Colleges are in the business of educating their students - but these days increasing numbers are also in business.

With education funding facing severe cuts, they are coming up with innovative ways of boosting their income.

According to Mark Lumsdon-Taylor, finance director at Hadlow College in Kent, there are only two options: fee hikes or setting up commercial ventures.

With the former deeply unpopular, many colleges are now engaging their entrepreneurial spirit to generate income. The trend has grown in recent years, and with budgets set to be squeezed for the foreseeable future more are expected to follow suit.

Hadlow is an agriculture college that six years ago was threatened with closure or merger after being rated “inadequate” by Ofsted. But in its latest report it gains top marks, with inspectors praising its efficiency. “Value for money is outstanding,” they said. “The college has self-funded major initiatives while sustainable management of resources and efficiency are monitored carefully.”

At the time of its damning Ofsted report, Hadlow College was generating income of pound;4 million, and 70 per cent of that was Government funding. Today, those figures are pound;17.5 million and 43 per cent respectively.

When the inspectors delivered their verdict six years ago, the college decided to act. The college expanded its commercial operation in order to reduce dependency on Government funds and also to improve its academic offering at the same time (see box).

“Colleges have to be more innovative and get their students real-life experience of business,” Mr Lumsdon-Taylor says. “By default, students become more employable. I want people to think if they take on a Hadlow student, they know they are getting quality.”

He is sensitive to charges that colleges like Hadlow have put money-making ahead of academic achievement, and points out that in its last Ofsted report it scored 24 grade 1 marks out of a possible 27. “Teaching and learning is core,” he says. “We have to be an educator, not a commercial operator. Commercial operations support and enhance our teaching.”

A former City auditor, Mr Lumsdon-Taylor was brought in from the private sector where he enjoyed a stint at `Big Four’ accountancy firm PricewaterhouseCoopers.

He believes education would benefit from more staff with private sector experience. “It would be good to get fresh people,” he admits. “New ideas and new strategies are good. Change is good.”

Those who once might have baulked at the idea of public sector staff coming from commerce are changing - and fast, says David Linnell, chief executive of Cornwall College.

Mr Linnell has spent most of his career in education but has also benefited from being seconded to private sector behemoths such as BT and steel company Corus. “The interface between the private and public sector is becoming more blurred,” he says.

Cornwall College has seven main campuses spread across the county and turns over around pound;80 million a year. Some pound;45 million of this comes from the Government.

Mr Linnell says colleges that stick to relying on Government cash will no longer be able to attract sufficient student numbers in the future. “You have to encourage people to study with you. Over the past three years there has been an admission that people are going to have pay more for education.”

The college has 35,000 students on its books, but many of them will not know it also has its own recruitment agency. Concorde Recruitment began back in the mid-1990s, providing supply teachers in Cornwall and neighbouring Devon. Since then, its turnover has grown to pound;5 million and it provides employees to a host of professions, including catering, engineering, accountancy, and sales and marketing.

Mr Linnell says the firm currently makes an annual gross profit of pound;250,000, but the figure was close to pound;500,000 before the recession struck. And Concorde, which is wholly owned by the college, also brings in something else.

“It gives us access to other markets and encourages an entrepreneurial spirit in the college,” says Mr Linnell.

In addition, the college recently signed an pound;18 million deal to provide research, education and training at its Saltash campus for the Department for Environment, Food and Rural Affairs.

With multi-million pound turnovers, colleges are beginning to attract investment from the private sector. High Wycombe-based coffee machine retailer Coffee Nation, for example, has installed its machines in 30 colleges as well as hotels, hospitals and service stations.

The revenue-share model in which the colleges and Coffee Nation split the profits has seen some institutions rake in an extra pound;40,000 a year by selling students lattes, cappuccinos and espresso shots.

“It is generating revenue for FE colleges,” says Coffee Nation chief executive Scott Martin. “This is highly valuable at this time and reflects the education industry’s need to be more innovative and commercially focused when trying to create new revenue streams.”

Andy Wilson, principal of Westminster Kingsway College in London, believes colleges have to find alternative sources of income if they want to expand. In his case, that means looking for opportunities outside the UK.

His college has been providing catering training in South Korea and China. It also runs a brasserie and fine dining restaurant at its Vincent Square campus in Victoria, as well as hiring out rooms at its King’s Cross site - one of the last new-build college campuses to open under the Learning and Skills Council’s college rebuilding programme.

Westminster Kingsway’s Victoria campus is in the heart of civil-servant country and it recently provided the venue for a retirement party for a member of the Audit Commission.

Mr Wilson says the college has increased its targets for the amount of commercial work it carries out, but adds it is mindful of the need to keep the college’s 14,000 students at the top of its agenda. “It would be very easy to make more money out of the restaurant. but we wouldn’t be teaching the students because they would be just cooking and serving.”

However, as befits a college which has catering at its core, there is one benefit of the college becoming more commercial, Mr Wilson adds. “We use far more expensive ingredients in the restaurant now.”

HERE’S HOW AT HADLOW

Milking the assets

Hadlow College believes its financial model is a blueprint for others. Finance director Mark Lumsdon-Taylor shrugs off claims from other colleges that it has an in-built advantage in raising money because it is an agriculture college. “There is no barrier to entrepreneurial excellence. The only barrier is your imagination,” he says.

Among the revenue generators contributing to Hadlow’s turnover are commercial farms specialising in dairy, sheep, pigs, poultry and arable.

It sells 30 million litres of milk to Freshways dairy. Other activities include a series of farm shops, garden centres, an equestrian complex and a tea room. All this, Mr Lumsdon-Taylor says, brings in around pound;5 million every year.