“We believe that open and transparent communication is important to get the buy-in of parents, help them understand the need for fees to come in early and help teachers understand the need for pay-cuts”
Schools are shut.
School buses are standing still.
Playgrounds are empty.
Students are stuck at home.
COVID-19 has brought the whole world to its knees and has naturally crippled the way schools operate. Coupled with the fact that there is limited to no government support, private schools are increasingly finding it difficult to make payroll, pay rent and manage other operating expenses. School owners have even had to dip into their personal savings to retain their best staff and also provide digital learning support to students.
If this was not enough, schools are also faced with the question- “What will happen when schools reopen?”
Fig: Post COVID-19 impact on revenue and costs for each school parameter
Does it mean that schools will have to operate in shifts? Will there be social distancing norms in place? Will schools have to invest substantially to ensure safety standards are met? In all probability, these changes imply that even once fully operational, schools will have to contend with rising costs and declining revenues.
In such times of uncertainty, having a sound financial plan can help schools mitigate risks and reaffirm priorities. In this article, Varthana explores three strategies that schools can use to assist with financial challenges.
1. Set broad financial planning objectives
The rules of effective financial management that would apply even before the crisis, apply more so right now. Financial planning is the task of determining how a business can afford to achieve its strategic goals and objectives.
It minimizes risk, gives greater visibility and control for better decision making while increasing efficiency and allowing for sustainability.
Private Schools can adhere to basic financial hygiene by:
- Creating a strategic plan: In the COVID context, short term goals of sustainability should be preferred over longer-term goals
- Create budgets: Budgeting gives us control over our finances by helping project income and expenses
- Minimize unnecessary costs: Prepare a cost-cutting plan on where to reduce expenses
- Operate with transparency and accountability: Keep your parents, teachers and vendors informed of the school budget
‘We believe that open and transparent communication is important to get the buy-in of parents, help them understand the need for fees to come in early and help teachers understand the need for pay-cuts’
Click here to watch the full session on Varthana’s Financial Planning Tool
2. Allocate resources in line with planned objectives
The pandemic has forced private schools to make cost cuts. However, the approach to these cost cuts has been arbitrary at best. The allocation of cost cuts across expenses should take into consideration what expenditure is really important to the school for the amount of money that has been allocated to it.
What expenses can you afford to do away within the current climate? Is it worth not paying your teachers’ salaries and risk losing them to the competition? Should you continue future-looking investments? School leaders need to ask themselves tough questions and arrive at priorities.
Fig: Framework and tool to allocate cost cuts to resources in line with planned objectives
Varthana suggests the following approach to reducing expenses:
- Evaluate all expenses on the importance vs expenditure matrix- The matrix allows to understand which expense is of high importance to the school and high on expenditure (Rs/month)
- Allocate reduction percentages to each expense: Categorize expenses as high medium and low, keeping in mind the school’s short and long term goals. Later, allocate reduction percentages to each expense item
- Use Varthana’s tool to Calculate Cost Savings: Calculate cost savings by entering expense amounts and reduction percentages in Varthana’s Financial Planning Tool. The tool automatically calculates the amount saved on each expense and sums up the expenses to calculate the total savings of the school.
Click here to get free access to Varthana’s Financial Planning Tool
3. Arrive at your ‘Runway’
Private schools should focus on short term sustainability and school leaders must ‘keep the engine running’ until schools can restart in full swing.
The ‘Runway’ is used to determine how many months a business can sustain itself given its current cash flows and its monthly operating expenses.
Free access to Varthana’s Financial Planning Tool
Fig: Runway calculation using Varthana’s Financial Planning Tool
‘The ‘Runway’ is a tool to understand sustainability, if used in combination with the categorization/expense allocation tool, it can help project different scenarios and how the school will fare in those scenarios.’
Watch the full session on Varthana’s Financial Planning Tool
If the Runway for the school is low (less than 3 months), schools should take another look at their expense categorization and reduction framework and make further cuts to extend their runway. Varthana recommends that schools maintain a runway of at least 6 months, in line with all current estimates for the availability of a vaccine.
Schools can look to extend their runways by using the following strategies:
- Discount your school fees-Schools must look at collecting as much income as possible upfront. Discounting must be used as a tactic to collect fees from parents
- Staggered Payment Models-Work with your parents to understand how much they can On a monthly/quarterly basis. Use a non-uniform staggered payment model (eg: 10% now, 20% after 3 months, full payment once schools are operational)
- Digital Payments-Enable digital payments to remove barriers and make it easy for parents to pay you fees, avoiding the need for an in-person visit
- Digital Learning Solutions-Schools must try to provide value to students (and hence parents) during this time. Providing education via remote classes, either through Whatsapp or Google Meet, can help influence parents
Proactivity and flexibility are key
Schools are facing an unprecedented challenge. While the strategies mentioned in this article will help schools with their decision making, the onus is on school leaders to be proactive with their decision making and communication with all stakeholders. At the same time, school leaders need to be flexible and be prepared to roll back decisions in line with the ever-changing context.
Now, more than ever, school leaders need to be actively involved in managing their school’s resources effectively. Varthana strongly believes that schools that can navigate their way successfully through the pandemic will come out the other side significantly stronger.