Covid-19 has turned the world upside down. The response to the crisis has been unprecedented. Governments across the globe have rightfully taken steps to flatten the curve. Lockdowns, closure of non-essential businesses, suspension of school / colleges, closing of borders have all been done to prevent the virus from spreading.
The economic impact of these steps are difficult to fathom. Goldman Sachs has predicted a 24% shrinkage in US GDP. Businesses and sectors relying on discretionary spends will be severely impacted. Wage cuts, job losses, extended periods of low economic activity are expected. Several industries like tourism, entertainment could get wiped out for a foreseeable future.
‘Brick and Mortar’ education businesses (K-12, Playschool, and Colleges) despite being part of non-discretionary spend will also see challenging times because of the broader doom and gloom. Here are some of the challenges that schools and colleges could potentially face in the near future :
o Parents might postpone decision to switch schools: March to June is typically the time when parents make decisions to switch schools. Health and Financial woes would take precedence and the decision to switch schools could get postponed. On the positive side while this would reduce dropout rates, on the other hand this could severely impact admissions in upcoming schools.
o Schools will face pressure on fee hikes: With reduced economic activities, wage cuts and job losses schools might have to rethink fee hikes. It won’t be surprising if the government controls fee hikes in these tough times. Unless costs are managed the inability to increase fees could severely impact finances of all schools.
o Spike in fee-defaults and delayed payments: With strain on family finances schools should plan for spike in fee-defaults and collection delays. School Cashflows will need to be managed prudently to avoid pressure on operations.
o Decline in discretionary revenue sources: Non-Tuition and Discretionary revenue sources like Education Tours, Uniforms and even lunch and transport might see a decline as families try to deal with financial challenges.
o Fee Discounts and Scholarship requests could go up: Schools might need to relook at their scholarship and discount policies to give temporary relief to deserving families
o New Schools could see a pressure on admissions: With reduced economic activity, less job switches – new schools who heavily rely on student transfers will see pressure on admissions
In order to successfully tide through this challenging times, school promoters need to be better prepared. Here are some of the ways to plan to overcome the challenges:
o Drive Efficiency In Operations: Downturn is the best time to identify and weed out any and all inefficiency in the operations. School management should look at all major cost areas – HR, Utilities, Maintenance, Academic etc and drive changes to bring in efficiency in operations.
o Postpone Discretionary Capital and Operational Expenditure: In times like this managing cashflows is extremely important for continuity of business operations. Postponing non-critical capital and operational expenditure will help conserve cash for any prolonged period of pain.
o Invest strategically for the new Normal: Social distancing, Higher level of hygiene are going to be new normal. Schools need to invest heavily on technology solutions and adopt them to operate in a new world and to drive efficiency.
o Offer Financial Support to Parents: Schools should tie-up and promote fee financing fintech businesses amongst their parents – Avanse, EarlySalary, FinancePeer to name a few. These businesses offer short term loans to parent to pay school fees in time.
o Share the Pain: Despite all the above if the challenges seem unsurmountable, management should prepare to pass on some of the pains to other stakeholders. Renegotiating rents and service contracts, renegotiating debt terms, deferring bonuses and salary increases during these unprecedented times are ways to means to ensure business continuity.
We are going through an unchartered territory – No body knows when things will become normal. As predicted by eminent economist the financial impact of Covid-19 would be far more painful, wide-reaching and sustained.
Stay Aware, Stay Proactive, Stay Safe !
P.S : Hard Times are Like a Washing Machine – They twist, turn and knock us around. But In the end we come out cleaner, brighter and better than before.