Navigating School Budgets: Practical Tips for Financial Success

Managing a school's finances effectively is crucial for sustaining high-quality education and ensuring the best possible outcomes for pupils. As a school leader, your role is to balance income and expenditure, identify cost-saving opportunities and plan strategically for the future.

That's a lot to contend with if you've recently stepped into the role or have inherited a budget from a previous school leader! You may be thinking "Where do I even begin?" or "How do I know what's essential and what isn't?" as you work your way through the paperwork from your predecessor and begin to number crunch.

A well-managed budget not only helps schools operate efficiently but also supports innovation and long-term growth. With all of this in mind, this blog aims to explore the key aspects of school budgeting, from understanding the basics to making savings and setting future financial plans so your school can thrive, not just survive!

Understanding School Budgets

What budget information do I need to know?

Managing a school budget is one of the most critical responsibilities a school leader has. A well-structured budget ensures resources are allocated effectively to support teaching, learning and overall school improvement. Before you carry on, ask yourself "Do I understand the budget and how the budget process works?"

To understand a school budget fully, leaders must consider the following:

• Income sources: This includes government funding, grants, pupil premium and income from facilities or fundraising initiatives.
• Expenditure: Schools must balance spending across staffing, curriculum resources, building maintenance and other costs.
• Fixed vs. variable costs: Fixed costs, such as salaries and building maintenance, remain constant, while variable costs, such as classroom materials and school trips, fluctuate based on demand.
• Budget cycles: Understanding how funding is allocated annually and over the medium term helps when long-term planning.
• Financial compliance: Ensuring adherence to financial regulations, auditing requirements and funding agreements to maintain financial health.

Having a clear grasp of these elements enables school leaders to make informed decisions that directly impact pupil outcomes and school operations. If budgeting is new to you, or you've recently inherited a budget and you're unsure where to begin, our School Budget Management Skills Bundle is a great place to begin.

This is aimed at new headteachers, principals and heads of school to use as a self-evaluation of their current knowledge, understanding and skills
about how the school’s budget works and what they need to know and do to be able to manage it effectively. Existing headteachers or others with responsibility for the budget, such as school business managers and school finance officers, may also find it useful to evaluate their current understanding and address any knowledge gaps.

With this audit, you'll be able to work through the questions and considerations, noting what you already know and what you need to find out. 

 

What key terminology do I need to get to grips with?

If you aren't already familiar with the wide range of terms used in budgeting and financial management in schools, now is a good time. With a list of endless acronyms used regularly during discussions with your school business manager and finance governors, an important starting point is knowing what all of these mean for your school and budget. 

Some key terms you'll need to get to grips with include:

• Balance Carry Forward: The surplus or deficit from a previous financial year that is rolled over into the current year's budget.
• Basic Entitlement: The basic amount of funding schools receive for every pupil on roll, adjusted for their age group. Previously known as age-weighted pupil unit (AWPU) and Element 1 funding.
• Capital Funding: Money provided for large-scale projects like building renovations or purchasing major equipment, separate from daily running costs.
• Dedicated Schools Grant (DSG): Funding provided to local authorities to support education. It has four blocks: the Schools Block (funding for mainstream schools.), the High Needs Block (supports pupils with additional needs or SEND), the Early Years Block (covers early years education) and the Central Schools Services Block (for local authority education services like admissions).
• Deprivation Factor: A component of the National Funding Formula (NFF) that provides extra funding to schools based on pupils eligible for Free School Meals (FSM) and those living in areas of socioeconomic disadvantage (measured by IDACI).
• FBIT (Financial Benchmarking and Insights Tool): A tool provided by the Department for Education (DfE) that allows schools to benchmark their financial performance against similar institutions. It helps schools identify areas for improvement, manage budgets effectively and plan for long-term financial sustainability.
• High Needs Funding: A portion of the budget used to support children and young people with additional needs, such as SEND pupils requiring extra resources or specialised staff.
• Lagged Funding: Funding provided based on pupil numbers from the previous academic year, not the current one, which can create challenges for growing schools.
• National Funding Formula (NFF): A government system to allocate school funding in England, based on factors like pupil numbers, deprivation levels and local costs.
• SVFS (School Financial Value Standard): A framework designed to help schools ensure their financial management practices are efficient, transparent and comply with regulations. Schools are encouraged to meet this standard to demonstrate sound financial planning, budgeting and resource management to external bodies such as auditors or the Department for Education.

If you found some of these terms were new to you, you may also find our School Finance Glossary, complete with almost 100 budget and finance-related acronyms and terms helpful as you navigate professional conversations regarding your school budget.

Making Budget Savings

So you've inherited a budget and it's clear that there are problems in it that need solving. Is there overspending in certain areas or perhaps it's heading towards a deficit? Additionally, the priorities that the budget is based on were set before your arrival and may not align with your findings from the information gathering you have been doing as you get to know your new setting. It's a lot to consider when you may have only recently joined the school.

School leaders are facing an ongoing challenge in stretching budgets to cover increasing costs such as soaring energy bills, rising wages and the impact of inflation. With financial constraints tightening, every aspect of school expenditure requires careful scrutiny and strategic planning. To maximise the resources available, schools and school leaders must adopt a proactive approach to budgeting that ensures financial efficiency without compromising educational quality. Making these "cuts" or cost savings can be easier said than done though when you already feel things are stretched to the limit and you're trying to avoid staff burnout on top of maintaining standards.

We've outlined some of our top tips for delving into your budget and seeing where sensible and practical savings can be made.

Increasing and Maintaining Pupil Numbers

Focus on:

• Maximising pupil intake, both for new starters in Reception for primaries or Year 7 for secondaries, as well as filling year groups with lower intakes.
• Making your school more visible to prospective parents through marketing, reputation and word-of-mouth recommendations.
• Retaining pupils currently on roll by understanding why pupils leave your setting and taking steps to avoid this, where possible.

Get support with this here: Budget Planning and Cost Saving Toolkit: Low and Decreasing Pupil Numbers

Optimising Staffing and Resources

Focus on:

• Ensuring the right balance of teaching and support staff to maximise impact while avoiding unnecessary expenses.
• Using the Department for Education’s (DfE) school workforce planning guidance to assess staff deployment.
• Consider sharing specialist teachers and administrative staff to reduce costs with a local school or across your academy trust.

Get support with this here: Budget Planning and Cost Saving Toolkit: High Staffing Costs

Reducing Operational Costs and Acquiring Revenue Streams

Focus on:

• Evaluating staffing costs and timetabling, particularly when it comes to supporitng pupils with special educational needs and disabilities (SEND).
• Re-tendering service contracts for utilities, catering and IT support to secure the best value for money.
• Implementing cost-saving measures such as LED lighting, smart heating systems and reducing paper usage.
  
• Letting out school premises for community events and private functions.
• Applying for external funding from charities and corporate sponsorships to support school initiatives.
• Engaging parents and local businesses in fundraising activities.

Get support with this here: Budget Planning and Cost Saving Toolkit: Managing the SEND Budget while Supporting Needs and Budget Planning and Cost Saving Toolkit: Effective and Efficient Budgets.

We appreciate that for many of you, the ideas above may only scratch the surface for what you need. But remember, making small savings across a variety of areas may help to kickstart that money-saving thought process needed during these challenging times.

In addition to these tips, we've compiled a full School Budget Planning and Cost Saving Toolkit that can help you navigate particular financial issues in your setting.

 

Setting Future Budgets

Setting a future budget involves more than just estimating costs; it requires strategic foresight to ensure long-term financial health. Schools must anticipate changes in pupil numbers, government funding and economic conditions while aligning their financial plans with educational priorities. It can feel like a "best guess" at times, but a forward-thinking approach will enable you to remain adaptable and resilient, even in challenging financial climates.

Future budget planning should focus on aligning financial resources with the school's mission and goals, such as the priorities set out in the school improvement plan. In addition, planning for future budgets should include consideration of potential funding fluctuations, investment in key infrastructure and the need to ensure staff and pupils have the resources they need to thrive.

If setting budgets is new to you, you may have some of the following questions:

How Can I Project Income and Expenditure?

Focus on:

• Understanding trends in admissions, pupil mobility and demographic changes to predict future funding based on pupil numbers accurately.
• Staying informed about potential changes in funding policies to prepare for any financial adjustments.
• Aligning budget plans with the school development strategy, including infrastructure improvements and technology investments.
• Setting aside emergency funds for unexpected expenses such as repairs or changes in pupil numbers.
• Conducting financial health checks throughout the year to adjust spending as needed.
• Keeping governing bodies and trustees informed and involved in financial decision-making.
• Encouraging department heads to propose cost-effective solutions for resource management.

Our helpful and free Budget Planning Checklist is an ideal starting point when looking ahead at your next budget. This resource, alongside our Budget Planning Calendar, will support you to prepare for and complete budget-related tasks in good time across the academic year.  In addition, the budget questions in the checklist will support and guide your thinking as you work through the decision-making process so you can make best use of the funds available, taking into consideration the factors that may be impacting your budget.

Budget Reporting

Who Should I Report the School Budget To?

Effective budget reporting ensures financial accountability and transparency. Schools are required to report their financial status to various stakeholders, each with different roles in overseeing school finances. Some of the key stakeholders for budget reporting include:

• Governors and trustees who are responsible for financial oversight and ensuring the budget aligns with the school's strategic priorities.
• The local authority for maintained schools, which oversees budget compliance and financial health.
• The Education and Skills Funding Agency (ESFA) for academies and multi-academy trusts (MATs) which monitors compliance with funding agreements.

There are other stakeholders who you may wish to keep informed regarding budget decisions. These include:

• The senior leadership team so they understand where money has been prioritised and why.
• Staff members so they understand where some cost savings have been made (if necessary) to help manage their expectations and maintain morale.
• While not directly responsible for financial decisions, parents and the community benefit from transparency regarding funding allocations.

How Should I Report the School Budget?

When reporting a school budget, it’s important to present the information clearly, concisely, and in a way that can be easily understood by stakeholders.

Budget Summary

In your budget summary to stakeholders, aim to:

• Briefly explain the purpose of the budget and how it aligns with the school’s goals and priorities.
• Highlight key points, such as the total budget, major changes and any challenges or opportunities.
• List the main goals the budget seeks to achieve (e.g. improving pupil outcomes, addressing staffing needs, upgrading facilities).

Income Sources

Outline where income or revenue has come from by:

• Breaking down funding from various sources.
• Including any external funding, such as grants or private/charity donations.
• Mentioning other sources of income, such as fundraising or income from lettings.

Expenditure

Outline where expenditure is being spent by:

• Sharing staffing costs which will likely be a large portion of the budget (salaries, benefits, professional development).
• Outlining expenses for maintaining and upgrading school buildings, utilities and technology infrastructure.
• Detailing spending on textbooks, supplies and educational technology.
• Including budgets for SEND, pupil premium and any funding to support particular groups of pupils.
• Reporting on administrative costs, including office supplies, management salaries and other operational expenses.
• Including any other costs not covered by the categories above.

Budget Trends and Challenges

Outline budget trends and challenges transparently by:

• Comparing this year’s budget to the previous year(s), highlighting any increases or decreases in major categories.
• Discussing any long-term trends, such as increasing costs for staffing or technology upgrades.
• Pointing out any areas where the budget does not fully cover expenses or where funding is needed.
• Discussing any funding gaps or financial challenges the school is facing.
• Noting any external factors (e.g. changes in government funding, inflation) that could impact the budget.

How Should I Present the Budget?

When presenting the budget you've been working on to stakeholders, remember to use simple language and visual aids (charts, graphs, tables) to help people understand the budget. Provide opportunities for stakeholders to feedback their thoughts on the budget, and any information or ideas they have that could support the budget ongoing. 

Our Budget Planning Questions for Governors resource is a supportive tool to use with governors and trustees to demonstrate the thinking processes and evidence behind the financial decisions impacting the budget, covering a range of areas. This can be a useful aid to share prior to a finance committee meeting so the board has a full understanding of how you came to make certain decisions.