We must stop saying people are our most important assets (and actually believe it to be true)

If we believe that our staff or our most important asset, why do we always only account for them as a cost? In simple accounting terms, assets are on the plus side of the balance sheet, but staff are always shown as an operational costs. There are good accounting reasons for this and the conventions and practices always treat the cost of staff in this way.

What is missing however is the asset view of staff. After all without them the business would not function, so they must have a “value” to the business as well as being a cost of the operation. Whilst not directly comparable, some interesting anomalies and examples can arise if you consider staff as both a cost and an asset.

In professional football, for example, the players are clearly both a cost and an asset to their club. The transfer market for players and the fees paid for transfers are a clear reflection of players asset value. The operational costs through their salaries may not be directly related to their eventual asset or transfer value, and could increase or decline depending upon their performance. Without the assets, the football club will not be able to perform at the level and outcomes expected by the owners and supporters. Teams are increasingly being measured by the collective player transfer fees or asset values, especially when not performing at a level expected from that asset value.

Hospitality is not professional football and there is no transfer market for key players, although in times of significant shortages the possibilities of “golden hellos” as a means of attracting key assets in staff may become more apparent. But even now, as with professional football, anomalies arise.

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As an example, a company offering street food with specialised food trucks will, as required by the accounting conventions, treat those trucks as assets. They will be brought onto the books of the company at the purchase value and then depreciated as the resale or depreciated value of the asset is deemed to decline through use. It is most valuable to the company on the day it is purchased.

But not so the staff required to operate it. Yet without the operating staff, the food truck in itself has no operational value nor is it productive in generating revenue. We therefore have an asset that can only generate revenue when operated by a cost. The same argument holds true for any area of operation, but also highlights another interesting anomaly in that the physical asset depreciates in value while the staff asset potentially can increase in the value they provide to the business.

Back to our professional football example.

Staff when recruited to a business, do generally require an investment in induction, training and development. Over time they become more skilled, more experienced, more productive and more “valuable” to the business, but are only ever measured and considered as a cost. Traditionally staff are, or were, considered as a replaceable cost of operation. The numbers required for the operation could be altered and adjusted to meet consumer demand and often as a means of maintaining the bottom line. The rise of zero hours contracts is the manifestation of this. However in times of severe staff shortages, perhaps the time has come to reconsider how we account for this most valuable asset.

As well as following the required financial accounting and reporting conventions, perhaps a form of “People Asset Accounting” should be devised, publishable through annual reports that goes some way to reflect the “value” these human assets have to the business. In the buying and selling of companies, the value of the human assets have to be factored in, as without them the company would have no real value other than the physical assets.

Should therefore new accounting conventions be devised that really do reflect the importance of people as the most important asset of the business? That way we would show that we really do believe it.

Tags: accounting, assets, staff


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