You are likely approaching the time of year where much of the work will be completed in preparing and presenting your budget for the next school year. As finance and school leaders set about coordinating all the moving parts of the budgeting process and communicating the work they are completing, here are the cornerstones necessary in completing a successful budget.
Become a reporter. As you prepare your budget imagine you are a reporter for the Times who is writing about your budget. What is the story of this budget? Take the current economic environment plus any programmatic initiatives in your school and weave them into the assumptions you are making to support your work. Use and present historical data to support your arguments, and when presenting the budget explain the logical steps you have gone through in its construction. Anticipate any questions or concerns that you think will arise and build explanations into your presentation. The goal is that your budget story be believable and compelling to those who read or hear it.
Manage your stakeholders. Although November is when the majority of the work of the budget is completed, the budgeting process starts in August or September and finishes when the budget is approved and the fees for the following school year are announced to the community. The budgeting process will involve departmental and divisional heads, as well as the Finance Chair, the Finance Committee, the School Board and the fee-paying community. Given this, be proactive in the conversations you are having with all these stakeholders. For example, make sure the Finance Chair and the Board fully understand your budget assumptions and process, check in with Divisional Principals to make sure they are engaged with their divisional budget work and use school communications channels to open a dialogue with the parent community about how budgets and school fees are set at your school. Some parents will have little idea of the business of an international school so giving them some understanding of how this works will help the school manage the communication of fee increases.
Create reliable financial models. Most schools are heavily reliant on using spreadsheets to complete their budgeting process. There is an inherent risk of spreadsheet errors that may lead to budgets that do not add up. As data is collected, collated and revised be alert for possible errors. More importantly, design your budgeting spreadsheets as professionally as possible. Budgets are often put together by someone who is self-taught, without sufficient care, attention or planning. Budget spreadsheets reused or updated over several years may be subject to a lack of review and carry forward errors. For example, be sure that formulas are used consistently throughout the spreadsheet, that there are no manual adjustments to formulas and that check functions are incorporated wherever possible. It can be helpful to have a review conducted by someone not involved in the construction or manipulation of the worksheet.
Give Context to your budget year. In presenting your budget numbers and the supporting data to the Finance Committee and Board, ensure that you provide key data from the previous 5 years (if possible) and plan past the budget year for a further 4 years. This will enable you to give context to budget year as part of the strategic story of your school. It may also be useful to show the previous years budget to actual numbers to give credibility to how accurately you have budgeted in the past.
Do not neglect your campus. Schools sometimes reduce the spending on their campus as there is pressure to avoid or reduce fee increases and other costs may not seem as easy to control in the short term. By limiting spending on facilities, a school will face an increasing amount of deferred maintenance and postponed improvement projects. As a guideline it is good practice for international schools to set aside funds each year in the equivalent of three percent of the total cost of replacing its physical plant. In more detail, a school should have a 10-year asset management plan (which incorporates any facilities masterplan information), which lists the plant and assets, sets useful lives and replacement dates. This will result in a plan of maintenance and capital spending that will support figures used in your annual budget.
Get Visual. According to a 2018 study by Microsoft the average human being now has an attention span of eight seconds. Budgeting will involve a lot of numbers, but how they are presented will help determine the level of engagement you generate and the understanding of your audience. Choose your charts and data visualization carefully to support the numbers you are presenting. Pie Charts and Histograms may be what the Finance Committee is used to, but consider introducing donut charts, waterfall charts and even tornado diagrams to model sensitivity.
Finally, as you tick all the boxes on your budget completion checklist, take time to consider your bias and the bias of those people who have provided the fundamental information on which the budget is built. Make an effort to recognize if you are too optimistic or your admissions team is erring on the side of caution in predicting student numbers. Whilst no Board would expect perfect foresight, if there have been several years of consistently higher than expected surpluses based on a conservative bias, the school community may begin to question the school’s fee strategy. Equally, it is understandable that the school administration team would like to stay in favor with the school Board, but it should not be drawn in to optimistic budgeting to avoid the necessary fee increases. In the current economic-pandemic environment, international schools will be under a great deal of scrutiny as they complete this year’s budgeting work and will need to discharge this work with perhaps more attention to detail and context than usual.
The annual budget supports the delivery of the educational program. It is important to keep the Board's attention on the program and not to focus on the smaller details of the financials. If your school needs help with analyses, long term financial planning or development of a long-term asset management plan, please feel free to contact Sage Consultancy. Our consultants have decades of financial, operating, facilities and leadership experience in international schools.