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While it’s impossible to attach a price to the immense value of the high-quality education you’re providing your students, your board and administrative staff do need to know the numbers associated with your school’s budget and spending. Having a firm grasp of your school’s financial management empowers you to allocate resources to better serve students. 

Depending on your school’s classification, manipulating revenue might be out of your hands. For instance, a large portion of local public schools’ revenue is derived from taxes, which school officials likely have little control over. However, expense management is within your power, no matter what type of school you work for. 

With a strategic approach to spending, your school can ensure your income is dedicated to the programs and activities that will further your educational mission. Let’s explore some tips for doing just that!

1. Master Fund Accounting and Understand Funding Restrictions

To start optimizing your school’s expense management, ensure your school’s financial team has the right foundational accounting systems in place. This system impacts the process for how you track the money that comes into and leaves your school. Most schools and other tax-exempt organizations use an accounting method called fund accounting. 

Fund accounting prioritizes accountability and differentiates funds based on restrictions. Public schools receive government funding, which is often earmarked for very specific purposes, and private school donations or grants are also often also designated for specific expenditures. Fund accounting empowers your team to ensure the money goes to the correct expense. (By contrast, traditional accounting focuses on increasing profits for shareholder and investor payouts.)

Fund accounting identifies three different types of funds, which are categorized based on how you can use the money. Your school’s financial team will record, allocate, and report these separately as follows:

• Unrestricted Funds: This money can be used for any expense at your school. For a private school, the revenue in this category might come from tuition income. Public schools often have less unrestricted funding available, as they often receive more government funds. However, depending on location, some school officials may have more discretion over local tax revenue than others. 

• Permanently Restricted Funds: This category usually relates to endowments. Infinite Giving’s guide to independent school endowments explains that this kind of funding source is “meant to be set aside for future use, grow over the years, and then be used sparingly to support a specific program or project,” such as a scholarship or extracurricular club.

• Temporarily Restricted Funds: Revenue in this category is designated for a specific time period or project. Once the conditions have been met (either the project is completed or the time elapses), the money could potentially be released as unrestricted funds to the school. An example of this could be a corporate sponsorship for your annual sixth-grade field trip. If the field trip comes in under budget, the excess money could potentially be spent elsewhere, with the sponsor’s permission.

By organizing your financial system by fund restrictions, you can allocate expenses to the appropriate revenue source. Once the restricted funding has been accounted for, you can use unrestricted funding to fill in the gaps. This method helps you set an accurate operating budget based on what amounts can actually be designated towards each expense. 

2. Schedule Regular “Budget vs. Actual” Reviews

While your school’s annual budget may have every expense accounted for in theory, it won’t do you any good if it isn’t reflecting the reality of your school’s finances throughout the year. 

Your financial team needs to regularly monitor whether your financial activity follows your budget. They should also keep your school board and leadership team up-to-date on progress throughout the year. Accountability is one of the best practices for effective expense management. 

Here are a few recommendations for implementing regular budget reviews at your school:

• Schedule an automated report in your financial software to minimize human error and save your financial team time. 
• Break the data down by category to get specific insights into spending behavior. 
• Discuss “budget vs. actual” reports with staff members who are responsible for implementing other budgets at your school (such as those that govern individual program or fundraising campaign spending) or have purchasing power. 

By making this financial analysis a frequent occurrence, you’ll have the data needed to make the appropriate adjustments, mitigating excessive spending quickly or reallocating funds as needed. 

Budget analysis reports are also a treasure trove of insights for future years’ budgets. Let’s say this year’s recruitment expenses were slightly higher than expected due to staffing shortage challenges, and you had to play catch-up. Next year, you can allocate additional funds to invest in a more comprehensive teacher recruitment strategy upfront and be more prepared for your school’s financial reality. 

3. Bolster Internal Controls 

Your school can be fiscally on track, then suddenly, something unexpected happens and disrupts your financial plans for the year. While you can’t predict the future, your school can and should implement a risk management strategy. Jitasa defines risk management for nonprofits and schools as “the process of identifying, evaluating, mitigating, and preventing negative situations that could impact your [organization].”

Because schools work with a vulnerable population—children—some risk management practices are already mandated, particularly for student safety. Depending on whether your school is public or private, you may already have certain financial practices in place to remain compliant with regulations. However, every school can evaluate its current risk management strategy and make improvements today that will protect students, staff, the community, and school finances in the future.

A key preventative measure in risk management is internal controls. Internal controls are organizational policies and practices designed specifically to minimize risk. One example might be a firewall for all school system computers. Additionally, schools might host annual cybersecurity training for faculty, staff, and students. These two internal controls, and others like them, can help limit cybersecurity and data breaches.

You can also introduce specific internal controls designed to help your school control spending. This could include requiring multiple approvals for purchases over a certain amount or staff members to complete purchasing training before they take on any financial responsibility.  

4. Update Financial Technology 

The final best practice for managing your school’s expenses is to ensure you have the right technological support. To steward your finances well, you need a system that:

• Supports fund accounting, so you can correctly categorize transactions
• Automates manual tasks, minimizing human error and saving time
• Easily integrates with other systems, ensuring straightforward data migration
• Stores data in the cloud, so your entire financial team can access up-to-date information

A platform that streamlines your school’s bookkeeping and accounting processes will support healthy financial management across the board. Specifically for expense management, you can automate tracking and reports that keep your team updated on how money is spent. Additionally, you can automate payments for recurring expenses, like payroll and vendor invoices, to ensure the money is delivered on time and relieve your team of an administrative burden. 

By taking control of your school’s expenses, you not only empower your school to achieve greater heights of student success today, but also for years to come. Healthy expense and financial management leads to greater fiscal sustainability, supporting a positive reputation and building trust with parents and the community by stewarding resources well.