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Flexible Financial Modelling Offers Visibility and Planning to Struggling Universities...

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UK universities are facing severe financial difficulties as rising costs collide with stagnant income streams, but flexible financial modelling is emerging as a potential solution for troubled institutions.

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The Office for Students (OfS) projects that during 2025-26, the higher education sector faces a net income reduction of 3.4 billion. Without significant intervention, this could result in a sector-level deficit of 1.6 billion, with up to 72% of providers falling into deficit and 40% experiencing low liquidity.

We here that specialised financial restructuring consultancy Prompt Business Strategies have worked alongside educational institutions and developed a model which helps management to identify and plan actions to deal with these sector-wide challenges, along with scenario planning for individual actions. 

"Universities are caught in a difficult position with almost fixed income against higher inflation and wages," explains Anthony Palmer. "The real challenge lies in developing an action plan to overcome these issues while also satisfying lending and regulatory requirements simultaneously."

The firm's innovative approach has already proven successful with one major university, creating viable financial strategies that satisfy both banking and regulatory requirements. Their model specifically addresses the complex criteria set by the Office for Students while meeting banks' trading viability requirements.

"There's quite a lot of criteria from the Office for Students in addition to lender requirements and they're not always aligned Anthony notes. "While banks and lenders focus solely on trading viability and debt serviceability, the OfS has a legal duty to protect students, requiring proof of longer-term sustainability with generally greater covenants."

Prompt's solution offers a structured approach to university financial planning that could provide a blueprint for other institutions facing similar challenges. As the sector grapples with these unprecedented financial pressures, such specialised modelling and strategic planning may become increasingly crucial for institutional survival.

 

Source:

- Office for Students Financial Sustainability Report 2024​