What would happen to your college if the Skills Funding Agency held back funding for 45 days? It’s just one of the tough questions that need to be asked if you’re planning to stay afloat, says Ian Sackree.

One of the most (if not the most) important tasks for the college’s accounting officer, is to ensure that the college remains a Going Concern — and is a ‘thriving business’, even in the most challenging of times.

To fulfil this responsibility it is not necessary for the principal to be an accountant, but it is essential to ask the right questions of the accountant, and often.

Look at your own financial situation (or perhaps that of others you know) and imagine life without the next three pay slips and without replacement employment.

Some commentators suggest that more than 80 per cent of us could be facing mortgage arrears or eviction if we had to go 90 days or more without income, but with the same level of expenditure. This is a practical, sobering interpretation of Going Concern.

The problem with Going Concern is that you generally only hear the term from your auditor, once a year at accounts sign-off time.

Given that the number of acutely balanced colleges is believed to be 50-plus and rising, I suggest to you that ‘Going Concern’ and ‘Organisational Sensitivity — the what if? questions ‘ought (if not already) to rapidly become part of your daily and weekly leadership and management overview.

Do not leave it to the finance committee that meets too infrequently to be wholly effective; start to take an interest today

Now I know that for every financially-qualified or savvy principal there is a principal and chief executive out there who prefers only to know the necessary when finance is concerned. Now that’s OK to a point — what on earth would the sector look like if it were led by just accountants. But let’s not forget the role and responsibility attributed under the FE Act to the accounting officer. This cannot be delegated so my advice is to start to ask some frequent and regular questions of those in the college that do and should know about the factors associated with Going Concern.

Do not leave it to the finance committee that meets too infrequently to be wholly effective; start to take an interest today.

These are my top tips for those who are feeling the financial noose tightening: monitor (and discuss with your senior leadership team) reported bank balances and cash projections weekly; make it your business to understand where the cash is coming from over the next 12 months, and any timing issues that may arise between significant payments out and receipts in. Remember, cash is king.

Understanding cash days is key; it’s your 90-day plan.

Guard your college’s cash; avoid capital project-creep or the ‘can you just’ jobs in estates and ICT that may unwittingly eat in to your cash.

Ask questions about long-term debtors. Are there any chunky ones over 90 days, if so, why? Effective credit control is essential.

On the journey in to college each morning ask yourself a new ‘what if?’ question — what if the SFA withheld payment for 45 days, could we run the payroll? What if the SFA clawed £1m back under audit, could we pay the final balance on the new build? If the answer is ‘No’ then you have a challenge.

For cash purposes remember that depreciation is your friend. It is a non-cash expense in the income and expenditure account, which effectively makes it cash generative. It is not the long-term solution to ‘feed off the estate’ but it will get you through the next three years if you can spend less than your depreciation charge on estate and ICT infrastructure.

Make a point of asking your financial director to reconcile monthly management accounts to the college cash forecast. If a planned surplus of £500k switches to a deficit of £500k then you have a ‘negative swing’ of £1m in your bank account that needs financing.

Make it your business to know your college bank relationship director, and keep your borrowing facilities (short-term and long-term) under regular review. Include this as board-business.

Watch the use of ‘Income Accruals’. It’s a common trick to replace income not yet invoiced with income that we think in an ideal world has actually been earned. If used correctly, no problem. In difficult times they can however be used to ‘prop up’ income when delivery may actually be behind the level of income recognised.