That depends! There are some helpful formulae which you can use to as a quick safety check. Some sources say at least $1,000 per student’ which is certainly helpful. Or you could check the ratio between your debts and assets.
It’s a good idea to hold at least twice the amount you owe - double the amount you need to pay all your debts should they all come in a once.
Why hold working capital?
To ensure the school can respond to any foreseen risks, such as gradual roll drop or deliberate overstaffing,
To allow for a safety margin respond strategically to any unforeseen financial events – such as a long run of staff sickness, sudden roll drop, or major staffing liability issues,
To give the board the capacity to invest and develop the school in areas where alternative funding is not available or not enough (e.g., Shade3 sails).
We are working with some Boards and Principals to help build a shared understanding about the safe level for their school. Once the Board has agreed a minimum ‘safe’ level, then it becomes easier to plan, either to build their working capital up to a safer level or to know how much they can use for new projects.
Some schools might have a good margin of working capital to use for new projects, but not enough for a ‘big ticket item’ in which case they might adopt a strategy to grow the working capital over the medium term, whilst bearing in mind the importance of maximising alternative finding streams for property projects.
Recently we peer reviewed some business cases for Boards to given them confidence about their strategy to use available levels for working capital over the medium term. We believe that many schools benefit from expert strategic advice and assurance beyond simple financial services, the reason so many of our accountants are Chartered.