College finances redder than they might seem

The Times Education Supplement on Friday published an “exclusive” on the state of the college finances. The headline was somewhat eye-catching: “FE colleges in the black”.

The researchers used the college accounts for 2009/10 published by the Skills Funding Agency this spring. The numbers showed that colleges reported an average operating surplus of about £300,000 last year.

Of course averages can disguise as much as they reveal. There is huge variation in financial health. In 2009/10 there were over 70 colleges with operating deficits. That is a lot of red ink – even if the college sector as a whole was in the black.

Nevertheless, at the level of individual colleges things were better in 2009/10. Anyone looking at the performance of individual colleges (excluding those that had recently merged) will find the the accounts show that three-quarters of colleges had larger operating surpluses (or smaller deficits) than the previous year.

The article could have looked at cash flow generated by operations. That too was fairly healthy in 2009/10. The article went on to provocatively ask the question: “So are institutions in better shape than their funding body feared?”

College accounts might be useful in many ways – not least financial benchmarking. For some accountants, they might hold a strange fascination. However, we always have to remember that we are talking about a financial year starting on 1 August 2009 – over 22 months ago – and ending before the cuts heralded by George Osborne’s Spending Review.

While Labour had introduced their own cuts in funding rates, the Coalition is taking the axe to whole programmes such as Train to Gain. The squeeze will be felt in the next four years – not in 2009/10.

While the accounts show that colleges performed significantly better financially in 2009/10 than the preceding annus horribilis of the LSC capital debacle, the real question is how well colleges will cope with the next four years.

Bob Deed is a financial consultant in the college sector tweeting as @deedconsulting