Principals Fund 2022 Q1 Quarterly Report

A quarterly view of the financial performance of our schools, looking at it through the lens of the school.

2022 05 09

Highlights:

During Q1 2022, partner schools on our school fee collection programme collected R619,227, an increase of 39% compared to the same period in the prior year.

Total income for the schools in Q1 2022, excluding the TA supplement, increased 19% quarter on quarter, while total expenses, excluding the TA costs, decreased 13% quarter on quarter.

The quarter, one of our partner schools operated at a surplus with 2 operating at a deficit, compared to 3 operating at a deficit in Q1 2021.

Please see the detailed report below.

School Fee Collection

During Q1 2022, partner schools on our school fee collection programme collected R619,227, an increase of 39% compared to the same period in the prior year. 

Below we show the results of our activities. Our goal here is to not only answer the question of “What did we do?” and “What should we have done?”, but also, “Are we getting better?” Answering this last question is a key leading indicator of the long term trend in our performance. 

School fees is one of five income streams that a school is able to reliably collect. In the short term, where collection is low, it shows the greatest possibility to increase income for the school. In the longer term, substantial increases in school fees are limited by parents’ ability to pay, and we need to seek other sources of income for the school. 

Below is the school level summary of our partner schools fee collection results for Q1 2022.

	Q1 2021	Threshold 30% YoY	Target Q1 2022	Act Q1 2022	YoY % Variance	YoY Variance	YoY Variance per Month
School 1	321,794	418,332	406,246	390,248	21%	68,454	22,818
School 2	35,605	46,287	59,823	81,135	128%	45,530	15,177
School 3	88,030	114,439	106,094	148,274	68%	60,244	20,081
	445,429	579,057	572,163	619,657	39%	174,228	58,076

 

In summary, our schools improved their fee income by between R15,000 and R20,000 per month through their partnership with Principals Fund and SchoolAccountant. 

Our measure of performance is an improvement of 30% year on year, or 80% of total fees collected. So we assess our performance, “ie are we getting better”, against that benchmark. 

At this point, as always, it is important to note the role of the Principal, the Bursar and the school team. They are the most important factors in these results. We provide systems and focus, but their engagement, ongoing buy-in and effort is the most crucial aspect in delivering any improvement in fee collection. 

The 30% improvement threshold is a generic indicator, however, as each school operates in a specific set of circumstances. We therefore set individual targets for each school for the year, split into the four quarters. This allows us to be more specific in predicting and measuring performance, and to set expectations more clearly for the school.

School 1 collected R390,248 in school fee income in Q1 2022, an increase of R68,454 or 21% compared to Q1 in 2021. This is the largest school by fee income and delivered an 87% fee collection rate in 2021, compared to 72% in 2020. In this scenario, therefore, we expect to be over 80% of the year and therefore a 21% improvement YoY is a great performance for this school. 

School 2 collected R81,135 in school fee income in Q1 2022, an increase of R45,530 or 128% compared to Q1 in 2021. This is by far our best performance in % terms, and comes off a strong Q3 and Q4 performance in 2021. Our anticipation is that the systems built and implemented in late 2021 are still bearing fruit in 2022. However, as we are only 9 months into the project at this school, we need to ensure we keep developing our fee collection processes to ensure the results keep improving. So far so good!

School 3 collected R148,274 in school fee income in Q1 2022, an increase of R60,244 or 68% compared to Q1 in 2021. As with school 2, we are 9 months into this project, and learning all the time. These collection results are outstanding in this environment and, coupled with an approximate 72% collection rate in 2021, we are working hard to ensure we keep improving these. 

We have spent quite a bit of time in our quarterly review trying to understand the drivers behind the improvement in the collection results and, therefore, what we should focus on going forward. 

Our analysis of what is working is as follows:

1. Keep clean and accurate account records - parents will engage and pay fees when they are properly respected. This means their fee statements correctly reflect the fees paid and owing, and their queries are quickly and accurately dealt with. 
2. Spend time collecting parent contact details - a large focus is on ensuring we can build a digital channel to the parents, to remind them regularly of their fees and outstanding balances.This takes ongoing work collating changing telephone numbers and email addresses from various sources to put into the system. However, we feel it is a worthwhile investment of time to achieve our goals. 
3. Regularly remind the parents of what they owe and when payment is due - we need to make sure parents know what they owe. And that they do not forget to pay, amongst the myriad of other obligations and reminders on their plate. In Q1, we sent an average of two messages per parent per week, which helps keep this obligation top of mind. An important outcome of this messaging programme is communication of the exemption options. Where parents cannot pay, we advise them regularly of the options for exemption available to them. Re-imbursement of exemptions granted from the department is a material revenue stream for the school, but it relies on parents being properly informed as to the options available, and them taking sufficient action to allow the schools to submit their claim to the department.
4. It’s a long term game - we have had short term impact with regular information to the parents, but embedding long term habits and creating a culture of payment will take a much longer time frame.

Some areas to improve:

1. Parents have financial obligations to everyone, not just the school. And yet the school, and the education it provides, is arguably the single intervention in their child’s life that will have maximal outsized returns for the child. We need to earn the parents’ trust by showing them what it takes to educate their children properly, through increased transparency and regular communication regarding the financial position of the school. 

Financial Performance

Total income for the schools in Q1 2022, excluding the TA supplement, increased 19% quarter on quarter, while total expenses, excluding the TA costs, decreased 13% quarter on quarter. 

During Q1 2022, one of our partner schools operated at a surplus with 2 operating at a deficit, compared to 3 operating at a deficit in Q1 2021. 

In considering how to assess financial performance for a school, we also need to understand the allocation of government grants to the schools. 60% of the norms and standards are paid out in April each year (approximately), with the remaining 40% paid in October each year. Therefore, schools will expect to run at a deficit in Q1, a surplus in Q2, a deficit in Q3 and a surplus again in Q4 (measured on a cash basis, as per the reporting requirements for schools). What matters, though, is whether the school runs at a surplus for the year, and that there are no times where the cash balance would fall below zero or payments are suspended due to low cash balances. 

At the Principals Fund, we strongly advocate for schools running at a surplus of at least 10% each year, and no more than 20%. This ensures schools can build reserves over time for their larger capital projects or emergency funds as required from time to time, while also not disadvantaging current learners. 

The results for each school are represented below for Q1 2022.

Total Income
	Q1 2021	Act Q1 2022	YoY % Variance	YoY Variance	YoY Variance per Month	TA Supplement Q1 2022	TA Supplement % of Income Q1 2022
School 1	547,811	725,754	32%	177,943	59,314	198,745	27%
School 2	122,417	144,752	18%	22,335	7,445	113,966	79%
School 3	363,562	360,809	-1%	-2,753	-918	201,736	56%
	1,033,790	1,231,315	19%	197,525	65,842	514,446	42%

Total Spend
	Q1 2021	Act Q1 2022	YoY % Variance	YoY Variance	YoY Variance per Month
School 1	570,948	627,372	10%	56,424	18,808
School 2	183,530	194,046	6%	10,516	3,505
School 3	707,115	590,787	-16%	-116,328	-38,776
	1,461,593	1,412,205	-3%	-49,388	-16,463

 

Surplus/Deficit
	Q1 2021	Act Q1 2022	YoY % Variance	YoY Variance	YoY Variance per Month
School 1	-23,137	98,382	-525%	121,518	40,506
School 2	-61,113	-49,294	-19%	11,819	3,940
School 3	-343,553	-229,977	-33%	113,575	37,858
	-427,803	-180,890	-58%	246,913	82,304

The Teachers Assistant (TA) Programme has been separately identified, since for year on year comparisons it distorts both income and spend comparisons. It has therefore been removed from both categories. In the programme, the school is allocated a certain number of posts, which they recruit for and pay directly, and for which the school is re-imbursed by the department. The TAs are employed for a fixed period, whereafter they must find employment elsewhere if the school cannot afford to keep them. To our knowledge, it remains to be seen as to the educational improvement as a result of the additional staffing. However, anecdotally and from our limited experience, it has been a very impactful programme. 

In reviewing the numbers for the TA programme, it is remarkable how much impact a small amount of money can have. If it proves educationally beneficial, there is a large amount of benefit in spending in this region. The total cost for Q1 for school 1 was R200,000 for the quarter, which means the entire TA team can be kept on full time for R800,000 per year. What the Principal needs in order to make such a decision is confidence in the income streams, so he/she does not overstretch their respective resources (and have to fire them all later!). For any sustainable improvement at a school, the minimum financial commitment to a project needs to be five to seven years at least, to allow the children to traverse through the system.

The Department allocates money to the school for a whole range of costs in addition to norms and standards. In 2021, there were additional allocations made to the school in February, which accounts for the increased government income in February 2021. This was not repeated in 2022, accounting for the decrease in this category of income. This makes the results below even more astounding. 

School 1 increased income by 32% QoQ, or R177,943, to R725,754. This was mainly due to a large fundraising event of R120,365k, and sale of textbooks of R95,310 and an improvement in school fees of R73,244, offset by the non-receipt of government funding in quarter compared to the prior quarter of R155,180. Expenses increased by 10% to R627,372, consisting mainly of Textbook spending of R154,849, municipal costs of R45,000, grade R, 1-7 and support staff SGB salary costs of R283,796, and fixed operating overheads of R60,758, with printing the major cost at R16,214.

School 2 increased income by 18% QoQ, or R22,335, to R144,754. This was mainly due to improvement in fee collections by R45,530, and uniform sales of R36,629, offset by a decrease in government funding of R60,431 for the quarter. Expenses increased by 6% to R194,046, consisting mainly of textbooks expenses for R21,462 and municipal services of R34,762, as well as SGB staff of R24,734, and fixed overhead costs of R67,874, mainly consisting of printing costs of R31,510 and bank charges of R5,718. 

School 3 decreased income by 1% QoQ, or minus R2,753, to R360,809. This was mainly due to the decrease in government funding from R189,758 to R68,073 (excluding TA supplement in both periods), offset by an improvement in school fee collection by R60,244 and an improvement in fundraising income by R58,109, driven by friday sales and organised picnic events. Expenses decreased by 16% to R590,787, with the main saving of R113,500 related to computer repairs performed in Q1 2021 but not required in Q1 2022. Expenses for Q1 mainly consisted of repairs to the school of R43,510, municipal services of R62,304, SGB staff salaries of R175,156, and fixed overheads of R147,830, consisting mainly of printing costs of R82,735, security costs of R12,565 and bank charges or R11,640.

All schools have actively fundraised through the quarter to generate additional income, something they were not able to do effectively during 2021. Fundraising by the school, though financially rewarding, is time consuming for teachers and principals alike. It is useful to compare the effort levels between the funding strategies. School 2 was able to generate R7,287 through fundraising, but R45,530 through improved school fee collection (refer to summarised school results in Appendix A). This is in contrast to School 1, which was able to generate R120,365 from a single event in 2022, which they were unable to run in 2021 due to COVID restrictions. Input costs for income generation need to be carefully assessed on case by case basis. However, at this stage for our partner schools, there is no real choice - they must do both. 

Finally, school third stream income is almost negligible. Therefore, all the pressure for income sits either on the government or on low income parents. This is completely unsustainable and, in this setup, destined to fail.

One way to understand school spend is to sit in the shoes of the Principal. Schools legally cannot receive any debt funding, and the Principal has no bank manager to ask should he/she run out of money. Therefore, it stands to reason that spend, a measurement of supporting activity, will only increase as income increases (ie confidence in income generation improves). 

This is what we aim to give our partner schools - confidence in increased income generation that is sustainable over time. 

Appendix 1 - Summary financial results per school