Charity trustees and university governors have financial duties to ensure proper management and use of funds, including setting and monitoring budgets, ensuring accurate financial reporting, and maintaining adequate financial controls.
They must act prudently, avoiding unnecessary risk, and ensure that funds are used solely to further the organisation’s charitable or educational purposes. They are also responsible for safeguarding assets, including investments and property, and ensuring compliance with tax and regulatory obligations. Mismanagement or negligence in financial duties can result in personal liability.
At Advance HE Student Governors 2025, Gavan Conlon’s (London Economics) session on university finances stripped away some of the mystique surrounding institutional accounts to reveal the practical tools student governors need to assess their university’s financial health.
His approach was to think of university finances like household budgeting, but with more zeros.
The fundamental question is pretty simple – is more money coming in than going out? If not, how bad is the situation, and how long can it continue?
The basics: cash versus accounting magic
University financial statements require understanding several crucial distinctions that can mislead the uninitiated. The most important is the difference between cash and non-cash expenditure.
Cash expenditure represents actual money leaving the institution – wages, utilities, supplies. Non-cash expenditure includes items like pension provisions or depreciation – accounting entries that reflect future obligations or asset deterioration but don’t immediately impact cash flow.
“When you talk about expenditure, often we think about money going out the door,” Conlon explained, but university accounts include “pension provision – you have to incur some notional provision for pension liability that’s going to happen in 20 years time.”
This distinction matters because an institution can show an accounting deficit while maintaining positive cash flow, or conversely, show a surplus while burning through cash reserves.
Current versus non-current assets: the liquidity trap
The classification of assets as current or non-current reveals much about institutional flexibility. Current assets can be converted to cash within a year; non-current assets cannot.
“Lots of institutions say institutions are sitting on millions of assets,” Conlon noted. “But that’s true, but it’s very hard to get like this 400-year-old ancient building and just flog it off in the morning and get cash.”
This explains why universities with impressive asset portfolios can still face cash flow crises. Buildings, land, and equipment may have significant book value but provide little short-term financial flexibility.
The July snapshot problem
University financial statements tend to reflect the position on 31st July – “probably the worst time of year for institutions.” Student loan payments have been spent, no new income arrives until September enrolment, and institutions run on reserves.
This timing creates an artificially pessimistic view of financial health, but it’s the regulatory standard across the sector, enabling meaningful comparisons between institutions.
Median versus mean: understanding institutional diversity
Conlon emphasized using median (size) rather than mean figures when assessing sector norms. Oxford, Cambridge, and other massive institutions “will actually shift the average,” making mean figures misleading for typical institutions.
The median institution enrolls approximately 25,000 students with income and expenditure around £261 million. But this masks enormous diversity – some institutions operate on tens of millions while others exceed £1.6 billion turnover.
Anatomy of university finances
The typical institution’s income structure reveals critical dependencies:
- £260 million total income
- £123 million from UK student fees
- £92 million from international student fees
- £18 million in funding body grants
- £23 million from other sources (accommodation, catering, commercial activities)
The expenditure breakdown shows where costs concentrate:
- £141 million on staff (60 million academic, 81 million other staff)
- £122 million on non-staff activities
These figures illuminate two crucial points – universities are fundamentally people-intensive organizations, and they’ve become heavily dependent on international student fee income despite international students comprising only 35 per cent of the student body.
Key performance indicators to track
Several metrics provide insight into institutional financial health:
- Operating surplus/deficit: After removing non-cash items, this shows real financial performance. The median institution achieved a £1.5 million surplus – modest for an organisation with £261 million turnover.
- Cash flow from operations: This measures day-to-day financial sustainability. Sector-wide, this has deteriorated from 11 per cent in 2021 to just 0.4 per cent – institutions are “running on vapour.”
- Liquidity days: Perhaps the most critical short-term measure. This calculates how many days an institution could operate using current cash reserves. Twenty-four institutions have fewer than 30 days liquidity – a reportable event to the Office for Students because “you literally don’t have enough money to run your institution the next month.”
- Net current assets: The difference between current assets and current liabilities. While the median shows £76 million, distribution is highly uneven – Oxford and Cambridge account for 13 per cent of all sector net current assets.
Warning signs and red flags
Conlon identified several indicators that should concern student governors:
- Unsigned accounts: “Really problematic.” If accountants can’t sign off on financial statements, serious issues exist that external auditors cannot reconcile.
- Footnote complexity: The real story often hides in footnotes, which contain crucial information about contingencies, commitments, and risks.
- Debt covenant breaches: Many institutions have loan agreements with financial covenants – requirements to maintain certain financial ratios. Breach these covenants, and interest rates can increase dramatically, creating a spiral of financial distress.
- Recruitment forecasting errors: Institutions consistently overestimate student recruitment. Optimistic projections delay necessary adjustments.
Questions (student) governors could ask
Conlon’s session suggested several lines of inquiry for governing body members:
- Cash flow projection: Ask to see monthly cash flow forecasts showing when student loan payments arrive and when cash reserves are lowest.
- Liquidity monitoring: Request regular updates on liquidity days, especially if your institution approaches the 30-day threshold.
- International student dependency: What percentage of total income derives from international students? What contingency plans exist if immigration policy changes or global events affect recruitment?
- Debt obligations: What debt does the institution carry, and what covenants apply? How close is the institution to triggering covenant renegotiation?
- Year-on-year comparison: Financial statements must provide at least two years of data. Look for significant changes in income or expenditure streams and ask for explanations.
The role of the finance director
These professionals typically attend governing body meetings and should welcome detailed questions about institutional finances.
Student governors can request briefings from finance directors on annual accounts and budget projections. Unlike vice-chancellors, finance directors work daily with the numbers and can provide candid assessments of institutional financial health.
Understanding institutional context
Not all financial stress indicates poor management. The sector faces structural pressures: domestic fee income has lost real value through inflation, international student visa restrictions have reduced recruitment, and institutions carry fixed costs that can’t quickly adjust to income fluctuations.
Some institutions face particular challenges based on their market position, geographic location, or subject mix. Understanding your institution’s specific context helps distinguish between sector-wide pressures and institution-specific problems.
The bigger picture: sector stratification
Conlon’s data revealed increasing stratification within higher education. While some universities grow by more than 10 per cent annually, others shrink by 15 per cent or more in student numbers.
The top 20 institutions hold 60 per cent of all net current assets. Oxford and Cambridge alone receive more in alumni donations than all other universities combined. This concentration of resources creates a two-tier system with very different financial realities.
Practical next steps
For student governors wanting to engage meaningfully with their institution’s finances:
- Request a financial briefing: If not automatically provided, ask the finance director to walk through last year’s accounts and this year’s budget.
- Monitor key metrics: Track operating surplus, liquidity days, and cash flow trends over time.
- Understand income sources: Know what proportion of institutional income depends on international students, research grants, or other potentially volatile sources.
- Read the footnotes: Annual accounts footnotes contain crucial information about risks, contingencies, and accounting policy changes.
- Ask about debt: Understand what financial obligations the institution carries and any associated covenants or restrictions.
- Compare with sector: Use median figures to assess whether your institution’s performance is typical or exceptional.
The session’s underlying message that student governors can’t influence what they don’t understand, and financial literacy is essential for effective governance. The numbers tell stories about institutional priorities, risks, and sustainability that directly affect student experience.
As institutions face unprecedented financial pressure, understanding these fundamentals becomes not just useful but essential for anyone hoping to represent student interests effectively in university governance.
