Accounting and financial records play a critical role in every business and organization. The reporting of revenues, expenses, assets, liabilities, and other accounting transactions provides an internal and external view of how the company is doing.

Organizational leadership must maintain a close eye on the accounting and financial records to ensure that the company performs according to plan. Any deviations from departmental, subsidiary, or overall budgets must be evaluated and corrected. The accounting records also provide investors, lenders, and other interested parties an accurate view of the company's operations.

Each executive and manager will have their method of assessing and prioritizing accounting information. They may place a greater weight on various accounting entries based on their experience, transaction size, department history, how they are evaluated by their superiors, "how we have always done it," etc.

These weighting factors may include the relative importance of a recurring short-term expense versus the higher dollar and longer-term investment in assets. This evaluation will lead management to prioritize assets on the balance sheet over expenses shown on the income statement.

Consciously or sub-consciously, recruiting and the expenses associated with it will be considered less critical than other assets or investments.

However, the reality is that the recruitment and development of people are the most important investments an organization can make.

The Accounting Industry Tries to Raise the Importance of People

Several years ago, the accounting industry explored the financial statement presentation of Human Resource Accounting. The theory behind the effort was that people play such an essential role in the activities and success of a company that there should be a way to include the investment in people on the company's balance sheet.

The industry attempted to measure this investment, but each method required too many assumptions. Thus, Human Resource Accounting is not part of a company's financial statement presentation because there is no agreement among finance professionals and accountants regarding the correct measurement method. 

Some companies maintain internal accounting records that value their investment in people, but these summaries are not a part of the organization's official accounting documentation. A company must present costs for recruiting, development, and other expenses on the income statement.

The Investment Community Does Not Place a Direct Value on People, and It Shows

Are you considering the sale of your company? Many entrepreneurial ventures and organizations that investment groups own are for sale or will be shortly. The investment community values acquisitions and other investments by estimating the cash flows of the target entity and multiplying them by a factor based on the industry involved or other criteria. There is no direct method for valuing people's importance in the purchase or sale of a company.

This omission of people valuation is unfortunate because Harvard Business Review estimates that 70%+ of mergers and acquisitions fail. And most of these failures result from people problems that include crucial people leaving, teams not getting along, and people at the acquired company losing motivation.

Expense vs. Investment

From an accounting presentation perspective, a company must treat the cost of recruitment as an expense. Unfortunately, some company leaders view expenses as simply the costs of doing business – utilities, salaries, supplies, etc. The company's management may consider expenses transactional costs representing short-term activities or even the necessary evils of doing business.

On the other hand, investments usually represent more significant decisions than a current period expense. The acquisition of a new plant or equipment requires much thought, analysis, and comparative shopping. And its cost is depreciated over the life of the investment, which can be many years.

Expenses and investments are both critical to the success of the business. However, given the time and money invested in the company's assets, management often places a higher value on these expenditures. For instance, if business slows down, the company will look to cut expenses to save money. They will reduce travel costs, supplies, and utilities during a slow time. Layoffs occur if the business slowdown is prolonged and recruiting and development programs may stop.

After all, management spends a lot of time evaluating the best equipment to buy. Still, the recruitment of an individual is often a selection among the best available candidates at the time of the need.

In today's recruiting environment, a company must view recruiting differently. This does not mean that you spend less time evaluating equipment or other major purchases, but it does mean that a lot more time and effort go into your recruiting program.

Recruiting is an Investment, no Matter What the Financial People Say

Leaving a key position open or making a hiring mistake can cost the company a substantial amount of money. These people voids and errors go far beyond the dollars spent on recruiting, onboarding, possibly relocating, training, and development.

The more substantial costs will include the negative impact on employee morale, customer relationships, vendor relationships, marketplace reputation, and the time and dollars required to repair these damages. For many positions, the total cost of a bad hire will exceed the purchase price of some machines or other fixed assets.

No other asset will impact your company's successes or shortcomings more than your investment in people. As with your other investments, recruitment and people development costs require a lot of thought, analysis, and planning.

This evaluation process starts with determining who the right people are for your company and why they should be a part of the organization. Once you develop this message, you can select the best way to communicate this information to these "right people," current employees, customers, vendors, and other company partners.

These steps are the foundation of your recruitment marketing program. A diligent effort in defining and documenting this people investment will significantly impact your recruiting and your long-term business success.