Supporting the education growth wave

November 24, 2015

Australia’s education sector is one of the most concentrated areas of growth within our economy. From early schooling to university and on-the-job training, educational institutions are looking to attract more students and play a role in Australia’s continued prosperity by imparting knowledge.

The aim of the industry is to convey knowledge and provide exceptional education outcomes in the face of a quickly expanding population. There is, therefore, a need for education organisations to constantly evolve, improve and refine the way they use their assets for the good of their budgets, while providing the high-level outcomes for students, apprentices and trainees.

Leading the way

IBISWorld data shows that the Australian education industry earns $119 billion in revenue annually and comprises 692,277 employees, with an annual growth rate of 5.1 per cent recorded since 2011.

Deloitte places education in its ‘fantastic five’ for industries that will lead economic growth over the next 20 years in its Positioning for Prosperity – Catching the Next Wave report. It also identified continuing rapid growth of private schools, thanks to increasing birth rates and our desire to give our kids the best education available.

It’s therefore now up to the 31,271 businesses that make up our education sector to continue their focus on providing exceptional learning outcomes, while working in a financially sustainable way. The TAFE sector is a good example, as plans to privatise facilities will change the dynamic of their funding.

Sustainability vs irregular funding

With financial stability in mind, educational organisations should identify their biggest anticipated spending challenges going forward.

According to the Australian Bureau of Statistics (ABS), employee expenses have risen the most between 2008-9 and 2013-14, going from $32.9 billion to $41.7 billion. Meanwhile, non-employee expenses jumped from $14.8 billion to $18.6 billion in the same period. Essentially, expenses will continue to rise, while funding is less easy to forecast in the long term.

The National Commission of Audit has noted that Commonwealth government schools funding is to increase a total of 50 per cent per student by FY 2023-24, this only accounts for 71 per cent of educational facilities. Additionally, this funding’s slow growth means it may be some time before increased budget allocations trickle down to schools.

Seeking sustainable finance

To stay relevant, competitive and valuable to students, education and training organisations will continue to focus on overcoming their budget constraints to deliver effective educational outcomes.

Particularly in light of privatisation and the diversification of funding, developing a strategy that reduces capital expenditure could free up funds to better resource teaching staff, improve infrastructure and deliver higher-quality education.

It’s not just about having funds for other items – many education institutions need to stay up to date with technology to attract students, researchers and teachers.

To this end, it often helps those seeking sustainability to lease business equipment rather than purchase it outright. This reduces up-front capital that needs to be paid for software, vehicles, machinery, and other tools required for effective asset management. Smoother payment systems in the short term can allow educational institutions to unlock money that can be spent on teacher training, improved classrooms amenities, or even new buildings.

By engaging an operating lease as part of an institution’s budgeting, administrators can put in place a set number of payments for equipment. Operating lease terms can be shorter compared to the useful life of a piece of equipment, but they give greater flexibility in terms of allowing the payment of a new asset to be spread over the life of the agreement, and also the flexibility to return or upgrade the equipment at the end of the term.

Every industry in Australia uses the operating lease arrangement to some degree, though education institutions may find the time ripe to look into freeing up their capex budgets to a greater extent.

When funding is irregular or even lacking, organisations will aim for sustainability by forecasting their expenditures with much greater clarity. It will be interesting to see the results, as, should they reap the expected benefits, other industries can quickly follow suit.

As always, it will be up to those in the industry to maximise how they invest their funds in new equipment, and many will require an effective asset management plan. Parts of that plan, such as an operating lease, can absorb the high purchasing cost of new equipment and distribute smaller payments over the course of the asset’s lifecycle. It’s friendlier to the capex budget, and it helps to smooth cash flow.

 

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