When it gets to that stage, the pressure on the Principal and Board of Governors can be enormous. This pressure is then multiplied if unsatisfactory OFSTED ratings are added to the problem of poor financial affairs.

Who can the college turn to? Predatory colleges will be "sniffing around", the Skills Funding Agency will be looking for a solution and, before long, a team of consultants will be in the college looking at options.

But in the meantime there is still a college to run, learners to support and staff to keep on board.

To cope with this transition, colleges need to have a cool, calm look at the options and, in many cases, there is no simple solution.

The range of options is growing, with signs that the FE sector is being "freed up" to allow other bodies to run, or assist with running, colleges. However, first of all, the college needs to be clear about its own priorities and to decide what is right for its learners and the communities it serves. Without a clear strategy and objectives, it becomes much more difficult to make the right decision.

Independence

Colleges that wish to retain their independence despite financial difficulties could consider reducing back office costs by working with an organisation that provides shared services, and taking advantage of the economies of scale that come from this. Outsourcing back office services such as Finance and HR give colleges back the time and resources to focus on their primary task: delivering high quality teaching and learning.

A collaborative arrangement with other colleges is another option for struggling colleges looking to maintain independence. These can be flexible and in the area of curriculum, for example, highly beneficial to all parties. However, these arrangements are generally unable to assist in dealing with serious underlying financial difficulties. Decision making can be complex and there is, of course, the constant risk that one of the parties might not agree with the decisions and wish to withdraw from the body.

The concept of a College Federation is untried within FE but is beginning to be considered a good model. Under this model, a company is set up to run the college in difficulty, which benefits from a core of central services such as Finance, MIS or HR. An alternative version would be to work with a private sector or quasi-private sector organisation in a joint venture with specific aims.

Merger

The most common solution to dealing with financial and/or quality issues is for the college to seek a merger partner. It is a tried and tested approach and, when handled well, can be implemented smoothly and relatively speedily. It offers economies of scale similar to those that can be achieved through shared services but, in addition, savings through the creation of one senior management team and, probably, further savings in management structures.

Unlike models for collaboration, it creates a single employer and, therefore, avoids the need for joint management structures.

Mergers can, however, result in the loss of links between the college and its local communities. The distraction of handling the merger and the loss of focus on the main role of the college, i.e. teaching and learning, have created difficulties in some cases, and it can take years to recover from a poorly planned and implemented merger.

Small and even medium sized colleges are increasingly likely to have to deal with the dilemma created by reductions in funding. In some, their financial position will have been made worse by heavy costs associated with major capital programmes. They will have to be prepared to take uncomfortable and, in some cases, radical decisions in order to protect their students and local communities. Gone are the days when they could say "it could never happen to me".

John Stone is chief executive of LSN, the not-for-profit organisation focused on making learning work for further and higher education, local authorities and schools, public services, work-based learning and international organisations