An increasing number of academy school trusts are operating with large deficits and decreasing reserves. If the current trend continues, many academy trusts may be in financial distress within two years.
That is the stark and worrying message from the annual Academies Benchmark Report from Kreston International, a network of UK and global accountancy firms.
The Academies Benchmark Report, now in its seventh year, surveyed 750 academy schools in 360 trusts and multi-academy trusts educating over 300,000 children.
The survey found that the 360 trusts have a combined deficit of over £100 million. The number of trusts operating with a deficit has increased from 21% in 2015, 42% in 2016 and 55% in the 2016/17 survey.
Phillip Reynolds, a senior manager in the Academies team said: “This year’s report has found that reserves are fast disappearing, leaving trusts with not enough cash to pay their bills.
“The Academies Benchmark Report shows that reserves in the 360 trusts account for just £250m, meaning at current spending levels some 60% of academy schools could be on the verge of insolvency or distress merger in just two years. Schools are not coping with the financial pressures, and single academy trusts are particularly vulnerable.”
The Academies Benchmark Report survey highlights:
- 55% of academies recorded a deficit in the last fiscal year.
- Centralised multi academy trusts (MATs) perform significantly better, typically generating surpluses. They are better able to negotiate MAT wide supplier contracts, have greater ability to generate additional income, and appear better at negotiating settlements from the Education and Skills Funding Agency (ESFA) and from local authorities.
- Trusts continue to struggle to generate additional income, in part because of a lack of investment in trusts' estate facilities.
- As negotiations with ESFA and local authorities take on increased importance, trusts are seeking better qualified chief financial officers and with increased salary costs to match. The role of the CFO/Business Manager continues to evolve from pre-academy days.
- Trusts are having to offer teaching posts at more senior levels with greater Teaching and Learning Responsibilities to attract staff. This may leave trusts with a pool of staff that may well be over-qualified for the role and again with salaries to match.
Phillip adds: “The need for trusts to generate additional income is critical for many, and most will be able to do that through the estate and facilities they offer. That they are struggling to do so is down to the poor condition of those facilities, yet this survey shows that investment and improvement of those facilities is not a priority and is falling.
“This leaves trusts in a Catch-22 position – short term financial pain now for longer term revenue gain. Trusts do need to invest now to secure long term revenue growth but need a clear strategy and a plan to manage that risk.”
Kreston UK’s 2018 Academies Benchmark Report has been published. To request your complimentary copy of the Report, please click here.
The benchmarking report will assist anyone who wants to understand more about how their academy trust is performing.