The importance of budgeting

  • 19th June 2024

The annual budget shouldn’t be considered in isolation, but aligned to your school’s longer-term financial plans, says Tracey Young


As your schools start the final term of the academic year, you will already be planning for the year ahead. An essential part of the process is preparing the financial budget. A lot of hard work will have already gone into preparing the first draft – which will have helped to inform the fee increase announcement and expected inflationary pay awards. However, for many there will be a few more iterations before it is finalised, as expected pupil numbers become clearer.

The budget is your financial guide for the year – setting out your expected income and planned expenditure.

However, the annual budget shouldn’t be considered in isolation – it must be aligned to your school’s longer-term financial plans. Financial decisions made now will impact your school’s ability to fund future capital projects, repairs and maintenance projects, loan repayments or weather future financial challenges. Therefore, in situations where income is below expectations, action may need to be taken quickly to reduce expenditure, so the financial result is kept in line with budget.

Look at the past first

For many schools the starting point for the budget is considering past expenditure and adding on the impact of pay awards, expected changes in pupil numbers, inflation and other operational changes. However, in the current climate, there continues to be more challenges to the ‘business as usual’ approach by the desire to control costs. Large changes compared to prior years should be challenged and understood.

Communication is a key part of the process – many of the decisions you make will have cost implications which need to be considered, justified and planned for. Ensuring all budget holders are involved in the budgeting process is essential. This will ensure their plans and the associated costs are factored into the budget. It is often the case that aspirations exceed the budget available, but a proper process will ensure informed decisions can be made, communicated and plans adjusted accordingly.

The biggest costs

Staff costs are the largest element of your school’s costs base. Inflationary pay awards and scale point movements all have a significant impact. In addition, the operational decisions you make may also have an impact on the headcount needed and costs. Understanding the detail behind this budget area is essential. Ensure you talk to your bursar or finance lead, so he or she is clear about your plans to ensure costs budgeted fully reflect your school’s needs and plans. The budget should be considered before any recruitment decisions are made.

Consideration also needs to be given to staff sickness and maternity cover. Although in some cases the roles and responsibilities may be covered in the short term by others, it is common to include a contingency in the staff budget to allow for such situations.

What are the cost areas?

Focus also needs to be given to the other large budget areas, such as IT, repairs and maintenance, and catering. A condition survey of your school buildings will help inform and prioritise your repairs and maintenance programme to limit emergency repairs and to ensure you aren’t storing up costly problems for the future.

All budget holders should be clear about their budget, and have procedures in place to ensure their spending remains within it. However, even with good planning there can be unexpected costs. In these cases, you need to consider if savings can be made elsewhere, or ensure there’s a clear justification for the overspend. In some cases, approval may need to be sought from your governing body in line with your school’s scheme of delegation.

Allow a little flexibility

It’s usual to include a small contingency in the budget to allow for those unexpected items. It is important you understand the total level of the contingency included within the budget and where it is. Including small amounts of contingency throughout the budget means monitoring is more difficult and can lead to poor budgetary control. Use of the contingency should be subject to approval and careful monitoring.

A well-prepared budget provides the framework against which your school can monitor its performance during the year within the management accounts, and take corrective action as necessary. For many schools a significant proportion of repairs and maintenance occur at the end of the financial year over the summer break, which means it is a common area where expenditure can be flexed depending on the financial position. However, continued cost-cutting in this area is not a long-term solution.

In the current climate it’s imperative that your school challenges costs as part of the budgeting process. Ensure you understand the make-up of the budget, ensuring it fully reflects your operational plans and the associated costs and is aligned to your long-term financial strategy. And just in case things don’t go to plan, know what levers you could pull to curtail spending and bring things back into line. Knowing this from the outset will mean you can take swift action.

Tracey Young is a partner at accountancy firm haysmacintyre.

Tracey Young

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