Academic institutions are infrastructural backbones of undeniable importance to our future. One does not need to work in education to understand the vital work put in by institutions to build our next generations of scientists, engineers, strategists and leaders. Likewise, one does not need to work in education to understand that it costs money – and a not-inconsiderable amount at that.
While schools, colleges and universities often subsist on changeable funding allocations just as much as alumni donations and private fees, they still must be run, in some senses, like a business. This includes taking a shrewd and dispassionate approach to finances, which are tighter than ever and of existential importance to control properly. With this in mind: what are the top 5 financial mistakes academic institutions make, and how might academic institutions avoid them going forward?
Inadequate Financial Planning and Forecasting
Firstly, many institutions operate without comprehensive financial plans, leading to budget shortfalls, and ultimately, reactive decision-making. This reactive decision-making is, put simply, inefficient at best for a facility whose resources are already stretched thin.
To combat the financial impacts of poor planning, an institution would benefit from implementing robust forecasting models with help anticipate future financial needs and challenges before they arrive on the doorstep.
Mismanagement of Cash Flow
On a more fundamental basis, it is not uncommon for academic institutions to fail with respect to ‘day-to-day’ expenditure. Balancing the books is one thing, but careful and considered management of cashflow is another entirely – and a key area in which financial disaster conditions can easily be manufactured. Poor cash flow management can result in liquidity crises, affecting the institution’s ability to meet vital operational expenses.
The solution is simple and intuitive, but not easy for an institution to enact alone. Regular monitoring of income and expenditures is key for maintaining liquidity, and something which purpose-hired third-party education accountants can take on to minimise operational difficulties.
Non-Compliance with Regulatory Requirements
Regulatory compliance is something which every educational institution will be intimately familiar with – but which many may struggle to reckon with on the financial end of the equation. This struggle leads to significant penalties and even reputational damage which could harm the standing of future funding bids or donations. Staying updated with the latest compliance standards, such as the Schools Financial Value Standard (SFVS), is essential.
Over dependence on a Single Funding Source
Speaking of funding, relying heavily on one funding stream is another recipe for disaster. Whether that funding source is donations or international student fees, it should never be a ‘pillar’ for an institution. Quite simply, diversifying income sources eliminates the risk here.
Insufficient Investment in Financial Training for Staff
Finally and unavoidably, a lack of financial literacy among individual members of a facility’s faculty can lead to ballooning financial issues for the whole institution. Regular and regulated training on department budgeting, basic accountancy and reconciliation should be an imperative for fostering positive money-management principles amongst executive staff and education leaders.