Private education: School’s out for summer?Follow @PwC_Scotland
Pupil numbers is a key metric of independent schools. Our experience of previous recessions indicates there is typically a lag between the onset of the recession and a fall in pupil numbers. The impact of this second recession means that schools may again face more challenges in the academic year starting in September 2012 and beyond.
Income and cash flow
As cash flow is seasonal, it presents a challenge for schools at the best of times, but moreso now. Parents will do anything to keep their children in private schools, but it’s a fact of life that other spending needs, like mortgage and groceries, take priority when money is tight. We are starting to hear ‘war stories’ from schools themselves about the difficulty of collecting fees; it’s obviously a very emotive discussion and this makes it more difficult for schools than other sectors to recover debt. It’s having an obvious impact on income and cash flow, however, there are good examples of schools that are being more flexible, for example, taking charges on property (but this is not across the board). The fall of very large bonuses in sectors such as financial services is also having an impact and parents are pulling children out of private school as a consequence.
We have seen above inflation fee increases over a number of years, which up until now parents have taken on the chin. However, schools have told us that this year, when fees were announced in the Spring, parents starting to push back on fee increases.
The impact of dwindling income impacts the ability to run a school but also the level of investment schools can make in new equipment and facilities. This is especially important because it is how many private schools differentiate themselves and compete; parents have high expectations when it comes to school surroundings. Some schools have been building war chests to invest in such new facilities, however this is only a fraction of what is required for bigger projects. The remainder of this capital comes from either donations or lenders. Donations, from current parents or school alumni, are also falling back. When it comes to sourcing funds from lenders, we find Governors fall into two distinct camps – those that won’t (and live within their means) and those that borrow substantially to fund capital expenditure to keep up with the ‘facilities arms race’.
Winners and losers
Boarding is less in fashion and many of these schools are looking outside the UK to Germany and the Far East, for example, but there is increased competition for these overseas students. Good and popular schools at the moment seem to be sustaining boarder levels, but the mediocre are suffering – there is a widening polarisation of performance.
All-girls schools are finding it difficult, again especially all-girls boarding schools, as the demand seems to now be for co-ed (boys and girls mixed).
Location is a major issue and obviously one that schools can’t fix – those in good locations, for example on the M4 corridor, are sustaining levels. Those that are difficult to access and off the beaten track are finding it harder.
Prep schools (up to ages 11-13) are struggling to maintain pupil levels and even those that are linked (prep + secondary level) are seeing numbers fall. Parents are weighing up the difference private school at age 5+ makes, and are instead opting to put their children into local primary schools and delay entry until age 10/11+ as they perceive they get most benefit before GCSEs and A Levels.
To counter some of the challenges they are facing, we are seeing some independent schools make more effort to recruit pupils and sustain levels, but this costs more to do. Therefore the return of investment in marketing has also fallen in recent years.
As always if you or your team would like more information, or a more in-depth discussion, please contact your local PwC BRS team:
Bruce Cartwright, head of business recovery services, Scotland