14 May 2018
What does an effective reserves policy look like? And where should governors begin?
Reserves are much more than a statement about the financial health of your school. A robust reserves position will send a clear message to parents and other stakeholders that you are well-led, well-managed and well-run.
'Independent schools don’t have free reserves'
While it may be true that many independent schools invest their surpluses back into the school facilities and as such do not generally have excessive free reserves, this does not mean that schools should neglect creating a robust reserves policy or seek to build up reserves.
Ultimately, it is up to the governors to work out how much your school needs to keep in reserves. A balance must be struck. Too little, and you could be exposed to shifts in pupil numbers and other income. Too much, and questions could be asked about whether your fees are too high or if you are managing resources in the best in interests of the current pupils.
But how much you have in reserves is just one side of the equation. As charities, independent schools must also publish and implement a robust reserves policy that sets out a target level of reserves and a plan for how to get there.
As well as complying with the Charities SORP, governors must consider the expectations of stakeholders and how to effectively communicate with them. Parents, banks and other lenders, alumni and other potential donors and the Charity Commission will all have an interest in the school’s reserves strategy and levels.
Yet RSM’s analysis shows many schools are struggling to deliver this effectively.
Our review of 60 independent schools reveals significant gaps in how governors calculate their reserves position and how they communicate their plans with internal and external audiences. 82 per cent of schools sampled require some or significant improvement.
It is critical these shortfalls are tackled. In turbulent times, financial resilience will help independent schools to stay flexible and adaptable to unexpected changes in pupil numbers or to manage unplanned costs.