No one likes to admit defeat, but some schools will need different options

Facing growing financial challenges, a combination of economic, demographic, and policy changes is placing unprecedented strain on a schools’ sustainability. As a result, many independent schools are struggling financially and while they might have held out for a merger or acquisition, school closure suddenly becomes the only viable option.

A planned wind-down does not have to be fraught with difficulty. Recognising that a school is no longer viable allows the school to then make different decisions. The key to any orderly closure is planning.

It takes brave Governing and Trustee Boards to make such a difficult decision, often because the signs are not so readily recognised. So, what signs should schools be looking for?

1. Rising operational costs

The cost of running an independent school has increased significantly in recent years due to various economic pressures. Key factors include higher utility bills, wage inflation, rising supply chain costs, and increased employer National Insurance contributions. Additionally, financial burdens of VAT on school fees, Teachers’ Pension Scheme increases, and the removal of charitable business rates relief have all resulted in increased running costs, leaving schools with little choice but to increase fees.

The loss of pupils against rising fixed costs of running a school have created running deficits which have become unmanageable.

2. Declining enrolment

Demographic changes are playing a crucial role in the financial difficulties faced by independent schools. A decline in birth rates in many regions has led to fewer school-age children, reducing the pool of potential students.

Economic uncertainty, inflation, and job market fluctuations have also made private education less affordable for many families. Additionally, the COVID-19 pandemic disrupted enrolment patterns, particularly for schools reliant on international students. Travel restrictions and financial hardships meant that some students never returned, further straining revenue streams.

3. Declining donations and endowment struggles

Many independent schools depend on alumni donations and endowments to supplement their income. However, economic downturns and shifting philanthropic priorities have led to reduced financial support. As donors redirect their contributions or scale back giving during periods of economic hardship, schools face widening budget gaps that are difficult to bridge.

The role of professional advisers

When financial difficulties become unmanageable, independent schools may be forced to review their options by either seeking a sale, a merger or worst-case scenario a closure. Professional advisers play a critical role in guiding schools through these complex processes. Indeed, trustees have fiduciary duties placed on them by the Companies Act and latterly the Insolvency Act if an insolvency can’t be avoided, so taking early advice is crucial in avoiding any personal criticism.

Key considerations when closing an independent school

If closure becomes inevitable, schools must approach the process with careful planning and sensitivity. Key considerations include:

• Student transition planning: Assisting students and families in finding alternative educational placements.
• Staff redundancy and support: Providing adequate notice, redundancy packages, and career transition support for employees.
• Asset review: Identifying and managing assets to maximize their value for creditors.
• Communication strategy: Maintaining transparent and compassionate communication with stakeholders, including students, parents, staff, and the local community.

Conclusion

The financial landscape for independent schools is rapidly evolving, requiring strategic adaptation to remain viable. Rising costs, demographic shifts, and economic uncertainty are key factors contributing to financial strain. If a school is no longer financially sustainable, seeking early advice from professional advisers can provide greater options – whether through a rescue plan, sale, merger, or a structured wind-down that minimises disruption for all stakeholders.

If your independent school is experiencing any of the issues mentioned above, contact us. The team at Moore Kingston Smith is perfectly placed to provide the guidance and advice you need.