Why do so few people understand the fundamental importance of a healthy bottom line? Every company needs to earn more money than it spends (even non-profits need to produce "net capital"). It sounds simple enough, right? Accountants understand to improve the bottom line a business must do one of two things: 1) increase top line revenue; or, 2) reduce expenses. And to produce the largest and fastest positive impact, every business should try to do both. Nothing new here. So, why isn't this equation more infused into the DNA of every organization?
For a company to achieve its full profit potential, its subunits (departments, divisions, geographical locations, etc.) should each contribute to the whole by performing well via their own subset profit and loss (P&L) statements. Taken to its natural extension, this thinking would suggest every employee in the company must also be "profitable."
Imagine for a moment that floating above the head of each worker is a virtual screen showing his or her personal P&L statement. This screen would show the total financial value added by the individual minus all of the costs associated with that employee, resulting in a personal bottom line that is either positive or negative. Do many employees generate more financial value than they cost? Some employees do. For example, the personal P&Ls of sales people and those whose time is billed directly to clients would be easy to calculate—and a chronically negative bottom line in these cases would not only be unusual, it would be cause for termination. With most other categories of employees the math is less straightforward; and yet, isn't this personal P&L concept a fair question to apply to everyone receiving a paycheck?
When an employee we'll call "Simon" (non-sales) was hired, it was because management believed hiring Simon was a profitable decision. Businesses don't hire people and carry the attendant expenses (especially in our current economy) just for fun. Simon was hired because somebody concluded he would bring the company more value than cost. Were they right? Simon might think so, based on the fact that he is liked by management and gets along well with co-workers, but would an accountant looking at the bare numbers agree?
Let's evaluate Simon's personal P&L statement to quantify what he's bringing to the company and what he's taking away. It's important to see a net positive impact, because just as no company can exist for long without profit, no employee can expect to remain employed forever without making a net positive value contribution.
Unfortunately, when we do the math Simon looks pretty pathetic; and he's not alone. His personal P&L is representative of the vast majority of workers worldwide who aren't directly involved in sales, and who don't bill their time directly to clients. So how can Simon improve his personal P&L? He can uncover or even create hidden and unexpected dollars that are commonly overlooked by management, and are almost always missed by the average employee. If Simon can learn what to look for and how to do his job in a broader financial context to make more of a hard-dollar impact on his company, then this analysis would turn out much more favorably for him—and his employer.
Employees can no longer afford to ignore any possibility for profit-enhancement. We must all learn and implement new methods to further the fiscal health of our organizations, and help those whom we manage to do the same. The art of managing people is necessarily (in an atmosphere of thinning profits) looking more like the science of accounting every day. So what will become of the HR professional's role on this new, financially-oriented playing field?
Traditionally, HR professionals fill a role considered by their accounting colleagues to be somewhat "touchy-feely." Some would say those in HR aren't as sensible or practical in their management methods as number-crunchers would be; and that they're sometimes too soft in their analyses and decisions. After all, to an accountant, most hiring/promotion/bonus/termination decisions are just open-and-shut questions of how much value people create versus how much they cost. And at times it can—and should—be no more complicated than that.
In their defense, however, our friends in human resources must consider a wider spectrum of personnel issues, including potential employees' background checks, their ability to communicate with others, to be team players, to interface with customers, not to mention their work histories and experience levels. Attention must also be paid to the organization's compliance with state and federal employment laws and notice requirements. There is a lot more to hiring, managing and especially terminating an employee than anyone in accounting would ever want to think about. Truthfully, you don't want that job. And besides, these days HR professionals already are learning they, too, must drive profitability through people, and that they can at times do that best when they think and manage more like accountants. This is because, at the end of the workday, they know interpersonal skills and impressive resumes alone aren't enough to justify an employment position unless those proficiencies are complemented by profit-creating abilities.
If accountants ran HR—or better still, if HR professionals learned to think more like accountants—we might well see more in the way of decreasing expenses and increasing revenues. Your job is to help them do theirs better.
Now, what would life be like if HR ran the accounting department? We will never know, because you don't want their job any more than they want yours.
Larry Myler is author of "Indispensable By Monday: Learn the Profit-Producing Behaviors That Will Help Your Company...and Yourself," and CEO of By Monday.