I have heard many employers say over the years that payroll is the largest operational expense to their company. Therefore, it stands to reason that when times are tough, companies think that the best way to cut their expenses is to cut staff. We have all heard the terms: down-sizing, right-sizing, re-sizing. These are all just words used to say the same thing, the company is reducing its perceived highest expense.
What is an expense? Accounting professionals define an expense as: “the reduction in value of an asset as it is used to generate revenue.” (Accounting Tools, 2017) Wow! The reduction in value of an asset... As employers, do we believe that our employees are something that we “use up” to generate revenue?
An asset is defined as: “an item of economic value that is expected to yield a benefit to the owning entity in future periods.” (Accounting Tools, 2017) Expected to yield a benefit in future periods…that sounds like employees.
With expenses and assets clearly defined. We need to take a moment and think about how each of these are treated in an organization.
Expenses, as defined above, are used up to create revenue. In most organizations, these will include such items as office supplies, fuel, and utilities. We can clearly understand how each of these items are depleted over time. Pens run out of ink, we use electricity to run everything, fuel makes the cars go. But should we be thinking that because people make our business run, that they are something we should use up in the process?
Assets provide long-term financial benefit to a company. Examples of company assets are buildings, equipment, and vehicles. Buildings provide us with a place to do our work, equipment makes our jobs easier and sometimes quicker, but vehicles? Common belief is that vehicles depreciate by almost half as soon as we drive them off the lot. So why do we treat cars as assets and people as expenses?
We should be treating people as the biggest asset we have in any organization. The people are the ones who generate revenue on an ongoing basis. They are the ones who process everything, run the machines, show up to the buildings, drive the cars, and take care of the other people who interact with our business. Employees are assets that we should invest in. Teach them to grow and achieve so that we can all grow and achieve more, each and every day.
The growth of our economy is a hot topic, especially when times are tough. Cutting out our greatest assets during tough times will not spur this growth; it will lessen your ability to be innovative and will likely result in the opposite effect. When employees earn money, they spend money. Consumers spending money make companies busier, who in turn will then have to hire more people. This pattern of earning and spending is the very thing the economy needs to continue to grow and make our city, region, and country prosperous.
Employees are assets, not expenses.