in state run schools are now studying in an academy.
We’ve heard from a melting pot of opinions on the pros and cons of academies since they were introduced. But regardless of outside commentary, making the transition to academy status and running it on the ground can be a complex and demanding task.
When it comes to managing the finances – your academy needs to be run like a business.
Running an academy works very differently to running a school within a local authority structure, and just as business owners need guidance on understanding the numbers and how they affect the business, so do the heads of Academies.
Whether you’re an existing academy, or part of an academy trust, it’s important to know your financial situation and be able to plan ahead to avoid a cash flow problem.
How the financial side of an Academy works
In understanding the importance of running your school like a business, it’s helpful to look at how an academy trust really works. Each Academy should have:
An Accounting officer
An academy trust must have an accounting officer to ensure that the school is complying with your funding agreement when spending funds. In a single academy trust, the appointed accounting officer is usually the headteacher, and in a multi-academy trust it should be the chief executive or executive headteacher.
Academies must have their accounts audited on an annual basis, in line with the guidance supplied by the Education & Skills Funding Agency (ESFA).
A Chief Finance Officer (CFO)
The board of your academy trust must appoint a chief finance officer (CFO), who will act as the trust’s finance director or business manager.
The CFO should:
- make sure the academy trust’s financial governance and risk management arrangements are sound and appropriate
- prepare and monitor the academy trust’s budgets
- make sure the academy trust produces annual accounts
So…Single Academy Trust, or Multi-Academy Trust?
As a firm we act for numerous single academy trusts and several multi-academy trusts (MAT). The MAT’s we assist take a variety of structures, as this depends on what is most appropriate for the schools involved. Most multi-academy trusts have local governing bodies for each academy in the trust, where others are organised like a hard federation. The choice of structure depends on how the multi-academy trust was formed and the schools involved.
Since 2011 when the academisation of schools commenced, the majority of our clients who started out as single academy trust have considered the pros and cons of a MAT structure. During the years of acting for our clients we have seen the growth in the number of MAT’s being formed, either by single academy trusts creating their own MAT with at least one other school or joining an already established MAT.
There are understood advantages, but this is not for every school. Take a deeper dive into the benefits, challenges and functions here.
The financial statements for MAT’s are prepared at trust level, therefore the trust needs a clear understanding of how the financial systems are going to be able to provide the necessary financial data. As the MAT grows it is more important to have consistent systems and procedures that can be relied upon.
Let’s look at how you can gain a clear understanding of your financial data.
Understanding your financial situation
As an Academy, you rely on public funds to operate. Whilst there is the certainty of funding itself, funds may ebb and flow due to external circumstances. The biggest challenge you’re likely to face is the distribution of funding from the government, which is why its strong financial planning and management is so vital.
Your team needs to be able to understand the numbers. You need to have trusted data at your fingertips to show you how healthy your cash flow is, and where budget needs to be allocated. The best place to start is your accounting system.
When we work with Academy trustees, we start by reviewing their existing accounting system and seeing what initial improvements need to be made to meet the ESFA’s accounting requirements. When your accounts are up to date and you know you’re getting the most updated financial information on your current position, you’re able to make future projections and long term financial plans that help you to make short term decisions about your budget.
The importance of reserves
When you’re a part of an academy trust, you are a stand-alone charitable company, so you’re expected to maintain reserves. As a standard rule of thumb, academy trustees would be smart to keep at least the amount of one month’s salary as a revenue reserve. However, the amount you’d be advised to set aside really depends on the size of your academy trust.
Getting the support you need
When you’re appointing a CFO, it’s important to think beyond the preparation of accounts. As a bare minimum, you want to trust that your financial statements are being prepared accurately, and your accounts have been professionally checked and audited.
But beyond compliance, you want to feel secure knowing that whilst government decisions are beyond your control, you’re able to strategically manage your finances to ensure that your school is delivering the best service possible to its children, staff and the wider community.
We provide a personal service that’s based on building a long-standing relationship with each school. It’s that level of understanding and personal service that allows us to deliver the best possible accounting services.