Academy trusts – what next and what impact on finances

In January, Kreston International published its 10^th annual Academies Benchmark Report. The survey of over 300 Trusts representing over 1,500 schools has reported record surpluses, buoyed by substantial Covid-19 financial support, resulting in even stronger Trust financial health than before.

In the first and second of three articles, my colleague Kelly Goodwin and Louise Thrower, explored the strengthening financial performance across the sector and its causes.

In this, third and final article, I will look at what the future might hold for Trusts and the impact this will have on their finances.

Those of you that have read the first two articles and perhaps the Academies Benchmark Report will have gathered that Trusts, despite holding record reserves, continue to face a high degree of uncertainty. The Covid pandemic, thankfully, appears to be easing, but its effects will be felt for many years to come.

The increased costs that all Trusts will face – whether staffing, rising energy bills and increased maintenance of school buildings – will figure prominently.

The need for all Trustees and key management to understand and strategically plan for the impact of those increased costs has never been more important.

Larger and stronger MATs

A clear direction of travel, and one that arguably began many years before the Covid pandemic, is the move towards larger and stronger multi-academy trusts (MATs). It has been the underlying, if unstated aim of government to encourage single academy trusts into larger MATs. This pressure to merge smaller Trusts and for single academy Trusts to join MATs, is only likely to increase.

Large MATs do offer considerable cost savings with more efficient economies of scale. A centralised HR, IT and senior leadership team across a larger MAT, will ensure greater efficiencies. Individual schools and the wider sector also benefit from larger MATs, facilitating the better sharing of excellent teaching, innovative ideas with a larger, broader group of knowledgeable individuals.

However, it should be kept in mind that merging trusts into larger MATs will incur costs at the beginning and during the due diligence process and this will need to be factored into forecasts and reserves policies.

The structure of larger MATs will also need careful consideration. Whether the Trust wants to operate a fully centralised model, hub model or look to GAG pool will need consideration, which could utilise a great amount of key management personnel’s valuable time.

Targeting capacity into Trust’s communities, where it is needed, will allow larger MATs to build on the fantastic and important work they already do with key stakeholders. This could include creating new local jobs and community programmes. Larger MATs are also more able to embrace becoming specialist teaching schools, operating teaching hubs or centres of excellence and helping vulnerable groups achieve the best education.

Trusts with strong central services are likely to be in demand and more attractive to smaller Trusts looking to merge. First-class HR departments, IT knowledgeable staff, compliance teams, and imbedded well-being cultures, could be the engines behind a successful large MAT.

MATs need to invest in the training and retention of these key individuals and teams.

Salary scales and job market outlook knowledge is important than ever and are only likely to increase as inflation increases, but so too is the importance of the continued investment in training and development, to ensure that Trusts remain on top of the ever changing and legislation increasing Academy sector.

Trading subsidiaries

The activity of incorporating trading subsidiaries has dropped off over the past two years, but given the increase in additional income streams that MATs are diversifying in as we come out of the pandemic, Trusts should periodically revisit and explore the need for a trading subsidiary. Trading subsidiaries may require Trusts to engage with specialists like Kreston Reeves LLP, who have a greater understanding of the required legislation, VAT and corporation tax implications, together with assistance with the relevant tax breaks.

The impact of the Covid pandemic will continue to affect MATs for many years to come, with demands on cash reserves high. How, more so than ever, should trusts plan for the future strategic aims and the stability of their schools.

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