Are Your People Assets?
Updated: Apr 21, 2020
"A company's employees are its greatest asset and your people are your product" - Richard Branson
Ask any manager worth their salt if people are assets, and the answer would most likely be an emphatic 'Yes'. In fact, 'people are our greatest asset' is an aphorism freely quoted and believed widely in business circles.
Yet when you look at your company's balance sheet, a statement of your company's financial position including all its assets, you will not find people listed as its assets (nor will you find them as liabilities as some would like to believe). Are your people not assets?
Perhaps it would help by first defining, from an accounting perspective, what assets are. Simply put, assets are valuable things that help a business generate income. Cash, land, buildings, equipment, inventory, and vehicles are some of the assets we see deployed in business to generate economic benefits. Tesco's generates income selling its inventory of consumer goods off the shelves of its stores; Toyota generates income from selling its inventory of cars produced by its state-of-art production plants; and Bob the Builder earns a living by putting his bulldozers, backhoes and cranes to work!
If so, then surely people should be considered assets too as without people manning or managing these assets, it would be almost impossible for Tesco's, Toyota or Bob to generate income the way they do. While people play a key role in generating income, for something to be considered an asset in the accounts it must fulfill a set of criteria. Here are two of them.
An asset must be:
1. Controllable - the asset must be under the control of the business
2. Measurable - the value of the asset can be reliably measured
Harvey is Bob the Builder's newest apprentice, recently employed at Bob's company. He is a highly capable and valuable employee. But business has been tough of late and Bob is contemplating selling Harvey off to another builder for cash!
It simply cannot happen. The business does not own or control Harvey; it has no such rights over him. On top of that, the other builder might not agree with Bob's valuation of Harvey; how much should he 'buy' Harvey for? A subjective matter indeed. Instead, Bob could consider selling off assets like his under-utilised back-up crane; something his business controls and has a value that can be measured more reliably in the market.
Employees are not controlled or owned by businesses. Their value cannot be reliably measured either. They will not be captured as assets in the books.
So really, are people assets?
Yes they are. In almost every sense of the word. Just not in accounting.
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