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Advice for private schools experiencing financial distress due to coronavirus

Affected by Covid-19? Immediate Rescue Or Closure Options Available

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Updated: 28th August 2020

The arrival of coronavirus has exacerbated already challenging operating circumstances for private schools in the UK with two high profile schools, the Minster School in York and Boris Johnson’s former prep school Ashdown House, closing down for good.

So when schools were forced to send pupils home at the height of the pandemic and cash flow stopped or was severely depleted, financial distress was inevitable for many in the independent education sector - even schools that were previously thriving.

How has coronavirus affected private schools?

  • Fewer international students

The Independent Schools Council (ISC) annual survey 2020, showed that 29,446 pupils at ISC schools had parents living abroad, a figure equivalent to 5.5% of the sector. TES (Times Educational Supplement) suggest that the proportion of overseas students will be even higher in some schools. It’s unsurprising, therefore, that private and boarding schools face an uncertain future if parents based abroad are reluctant to take up places on which schools rely.

  • It’s not always possible to furlough teachers in private schools

One of the rules of furloughing is that employees cannot undertake any work for their employer if they’re placed on furlough. Private school teachers need to provide high quality online learning for their students to justify the fees, however, which means that teachers may not be eligible for the furlough scheme but schools still need to pay their wages with little or no money coming in.

  • Supplementary income generating activities have been curtailed

Private schools commonly increase revenue by organising ticketed social events, offering comprehensive revision courses and summer schools, as well as workshops and other activities. This means the income that might have supported them a little longer has gone.

  • Parental employment

With so many job losses and salary cuts in the wider economy, parents may decide the financial risk of choosing private education is too high.

The future for private schools

Widespread uncertainty makes planning very difficult for private schools. If schools reopen and stay open, some may survive the devastating cash shortage and be able to rebuild cash reserves over time.

School mergers may also be a solution in some areas, or acquisitions by school groups and third party buyers. It’s highly advisable to take action early if your school is affected, seeking professional help to develop a contingency-based strategy covering various virus-related scenarios.

Professional support from Real Business Rescue

Real Business Rescue are business recovery specialists and have extensive experience of helping private schools in financial distress. So how might we help under these trying circumstances?

We will:

  • Negotiate with creditors and suppliers on your behalf, including HMRC
  • Support and guide you when applying for government loans
  • Provide advice on furloughing certain employee groups - maintenance, admin, and other non-teaching staff, for example
  • Offer guidance on mergers and acquisitions if that route is appropriate
  • Identify where you could make savings
  • Discuss alternative funding solutions
  • Provide professional advice on insolvency/liquidation options where necessary

Insolvency options for private schools

If your private school has already entered insolvency, or is likely to do so, it’s imperative that you seek advice from a licensed insolvency practitioner (IP). There may still be options available to you to prevent liquidation, potentially including:

Administration

Company Administration offers a breathing space from creditor pressure so a plan can be formulated.

Company Voluntary Arrangement (CVA)

This procedure formally restructures your debts and allows you to pay an affordable amount to your creditors for a certain period of time. The school remains in business with a view to full recovery.

Financing

The government backed coronavirus loans may be appropriate for your school depending on its size and structure, and could boost your cash flow sufficiently, but we can also advise on other sources of funding. Potential alternative lenders include invoice financiers and asset based lending companies that release the value tied up in non-essential hard assets.

The full impact of coronavirus on private schools is not yet fully apparent, but what we do know is that the sector faces unprecedented challenges. That’s why specialist insolvency help is crucial to stand a chance of survival.

Real Business Rescue are business recovery specialists and will provide the guidance you need. We’re a major part of Begbies Traynor Group, and operate an extensive network of offices around the country. Please contact one of our partner-led team to arrange a free, same-day consultation.

Keith Tully

Partner

0800 644 6080

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