Forecasting and budgeting tips for Victorian High Schools

These challenges include teacher resourcing, changes in the Government funding model, rising salaries and expenses, complexities in the sector around payroll underpayments, and changes to the Victorian Registration and Qualifications Authority (VRQA) guidelines and reviews.

In preparation for FY22-23, it’s important for Schools to reflect on the year that has been and factors that will impact future performance. We’ve identified four key focus areas for Victorian Independent schools:

• Market growths and trends
• Factors impacting future performance
• Minimum standards
• School forecasting reflections

The market – growths and trends

The independent schools’ sector in Victoria is made up of a diverse range of providers. From our observations, schools facing challenges in the market are those with a combination of the following risk factors:

• higher fees
• small student enrolments
• single sex
• located in established and/or ageing population areas
• exposure to international market
• boarding schools
• recently opened school (e.g. operating less than 5 years)

On the other hand, the characteristics of schools that are thriving include:

• low to medium fees
• medium / large student enrolments
• co-educational
• located in areas with a growing population and young families
• established school (e.g. operating more than 5 years)

Factors impacting future performance

School management and treasurers need to look ahead at factors that will impact their school’s future performance with a particular focus on the schools’ income sources. Recurrent income sources over the next few years will show a reduction in funding due to the change in the funding model effective from FY22-23.

When forecasting and managing revenue challenges, enrolment uncertainties play a major role. Enrolment numbers may be challenged by increased government school competition in their area, the mix of boarding/ international students, student scholarships and concessions, and whether the school is single sex or co-educational.

In addition, the current teaching crisis has caused a spike in salary increases which can rapidly effect a school’s planning and forecasting. Schools must ensure they are up to date with the latest EBA rates for teachers as well as superannuation and insurances.

Minimum standards and other requirements for schools

To help schools get registered and stay registered, the VRQA created guidelines and minimum standards which have been amended from 1 July 2022. By highlighting the following key areas, the VRQA is assisting school management to ensure they have appropriate policies in place that address the minimum standards and provide a benchmark for management to demonstrate how the school has complied during the course of a year:

• School governance — democratic principles, governance, not-for-profit status, probity, and philosophy
• Enrolment — student enrolment numbers, enrolment policy, register of enrolments, and attendance register
• Curriculum and student learning — curriculum framework, student learning outcomes, and monitoring and reporting on students' performance
• Student welfare — care, safety and welfare of students, student behaviour management, and attendance monitoring
• Staff employment — teachers' requirements and compliance with the Worker Screening Act 2020
• School infrastructure — buildings, facilities and grounds, and educational facilities

In addition to the above, a school must also consider and have documented the following:

• a business plan which is validated by an independent qualified accountant which must include:
  
  • Enrolment estimates and assumptions
  • The Direct Measure of Income (DMI) score for the school, or the equivalent thereof, if the Commonwealth Department of Education, Skills and Employment cannot calculate a DMI score for the school
  • Estimated State and Commonwealth grant funding
  • 5-year financial forecasts
  • School reviews commencing before 1 July 2022 are subject to the 1 July 2021 Minimum Standards and Requirements

School forecasting reflections

From our experience working closely with Victorian Independent schools and conducting school reviews, we have observed the following key themes:

• Assumptions: Key assumptions should be fundamentally sound and backed by external data or historical evidence
• Consistency: Information presented across various documents should be driven by consistent information (e.g. cash flow and profit & loss, or capital expenditure budgets and cashflow)
• Revenue projections: Any significant changes in estimated student numbers should be corroborated with, as an example the ISV calculator
• Employee expenses: Detailed consideration should be given towards expected salary increase and the expected number of FTE required to maintain appropriate student to staff ratios. The projected numbers must also align to the estimated number of future students (also relates to the point on consistency)

To expand on this further, we recommend management have robust assumptions documenting the various value drivers to be prepared for, which can be identified in the chart below.

As an example:

• Net tuition fee income is underpinned by student numbers and expected school fees less discounts
• Government grants, and whether they are reasonable against GAC funding
• Other income which should be backed by historical evidence

Your cost drivers should consider:

• Employee expenses based on forecast employee numbers and factors in future salary increases, student teacher ratios, and expected maintenance and administration staff
• Property expenses which are a mixture of maintenance and investment
• Other costs such as finance costs for any leased or financed buildings, which again will be impacted by interest

Wrap up

As a recap, staying on top of these items is key:

1. Know and understand your school
2. Stay on top of your financial forecast
3. Undergo ongoing reviews of compliance matters

Feel free to reach out should you have any questions.