The private education sector is subject to increasing scrutiny, regulation and challenge. Never has the phrase 'there is nothing permanent except change' been more apt, says Craig Aitchison.
Independent schools have had to cope with some major challenges over the last few years, which continue to affect the sector. These include:
- uncertainty over what constitutes 'public benefit' as a pre-requisite to maintaining charitable status
- constraints on parents' ability to meet education costs, especially with the introduction of £9,000 per annum university fees
- competition from state sixth form colleges, academies and free schools – there are now well over 2,700 academies and free schools, with more in the pipeline
- cost inflation, particularly in the key categories of staff, property, utilities and catering
- unstable property prices potentially reducing the value of security available to support borrowings.
A changing landscape
The percentage of pupils attending independent schools in the UK appears to have remained fairly static at around 7% of total UK pupils. Many believe this is likely to continue.
However, there has certainly been an increase in school restructuring and insolvencies over the last few years and this trend will undoubtedly continue.
Experience suggests that the vast majority of pupils affected remain within the independent sector.
Pre-emptive action
Early identification of existing or anticipated financial difficulties in schools can provide vital breathing space for management teams, together with their professional advisers, to take action to make appropriate changes, reducing the likelihood of a formal insolvency process. Appropriate action might include a new marketing strategy, fundraising initiatives, staff cost savings, sharing facilities with other schools, joining buying groups, outsourcing functions such as catering, amending the business model, seeking a conversion to academy status, or merger with or sale to another school or schools group.
Administration and turnaround
Where financial difficulties are not identified early and are sufficiently severe, a formal administration process may be required as a means of preserving a school. This can be an opportunity to change the academic structure of the school so that it is better placed to succeed in today's private education marketplace.
A new school entity resulting from a merger or sale can be achieved in a relatively short timescale. For example, we have acted for a school entering administration within days of the summer term ending, merging with a schools group within two weeks and re-opening in September with a loss of only two pupils.
Winners and losers
In summary, the changes in the independent schools sector present threats but also new opportunities to deliver the best outcome for pupils – whether through restructuring existing school models or implementing appropriate acquisition or merger strategies.
Such restructuring and some inevitable closures, appear to reflect the changes we are seeing across the sector in the way that independent school services are delivered, rather than indicating an overall decline in private provision. As in all business sectors there will be winners and losers. The winners will be those who are most able to identify and adapt.
The state of the independent schools sector 2013 ISC Annual Census – key facts:
- 1,204 schools completed the census
- pupil numbers down 0.3% – compared to a 0.1% increase in 2012
- average fees up 3.9% – the lowest annual fee increase since 1994
- value of means-tested bursaries up 6.7% – an increase of almost £19m
Click here to view Newsletter in full.
Smith & Williamson LLP Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.
The word partner is used to refer to a member of Smith & Williamson LLP.
Details of the licensing bodies for Smith & Williamson insolvency practitioners can be accessed at: http://www.smith.williamson.co.uk/insolvency-licensing-bodies
