Why HR Should Monitor the Company’s Financial Health

Written by Brian Montes

On May 5, 2020
Financial Health
If you ask most business professionals, the financial health of the company is the responsibility of the finance and accounting department. However, there is absolutely something to be said for HR at least being aware of the company’s financial situation and its overall health. As the realization grows that employees play a critical role in a company’s financial success, more businesses are changing
the way their departments function.
The result is a cross-functional monitoring solution that allows HR efforts to be aligned with the company’s finances and its accounting systems. No longer are employees considered
expenses, but as value-added assets that offer:

Creativity, knowledge, and problem-solving skills

Production and output for the business

Innovative and dynamic skill sets aimed at contributing to revenue and profits

As every company knows, you are only as good as your people. However, it is only more recently that companies are actually embracing and cultivating this mantra. As a part of the process, businesses must realign their HR efforts and accounting systems so that monitoring can be done from the right departments and for the right organizational goals and metrics.

Human Capital Management

In technical terms, treating employees as assets is referred to as human capital management. In order to effectively incorporate this into your HR department and get their efforts aligned with the financial side of the business, there are three major steps that you should take:

1

Revisit the company strategy and incorporate practices, goals, and guidelines for better development and management of “human capital”.

2

Develop and implement a streamlined recruiting program that is in line with your new company strategy.

3

Develop new success metrics and create better employee retention programs.
Any business that does these three things will typically see more success in their overall profits as a result of investing in their most valuable asset: their people.

Turnover is Eating Profits and No One Realizes It

According to research, it costs as much as 200% more than what you were paying an employee to recruit and train their replacement. So many companies can’t figure out where they are losing so much money, even when business is good, and yet their employee turnover rates are through the roof. A lot of people understand the concept of turnover and its financial impact in theory but lack the understanding of how that actually translates to day-to-day profits and expenses.

The financial impact of high turnover includes new recruitment and training costs, administrative expenses, and potential client losses. The human impact on the business will result in lower morale and less motivation, along with higher stress, which results in decreased productivity. Thus, your bottom line is dealt two major blows when you don’t have a strong human capital management and employee retention plan in place.

See For Yourself

Take a look back through your company’s HR expenses for the past six months, even. Look at how much was spent on recruiting, screening candidates, training, and administrative tasks related to hiring—you might be surprised at the amount. If you’re looking for profits, your HR department is sitting on plenty. Integrate and realign to cash in on them and improve your overall HR operations at the same time.

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