The value of Employees cannot be properly shown in a Balance Sheet | Eastern North Carolina Now

    The value of Employees cannot be properly shown in a Balance Sheet. Neither can the Brand Name which is valuable but difficult to determine.

The cost principle and monetary unit assumption may also mean that some very valuable resources will not be reported on the balance sheet. A company's team of brilliant scientists will not be listed as an asset on the company's balance sheet, because (a) the company did not purchase the team in a transaction (cost principle) and (b) it's impossible for accountants to know how to put a dollar value on the team (monetary unit assumption).

Coca-Cola's logo, Nike's logo, and the trade names for most consumer products companies are likely to be their most valuable assets. If those names and logos were developed internally, it is reasonable that they will not appear on the company balance sheet. If, however, a company should purchase a product name and logo from another company, that cost will appear as an asset on the balance sheet of the acquiring company. (Employee as Asset)

    A recent article on Beaufort County Now impressed me with the short sighted vision of many companies regarding Employee Training and Apprenticeship programs. Making decisions based on studies and economic impact is at best a rear view way to drive through the competitive field of assembling a competent work force. The author Dr Terry Stoops, summed up the fallacy of over dependence on tax incentives or grants to accomplish a mutual goal.

    In the end, North Carolina and the federal government should strongly encourage, but not offer grants or tax incentives, to employers who offer apprenticeship and work-based programs. If businesses and industries believe it to be in their best interest to sponsor a training program, they should do so with minimal regulatory interference.
    (Here is the original article on BCN).

    I felt I should add my two-cents worth to the discussion. Collecting taxes should not be used to change or alter behavior, it should be used to fund the limited necessary functions of a government. Beyond that companies should be charged with the development of the talent and skills needed for their particular field.

   As an example, the three assets shown in the picture on the left are the Land, the Plow and the Barn. The assets show in the picture on the right are the Land, the Plow, the Shed and the Barn. The two most important assets are not listed on the farmer's Balance Sheet, but I can almost guarantee that nothing would have gotten planted or harvested without the main CEO. The mule of course was replaceable by technology.

   When the CEO passed all the other assets were transferred to a new owner and the Farm ceased to exist. In essence the company no longer had a balance sheet. It's assets no doubt appear on someone's balance sheet but they are valued solely on the cost paid by the new owner.

    My former company has a one-year training program for new Sales Engineers. The filter for original hire was tight with multiple interviews by different disciplines within the company.New college graduates spent time in each department and selected time working in various manufacturing facilities. They learned product feature and benefits as well as presentation skills, proposal skills, as well as legal and ethical priorities. The process was designed for long-term employment. Certain basic skill sets were defined before hiring and applicant were thoroughly screened before hiring. After completion of the training, they were assigned to a territory with a senior mentor sales engineer as coach and guide.

    For the most part the program worked well and many new hires continued to work for 10 years or more. As memory serves, it was not accounted as a product departmental cost but as ongoing training general expense and payroll expense since the trainees provided services to each department while in the program. Cost accounting for apprentice programs necessarily focuses only on the current revenue vs expense equation but misses the long-term benefits of a productive employee longevity in the company. These are two distinct methods of assigning cost and benefit.

    The fallacy of "Studies" is that it uses the MBA approach of too much backward analysis and not enough employee development. Someone must do the training. Most employees leave a company due to lack of opportunity or dissatisfaction with the job. A typical MBA study will only show that the employee left and assign the cost of training as an unrecoverable expense. Some company somewhere will benefit from the training acquired at the first company.

    It would be well to treat employees as assets to be developed and not a line on the expense sheet. However, accounting is an exact discipline while management and leadership is an ART FORM. To be sure, there are times when cost must be reduced and basic business economics dictates that it is the payroll that is the most pervasive expense of most companies. It is also true that companies cannot survive for long without profits. This reality is often used when short sided management is approaching the equation from a cost cutting perspective instead of revenue increasing perspective. They often use the clique of "Hard Choices" which is often the fall back position of poor management or foresight.

    In my opinion, the absolute best training vehicles in use throughout our history is from the military. They first establish the culture and expectations, and then they go about teaching the SPECIFIC skill sets necessary to do the job. Granted the "Military Stick" approach does not work in civilian life as well as the structured approach of the military. But instilled within the psyche of a well-trained military technician is also the principals of self-reliance, discipline, honor and perseverance that any company should be glad to pay extra for. There was a time when these traits were instilled by parents but we seemed to have drifted away from that in our effort to keep from destroying a whole generation of its proper self-esteem. I am not condemning the whole generation growing up now, but it seems we have an over abundance of high self esteem individuals who did not earn that trait through success and failure experience, but through feel good pampering.

    In this age of specialization, it is the company's responsibility to build a cohesive team of specialist all working toward the same goal. That is where the leadership of a company charts the future of the company. Any company that hires only a competent manager to lead it will be able to properly document the demise of the company as it drifts into oblivion in the face of purpose directed competition. The irony of it all is that the competition will most likely do it with the former employees of the first shortsighted company. Training and mentoring employees is the duty of the managers and leaders in any company.

Clip from "The Apprenticeship of Duddy Kravitz (1974)"
    The medical analogy may be helpful in proving the point.

Cardiologists	Heart is good
Dermatologist	Skin is good
Ophthalmologists	His eyes are good
Orthopaedic surgeons	His bones are good
Pulmonologist	His lungs are good
Urologists	His kidney and Urinary track is good
Endocrinologists	His Glands were good
Pathologist	He Died of a gunshot wound

    All the medical experts were correct in their diagnosis, but the patient died of another unrelated medical problem. Employees often die (i.e. leave the company) from a similar wound.

    As long as management considers employees as cost they will continue to experience the downward spiral of their lack of leadership. I grant that many companies fail from unforeseen changes in the landscape or technology, but a well-trained employee can be retrained and learn a new skill. A poorly trained employee is at the mercy of the winds of fate, which are always a headwind and not a tailwind.

   Companies come and go and assets are transferred from one accounting sheet to another. My former company was acquired twice since I retired but many of the employees are still employed there and the company thrives under a new name. The value of that company is not reflected by the Dollars and Cents on the last acquiree's books. It is reflected by the continued performance of its employees. The rest is just simple bookeeping.
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Bobby Tony said: ( July 3rd, 2017 @ 8:25 am )   Thanks, Stan for the link to my previous article. As a testimony to his influence, my first Grandson is named in honor of him. Sullivan Anthony Loyd XXXXX. He had a soft side but as Ed Tom Bell said in No Country for Old men. "Yea. Got some hard bark on him."