A school business plan has one job that separates it from every other document in a project. It is the thing that gets tested by people who have money at risk and no attachment to the idea. An investment committee reads it looking for the assumption that will not hold, while a lender looks for the year the cash runs out. Neither is interested in the vision, and both will find the weak number faster than the author expects.
Most plans that come to GSE for review have sound arithmetic and were written in the wrong order, with the funding requirement decided first and the enrolment drawn to reach it.
The enrolment curve is the number everything else rests on
Almost every figure in a school business plan is derived from the number of students. Revenue is enrolment multiplied by the net fee, staff cost follows from class sizes and therefore from enrolment. The point at which the school stops consuming cash is a function of how quickly the roll fills. Get the curve wrong and every downstream figure is wrong with it, however carefully it has been calculated.
A curve worth believing starts low, because a new school with no results and no reputation opens with a fraction of its design capacity. It fills from the entry years upward, since families rarely move a child in the final years of schooling, and it takes longer than the model wants, because the years that fill last are the senior years that carry the highest fees.
The test to apply is whether the sponsor will commit to the curve in writing. A sponsor who will not put the enrolment schedule into the loan documents is telling you something about how much they believe it.
Fund the losses as well as the building
A new school loses money for its first two or three years, which is how the model works. The failure is a project that funds the capital budget and treats the operating losses as something to be managed later.
Those losses belong in the raise, being as much a part of the cost of opening a school as the land, the building and the furniture, and they are the single most common omission in the plans GSE is asked to review. A project that runs short in year two cuts marketing and delays staff appointments, which are the only levers that move quickly. Both cuts land in the years when enrolment for years three and four is being decided, so the shortfall makes the enrolment worse and the enrolment makes the shortfall worse. GSE has written separately on how school projects are financed.
The plan should therefore state the peak funding requirement, which is a larger number than the construction cost and is the amount an investor is actually being asked for.
Separate the property from the operation
A school business plan that merges the building and the school into one set of figures hides the question an investor most needs answered. The property and the operation earn in different ways, carry different risks and attract different capital.
They should be set out separately, with the property company holding the asset and the debt. The operating company runs the school and pays rent. Once the two are separated it becomes possible to see whether the school works as a business at the rent it is being charged, and that question matters as soon as the asset is sold or refinanced.
Break-even therefore has to be stated after rent, since a school that breaks even at 55 per cent of capacity before rent and 75 per cent after it is a different investment, and the second figure is the real one. Those figures are an illustration of the gap rather than a benchmark; the benchmark series sets out the ranges GSE works to.
Show the market research, do not summarise it
Most plans contain a market section that describes the country, quotes a growth statistic and concludes that demand is strong. That is a market overview, and no experienced reader mistakes it for market research.
What a reader wants is narrower and harder to write: how many school-age children live within a realistic travel time, what the competing schools charge and how full they are, where the fee level sits against household income in the catchment, what capacity is already under construction nearby, and which of those figures were counted and which were estimated, and by whom. This is the work a feasibility study exists to do.
The difference matters, since the enrolment curve has to come from somewhere. Catchment and competitor capacity give a curve somebody can argue with, whereas a national growth rate has nothing underneath it to argue about.
State the basis of every figure
Some figures in a school plan are published, some are derived, and some are experience. All three are legitimate, and mixing them without saying which is which is where a plan loses its reader.
Construction cost per square metre can be sourced, fee levels can be observed in the market, and staff cost ratios can be derived from the staffing model. Break-even occupancy and the shape of the ramp are practitioner estimates, and should be labelled as such. A document that attributes everything to research it has not done will be found out in the first hour of diligence, and everything else in the document becomes suspect at the same moment.
Write down what would have to be true for it to fail
A plan that shows only one case invites the reader to construct the downside for themselves, and they will construct one worse than any the author would have written.
The author is better placed to do that work first, by asking what happens if the school opens a year late because a licence is delayed, if enrolment runs at seventy per cent of forecast for three years, or if a competitor opens two kilometres away in year two. Each of those has a funding consequence, and showing that consequence with a plan attached is the difference between a document that survives diligence and one that is handed back. The pattern behind most of these failures is set out in GSE’s article on why school projects fail financially.
Use the plan to run the school once it is open
Once the school is open the plan becomes the reference for every board meeting, and only a few of its lines need regular attention. Enrolment by year group is set against the curve, net fee per student against the assumption, staff cost against budget, and cash against the peak funding requirement. Those comparisons tell an owner most of what they need to know about whether the project is on course.
A variance is only useful when somebody explains it. Where enrolment is behind the curve, the board needs to know which year groups are short and why, and whether the fault lies with the school or with the forecast. An optimistic forecast should be corrected openly, since a school managed against a forecast nobody believes will make poor decisions about staffing and spending.
The plan should be re-forecast each year, with the original kept beside it. Investors and lenders committed their money against the first version, and the distance between that version and the current one is a record of how the project has performed. Overwriting the original removes the one document that shows whether the early assumptions were sound, which is what the next project will need to know.
These comparisons sit beside the early indicators an owner should see each month, which GSE sets out in its article on the school dashboard.
The plan is a working instrument
The most useful test of a school business plan is whether anyone opens it again after the money is raised. A plan built to secure funding gets filed, while a plan built to run the school becomes the thing the board measures against, and the point at which reality and forecast separate is the earliest warning an owner gets.
The standard to write to is that second document, and it is a higher one than persuading a committee.
Read next
- How to Conduct a Feasibility Study for a New School. The work the business plan has to rest on.
- How School Projects Are Financed. What a lender tests, and the losses most raises leave out.
- International Education by the Numbers, Part Two: Filling the School. Year one enrolment, the ramp curve and break-even occupancy.
- Why Most New School Projects Fail Financially. Where plans and projects part company.
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