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    • Helping schools use resources well
      • Securing the best for less
      • The principles of school finance
      • Financial planning and budgeting
      • Strategic financial management and budgeting
      • Financial monitoring, reporting and evaluation
      • Cash management
      • Evaluating financial resource management
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Financial planning and budgeting

Issues to consider when preparing a school budget, including a suggested timetable for budget planning, preparation, monitoring and review.

Sources of funding

Funding for maintained schools originates from individual and local taxes, such as income tax, business rates and council tax. There are six main public funding streams for maintained schools:

• Dedicated Schools Grant (DSG)
• Schools Standard Grant (SSG)
• School Development Grant (SDG)
• Targeted short-term grants
• Sixth form funding
• Devolved Formula Capital Funding (DFC)
• Education trusts such as the Specialist Schools and Academies Trust

Once an academy has been established, it receives government funding in the form of the General Annual Grant (GAG). Independent schools are funded primarily from fees paid by the parents of pupils, although some also receive income from legacies, investments and trusts.

Achieving a balanced budget

The budget is the financial dimension of the school development plan. It is a plan that informs and empowers spending decisions and facilitates the achievement of the school’s educational aims. Budget planning is an important element in many whole-school strategic planning processes and should not be seen as a standalone activity.

In a balanced budget, proposed expenditure does not exceed projected income. In principle, schools can no longer set deficit budgets, where expenditure exceeds income. If a school cannot balance its budget, it must agree a plan to eliminate the deficit with the local authority. If a school does not make sufficient effort to achieve a balanced budget, the local authority can issue a notice of concern and remove budgetary control from the governors. While it is sound financial management to retain a small surplus, schools are discouraged from carrying forward high levels of surplus balances.

Preparing a budget

Budgets are usually prepared on a three-year basis and are often presented for review on a five-year basis:

• two years in retrospect
• the current year
• two years in forecast.

An accurate and reliable budget must be produced at a measured pace. Many maintained schools use the following annual timetable for budget preparation:

Spring term (January - March)

• planning for forthcoming year
• preparation of the budget plan
• review of the current budget

Summer term (April - August)

• submission of budget plan
• implementation of budget plan
• continuous monthly monitoring of expenditure
• reconciliation and closure of previous financial year

Autumn term (September - December)

• monitoring and reviewing current budget
• pre-planning for new financial year

Principles for budgeting

There are a range of factors that need to be considered when setting a budget. Schools must decide on their own priorities and modes of operation based on their individual requirements.

• Cost base: budgets can be prepared on a historical basis, by considering previous patterns of income and expenditure and adjusting for inflation. They can also be prepared through a zero-based approach, which involves starting afresh and making close links to the school development plan.
• Budget profiling: budget profiling involves estimating patterns of income and expenditure on a month-by-month basis. This practice is an important part of budget monitoring and helps schools that hold their budget in a bank account to avoid cashflow crises. As the largest element of the school budget, the staffing budget should always be accurately profiled and constantly updated to reflect changes in staffing.
• Static or dynamic accounting: a static budget remains fixed for its life, while a dynamic budget is reviewed and revised at regular intervals to accommodate change

Contingencies: it may be advisable for the budget to contain a small contingency to allow for the unexpected. Some local authorities disapprove of schools including contingencies in their budgets. Any contingency would need to be allocated and spent by the end of the financial year.

Further information

• Teachernet - financial management in schools

Further information

• Certificate of School Business Management