An in-depth look at the challenges of financial management in schools

Financial management is crucial in the education sector where pupils’ education can be impacted by the monetary decisions that are made. Good financial management helps schools optimise their funds, ensuring they can cover all expenses and invest in the staff and resources needed to provide a high-quality education.

Financial management in schools generally involves:

• Managing purchase ledger and paying invoices
• Making and implementing a budget
• Tracking and anticipating future cashflow
• Managing grants and donations
• Forecasting ahead to plan for future scenarios
• Setting up financial controls
• Payroll procedures
• Managing contracts with suppliers

It’s also important that schools can prove they are using public funding effectively, in line with its intended purpose. Schools are obliged to ensure their financial situation is transparent and budgets are being used responsibly. 

Budget constraints

Schools have limited budgets to work with and must make them go a long way. 60% of governing boards now consider balancing the budget to be their top challenge, up from 40% since 2020. Top budgetary concerns include falling pupil numbers, curriculum breadth and support for pupils with special educational needs and disabilities (SEND).  

While schools may receive some grants and donations, the main source of income for maintained schools and academies is government funding, which is set in stone and is outside of the institution’s control. This funding needs to go a long way, covering everything from staff expenses, to building maintenance, to learning resources. Many schools are also faced with soaring running costs as bills and expenses rise, putting increased pressure on budgets.

Economic pressures

Schools face the same economic pressures as businesses and individuals – inflation has hit the education sector hard in recent years as the cost of energy, food and bills has skyrocketed. In 2022/23, schools across all phases saw energy costs per pupil increase by almost 60%. Other large increases included non-ICT learning resources, supply staff and catering.

Economic pressures also affect pupils, which in turn can affect schools. Over 84% of senior leaders reported that cost-of-living pressures have resulted in a need for increased pupil support. These pupils may require additional financial, welfare and mental health support to ensure they have equal access to learning and extra-curricular activities – in response, many schools have had to provide additional financial, welfare, and mental health assistance, ensuring equal access to learning and extracurricular activities. To manage these needs, half of schools have reduced spending in other areas, further underscoring the challenges of financial management in schools.

In our conversation with David Pitchfork, Senior Finance Manager at Delta Academies Trust, he spoke candidly about the economic pressures the trust has faced recently, and how Access Education’s budgeting software has been a vital resource. Offering flexibility and the ability to run different financial scenarios, the software has helped the trust stay ahead of uncertainties and make informed decisions as they navigate these challenges. Read the full customer story.

Funding allocation

Funding allocation may involve making tough decisions – 59% of respondents to the National Governance Association’s annual survey had to cut certain subjects or reduce teaching due to budget constraints.

General best practice is to allocate funding to the most essential resources first, but this is not always clear cut. Many schools are finding themselves in a position where they need to cover the costs of rising wages, essential building work, support for SEND pupils, initiatives to improve attendance and so much more. In addition, schools and academies must submit three-year budget forecasts to their local authority or the Education and Skills Funding Agency (ESFA) – while this is a healthy financial habit to adopt, it’s extra work for finance teams. 

Compliance and reporting

Compliance responsibilities ultimately lie with governing bodies and headteachers, but the finance teams who own the budget must know and follow the correct procedures. Local authority maintained schools use the consistent financial reporting (CFR) framework as a template to collate income and expenditure information for financial statements. Academy trusts must comply with the academies financial handbook, which provides an overarching framework for effective financial management and controls. Schools also need to follow the principles of “best value” when purchasing products and services

Schools will need to submit financial documentation for review by local authorities or ESFA by specified dates. This will include their budget, plus other essentials such as the schools financial value standard – a checklist that ensures schools can achieve necessary standards by maintaining good financial health and managing resources effectively. Navigating these compliance requirements further highlights the challenges of financial management in schools, especially when it comes to retaining staff with the expertise needed to handle these responsibilities effectively.

Revenue generation

The majority of schools need to generate additional income to cover the costs of basic resources. This might take the form of grants, donations, facilities rental, fundraising in the community and more. Opportunities to raise funds can be limited, but they can be a much-needed lifeline for schools.

However, schools will require resources to manage these processes, which means hiring additional staff or increasing the workload of existing employees. Grant applications in particular can be complex, and are often handled by a dedicated grants officer. It’s a delicate balancing act where the school needs to weigh up the pros and cons of targeting additional revenue. What will be the impact on staff, what tasks will they be taken away from and what is an acceptable, realistic workload?

1. Understanding your obligations is half the battle. And once professionals are fully familiar with their obligations, they’re in a position to begin bettering their processes. For example, the reports produced for governors based on the CFR could be used to form part of an action plan to enhance controls and procedures. There’s also the schools financial benchmarking website, which can illuminate how others manage their budgets within tight parameters. When you use compliance as an opportunity to learn and improve, it don’t need to be a barrier.
2. Build an ecosystem of support for finance teams and listen to their recommendations. Make sure financial professionals are empowered to do their jobs and have the support of the people around them so they can be as impactful as possible. This was the experience of Liz Nugent, the School Business Manager at St Michael's Primary in Manchester. She spotted the opportunity to modernise outdated financial systems and make processes more straightforward. Find out how Liz managed the switch and gained the trust of the local authority to implement positive change.
3. Use unified finance software that can support your school’s mission. Many schools use disparate software systems that can duplicate workload because platforms aren’t integrated. This can also make data management a challenge, and it can be difficult to have a birds’-eye view of the entire school or trust. Integrated education software for finance departments, budgeting and HR can support your processes and help make budgets go further.
4. Provide support and training for finance staff. One way schools can empower their staff is through training and continuing professional development (CPD). Finance and HR staff need access to quality training they will want to engage with, ensuring they can stay up to date with best practices, regulations, compliance requirements and more.

Planning for the future is a core function of proactive financial management. Employing up to date, user-friendly methods can help prioritise growth and stability, which was a breath of fresh air for Sandra Lightwing from the White Hills Park Trust.

As the trust's Finance Manager, Sandra was seeking a solution that encompassed excellent functionality and support. "We first introduced Access Education Budgets in 2014 and we use it a lot within the trust," said Sandra.

"From budget scenario modelling to income and expenditure reports providing a five-year strategic view, the [Access Education Budgets] gives us everything we need to run our trust on a day-to-day basis while also planning for the future."

When it comes to the most useful features, Sandra noted:

"Any finance manager will know that payroll is the area you definitely don't want to get wrong". "The Payroll Reconciliation reports in the Access Education software are awesome. We use them every month... The salary calculator is also a great tool that allows us to do immediate comparisons. When a headteacher asks about costs, I can quickly and easily do a comparison." 

The future outlook for financial management in schools

Financial management in schools poses a whole host of challenges, but there are some bright spots on the horizon. With lower levels of inflation, costs may begin settle into a more normalised pattern, and teachers have been awarded fully funded pay rises that could help schools retain talent, reducing recruitment and supply teaching overheads. Yet the near-term challenges are still significant and many schools are feeling the effects of trying to balance budgets and support pupils as best they can.

Choosing the right finance software can help schools cut admin costs and balance budgets automatically, providing reliable solutions even in turbulent environments. Take the first step towards financial management freedom and arrange an initial call with one of our specialists – we’re trusted by over 9,000 learning institutions. Find out how we can help.