All fans of Charles Dickens and his novel David Copperfield, will be aware of the likeable character Wilkins Micawber, an eternal optimist known for saying that “something will turn up”.
Micawber was a poor man who faced one financial crisis after another but he lived in expectation of becoming rich, sometimes foolishly taking on debts.
Although criminally bad with money, it is Mr Micawber that we have to thank for one of the most famous sayings in personal finance. This has come to be known as ‘The Micawber Principle’:
“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
Arguably, this is the most important maths lesson students need to learn and the one lesson that all organisations need to heed.
Sound Financial Advice
If you don’t keep on top of your finances then you are in a right royal mess.
The Micawber Principle clearly demonstrates the universal law that there are costs to our financial decisions and negative consequences of living beyond our means.
As straightforward the Micawber Principle is a concept that's proved difficult for some colleges to practice.
Many educational institutions tread a micro-thin line between happiness and misery but it is the Micawber Principle that is the cornerstone of financial security.
Micawber isn’t the only person sharing financial advice either. The FE commissioner, Richard Atkins has plenty to say and wants colleges to sit up and notice the warning signs rather than bury their heads in the sand.
In David Copperfield Mr Micawber racks up so much debt through overspending that he is eventually thrown into debtors’ prison.
That’s not going to happen to principals or governors but Colleges in serious trouble that run out of money run the risk of falling into the new insolvency regime which will allow them to go bust for the first time. That’s huge especially given the fact that in 2017 12 cash-strapped colleges received bailouts of more than £11 million. Imagine being a student and experiencing college at the precipice of financial insolvency?
Colleges today are operating in a relentlessly difficult fiscal environment.
Atkins says for him there are 6 red flags that wave from the rooftops to show that all is not well:
Poor skill mix
When a governing board doesn’t have the right blend of skills and experience then expect disparity. He suggests that every board must include someone who is financially savvy and qualified. Board members with sound financial judgment is the sine qua non for a college to run efficiently and effectively.
Chairs are a catalyst either for good or ill and chairs should consider standing aside if board dynamics are poor and the principal is running the show. Colleges need strong chairs that can prepare the board to interpret weak signals, ensure the board has capacity to think long-term, conduct effective horizon-scanning and contribute to a robust strategic process. Holding the principal to account is key.
Making a bad hiring decision is costly. Charismatic and powerful personalities can charm a board and then fail to deliver. Boards can easily be fooled and fail due diligence in the hiring process. Deep-level due diligence is essential.
Bad internal communication
How do you know whether or not what you’re doing is working? Good internal communication is the glue that holds an entire organisation together but many colleges are messy because they have poor planning and monitoring processes. If a college is spending more than they can afford on delivering their curriculum then there is clearly a communication gap. Costly errors can be reduced by working closely together and streamlining internal communications. Mistakes happen less when everyone is on the same page.
Over-optimism in forecasting is like waving a loaded gun – bad things can happen. Being biased in the optimistic direction such as forecasting their 16-18 numbers is a sickness of the sector. Realistic forecasts do not place your college at risk and can avoid budget deficits.
Hasty land sales
If a college says facilities are no longer fit for purpose, and can only fund the redevelopment through land sale – fine. But selling your assets to keep a place going is a no-no. Many colleges have too much space and so Atkins recommends having an overall property strategy.
Many colleges have experienced a pattern of major operating deficits over a number of years eating into their reserves and placing them at substantial financial risk.
In a new intervention policy, Mr Atkins can now take formal action at a college that isn’t yet failing, but where a “diagnostic assessment” has revealed it is in danger of doing so.
If only our College leaders had studied Dickens a little harder at school, for he certainly gave us plenty to think about in terms of fiscal discipline and financial resilience. Manage your finances and nip things in the bud before mismanagement bites so that you don’t have to go with a begging bowl to others in the guise of ‘strategic partnerships’.
About the author
John is an ex-primary school teacher and Ofsted inspector who has spent the last 20 years working in the education industry as a teacher, writer and editor. John’s specialist area is primary maths but he also loves teaching science and English. John has written a number of educational and children’s books, and contributed over 1,000 articles and features to various educational bodies. John is eTeach’s school leadership and Ofsted advice guru, sharing insights on best practice for motivating and enriching a school team, as well as sharing savvy career steps for headteachers and SLT.