Cash is king, is an often-used statement in the commercial world. And it is true, businesses do not fail because of lack of profit but due to a lack of cash. The crunch arrives when the wages cannot be paid. It is possible for a business to be making profits but still run out of cash.
The same is true in any FE college. This is why all college Finance Directors monitor cash constantly, of course some need to pay more close attention to this than others, but it is without a doubt vital to all, whatever their particular circumstances.
So why do I question cash’s royal provenance?
The reason is that when a college is short of cash there are various ways to deal with the problem. These include severe clamping down on spending, raising additional finance by increasing borrowings or selling assets e.g. properties. The problem with the last of these is that there is only so much family silver and all of them have one thing in common, they all represent essentially a short-term fix.
To use a health analogy, whilst you can give someone a blood transfusion if they are short of blood, ultimately, to improve their long-term health, it is necessary to find out WHY they were short of blood in the first place and fix that!
Over the years at MCA we have seen various different college structures. Two particular extreme examples come to mind:
- Model one has a structure in which curriculum dominates over finance. In these colleges what can happen is that wonderful curriculum initiatives can abound which make absolutely no financial sense whatsoever.
- Model two, in which finance dominates over curriculum invariably you get a college with a strong bottom line but one in which learners are starved of necessary resources.
Of course, neither of these is ideal nor sustainable in the long-term and that is why, at MCA, we always recommend a structure which has a balance between resourcing and curriculum.
This is the “Triumverate”, which has a CEO/Principal supported by two senior postholders, one in charge of all curriculum and quality matters and one whose remit is all things resourcing. With this structure in place there is a better chance of good quality being delivered which makes sound financial sense.
Of course, we would accept that in some colleges, the scale of operations needs a modification of this approach, but the underlying principal is still sound. The thinking behind this approach is that it is important in a modern FE college to find a balance. A balance between curriculum’s needs and resourcing’s capability to supply. A college’s main purpose is to provide education and training for its learners, not a return for shareholders and this should always be borne in mind.
Any college that runs out of cash does so because there is an adverse imbalance between its income generation and its expenditure. Experience tells us that this is due to operational imbalances within the college, usually, but not always, led by lack of control of staffing costs.
So back to cash! Why is it not always king?
The answer to this is in the blood transfusion example. Taking action to generate cash on its own, as a way of solving an underperforming college’s problems can only ever be an intermediate step. It never provides the whole solution. What must follow is a thorough review of the College’s operations to find out why it was in need of cash in the first place.
What is needed is a Recovery Plan and although there is a view, which I do not share, that this is merely a set of financial forecasts, it is actually a much more than that. It is an in-depth examination of what went wrong and the agreement of a set of actions to correct the problem. Without this there will remain a hole in the bottom of the bucket, so to speak, which no amount of extra cash will plug.
So, is cash king? Of course it is, but for it to remain so it needs a firm, balanced, operationally-sound base for its throne!
Malcolm Cooper, MD, MCA Cooper AssociatesRecommend0 recommendationsPublished in