The importance of financial management in educational institutions: What can schools do to improve?

Schools operate within strict financial constraints, with income largely limited to government funding and smaller income streams such as grants. Effective financial management is essential to ensure available funds are allocated properly and will stretch as far as possible — the budget will need to cover staffing costs, operational costs, infrastructure, unforeseen expenses and anything else relevant to the school.

It’s also important that financial management is tied to the school’s goals. If, for example, the school intends to upgrade equipment, provide new facilities within the next five years or run an ambitious recruitment programme that requires HR resources, full transparency is needed to align these with the budget.

Schools face many financial management challenges including strict regulations, the effects of inflation, rising staff costs and very limited budgets. Strong financial management practices can ensure the school does not overspend, avoiding falling into a deficit. Forming good habits around finances and budgeting will provide clarity and help prevent issues arising in future. Plus, it will be clear who is accountable for which areas of financial management and the school can take a joined-up approach to achieving its goals.  

Without good financial management practices, schools can risk losing sight of what’s most important for their pupils. These are some of the reasons why good financial management is so crucial:

• Financial stability. Good financial planning and oversight is essential to keeps budgets balanced and prevent schools running into deficits. If schools go into debt, they may need to implement recovery plans which could include restructuring, staff reductions, curriculum adjustments or budget cuts. This can directly impact pupils and the school’s ability to deliver a quality education.
• Accountability. Schools are accountable to their governors, trusts, local authorities and the Department for Education (DfE), and these bodies are responsible for overseeing financial performance. Schools are also accountable to their staff, who need to be paid accurately and on time, and to pupils and parents, who expect and deserve high standards of education within a safe, well-maintained environment. All of this requires schools to have their finances fully in order.
• Efficiency. Proactive financial management will address inefficiencies and drive automations to optimise staff time. Using the right tools, and using them well, is key. Finance managers must find ways to remove siloes and make sure their budgeting and finance software can communicate, avoiding repetitive processes and ensuring the accuracy of data. Efficient operations help schools free up funds from tight budgets.
• Strategic planning. Good financial management enables a strategic approach, creating strong foundations for meaningful forecasting and scenario planning. These processes are dependent on budgetary and financial accuracy, and they allow for smarter long-term decision making.

Common financial management challenges faced by schools

For the people managing school finances, every day can present new challenges. These are some of the challenges commonly faced in financial management for education:

• Manual tasks, particularly reporting. Schools may find themselves trapped in a loop of filling in spreadsheets, transferring data between workbooks and trying to make the numbers add up. In this environment, it’s difficult if not impossible to produce in-depth, actionable reports for stakeholders and for compliance purposes.
• Difficulties with long-term planning. When the day-to-day is too complex and overwhelming to deal with, long-term vision can take a hit, making the cycle of taking each day as it comes even more difficult to break.
• Complex needs outside of the ordinary. For academies, these difficulties often arise because different schools in the trust have varying needs, and financial management is not one-size-fits-all. For all schools, complexities can arise based on school premises that require upkeep, increasing provision for pupils with special educational needs and disabilities (SEND), legacy systems and much more.
• System siloes. Disconnect between data for payroll, financial management and budgeting can cause crucial information to be missed and can increase the repetitive tasks assigned to staff. 
• A lack of real-time visibility. Expenses don’t stand still but too often, it’s challenging to see what has changed at a glance. This can mean calculations and plans become outdated and schools are continually struggling to catch up.

There are ways to overcome challenges, and defining what good financial management should look like will help to establish forward-looking strategies. 

What does good financial management in education look like?

Moving beyond the everyday pain points requires a mixture of big picture strategy and practical steps. First, it’s important for finance managers to define best practices for their schools. The details will differ from school to school, but these are some good starting points:

• Real-time budget monitoring. Schools should be able to see, understand and update budgets in real time, with a bird’s-eye view of all income and expenditure, as well as deviations from previous calculations. This allows for quicker responses and more flexibility to accommodate the goals and needs of the schools.
• Accurate forecasting. With accurate data and real-time visibility, accurate forecasting becomes much more realistic. School finance software can produce detailed, flexible forecasts for three years or more into the future to underpin better decision making.
• Automated stakeholder reporting. Another benefit of accurate, integrated data is better reporting, which can be automated using financial management software for schools. Data can be sliced and diced and individual reports set up at the click of a button when the right software is used.

Technology is key to good financial management as HMRC processes become digitised and everyday tasks are too complex to complete manually. Schools should look for tools that support automated salary calculations, digital tax submissions and centralised reporting for multi-academy trusts (MATs).

It’s also important to consider integration and how systems will “speak” to each other. Stoke Newington School & Sixth Form saw the benefits of budgeting and finance integration first hand when they went paperless and began using a fully digital solution.

“The ability to integrate Access Education Finance with Budgets provides me with a brilliant overview of the school’s finances and helps me quickly identify any worrying trends or oversights that need attention,” said Mylene Joa-Longartt, the school’s Head of Finance. “As well as preventing any costly errors, it also ensures we can allocate resources in the best possible manner — ensuring every pupil gets the education they deserve.”

The impact: Financial confidence supports educational excellence

Good financial management practices help drive better outcomes for pupils by giving schools the ability to:

• Plan curriculums effectively with all resources in place to deliver high standards of education.
• Hire strategically, bringing staff on board who will support the school’s mission and deliver high-quality lessons.
• Avoid disruption from budgetary surprises, which could otherwise impact pupils’ education.

Thorpe Hall School has been able to transform financial planning by strengthening budget management, which has led to better financial decision-making and improved student outcomes. With a clear, comprehensive view of spending patterns, Thorpe Hall School can act more strategically and allocate resources more effectively, investing in initiatives that directly enhance student outcomes. This smarter approach to budgeting ensures that every pound spent contributes to the school’s mission of delivering outstanding education.

The path forward for improved financial management: Getting started

The importance of financial management in educational institutions is clear: there is scope to free up money from tight budgets, forecast effectively for the future and take steps that can improve outcomes for students. Technology is essential to success, so an audit of current systems and the way they work is a good place to begin.

If your systems need an upgrade, find out what could be possible. Download the Access Education finance brochure and learn more about the software that’s trusted by more than 9,000 learning institutions. Want to see how it works? Take a look at the demo video.