There’s no denying the importance of maintaining adequate reserves, but how do you ensure you’re balancing the needs of today’s pupils versus tomorrow’s?
The ESFA mandates the need for trustees to consider and report on an academy trust’s optimal reserves requirement, yet to date, there is very little available in the way of practical guidance to assist with this process. Consequently, we’ve created a reserves guide for academy trusts including: a reserves policy checklist – to support board discussions on this topic; working examples and a detailed guide to reserves covering: what are reserves, why do they matter, what should your policy look like, what factors should be considered when setting a reserves policy, additional considerations for multi-academy trusts (MATs) and what the reserves reporting requirements are.
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The reserves conundrum
Determining an academy trust’s optimal reserves target is a tricky equation to solve. On one hand, having large pots of reserves can help reduce anxiety for trustees in what is an unpredictable and challenging funding environment. The fear of an unexpected repair bill, rising pension contribution rates or simply the risk that the management team may take their eye off the ball just long enough to leave the trust in a tricky financial position, could be reason enough to advocate for the need of a larger than necessary rainy day fund. Conversely, having too much money stored away could lead to claims that trustees are hoarding funds or not adequately supporting children already on-roll today. While accumulating reserves may come out of necessity, due to large scale capital spending plans which may not otherwise be possible due to borrowing restrictions imposed on academy trusts, such a practice would need to be clearly articulated by the trustees when the academy trust reports on the trust’s finances.
The conundrum becomes even trickier to solve for academy trusts operating more than one school. The initial, and often politically sensitive question, is whether each individual school should keep control of its own funds or whether all schools should band together and pool their reserves. Fully or partially pooling reserves will have the effect of more evenly spreading financial risk between schools, enabling the academy trust as a whole to set a smaller reserves target. However, growing multi-academy trusts must bear the additional financial risk which comes alongside the uncertainties created when adding new schools to an already stable network, as well as the shorter term investment, which will be needed to successfully integrate new schools with the existing trust.
Supporting you setting the right policy
So what’s the right level of reserves for your academy trust? Unfortunately, there’s no universal answer to this question and no prescribed way of formulating an answer. There are trends which can be seen within the sector – for example, many single academy trusts have tended to focus on having enough money set aside to cover at least one month’s salary costs. But, given the different operating models adopted by multi-academy trusts, there’s a much greater disparity in reserves targets when multiple schools are involved. In essence, you must determine and understand your own academy’s circumstances: its current financial position, its longer term investment or growth plans, its external environment and the trustees’ own tolerance for financial risk. The trustees must then be ready to outline their rationale for setting the target that has been agreed.
In order to help you navigate this complex area, we’ve produced a comprehensive guide to reserves for academy trusts which can be used to inform board discussions in this area. The checklist is particularly useful in guiding conversations by posing a series of questions that you should be able to answer ahead of setting your reserves policy.
Download the guide today to find out more on this topic. Alternatively, please contact one of the experts in our education team for a more detailed discussion about how we can support you and the needs of your trust.