We all look at our financials to determine how the company is performing. The problem with your financials is that they were invented in 1494 by Luca Pacioli (improving the Babylonian system of 5000 BC.
Would you not agree that an update is necessary?
The current financial system is oriented towards manufacturing. In 1995, service industry portion of high income economies was 66%. I can guarantee it’s grown since then.
Recording Labor as an Asset
There have been three economies in history – agricultural, industrial, and technological. Current financial accounting is dangerously biased towards an industrial economy that does not record the financial position of high income countries and their companies.
In high income countries, labor can now be divided into 3 parts.
- Unskilled labor where technology destroys labor. Dyson has a vacuum that takes pictures of the room and climbs over obstacles. Why do you need the cleaning lady? Technology has even destroyed sex work since people with similar desires can connect with each other voluntarily. While unions and civil service slow the disappearance of this sector, it is marginal.
- Skilled labor is the next to disappear. When did you go to the bank and find a teller? Did you check yourself out at Walmart or the grocery store? Self driving vehicles will replace all drivers.
- The sweet spot in a technological economy is talent. You cannot replace the creative, heuristic, critical talent. In a perfect world, we would see an explosion of the arts and frontiers of science.
In the current world, you will face a dearth of talent to hire and a million resumes from skilled and unskilled labor every time you post a job.
What to do?
- Expense all your skilled and unskilled labor as financial accounting requires.
- Conservatively estimate the revenue that each talent based employee adds to the company and the estimated length of service. Add that to long term assets.
- It will increase your assets and equity in most cases. If you are in trouble, it adds to your liabilities and shows that you are highly leveraged.
What do you do with assets? You increase their value and extend their useful life.
- Invest heavily in talent to increase their value. Add professional development as an asset instead of an expense
- Examine your labor pool and invest in Professional development to convert skilled labor into talent and assets
- Look for technology that replaces skilled and unskilled labor
We cannot solve the life problems of labor that is not needed. This is where government policy and philosophy steps in to guarantee an economic floor.
For the current moment, you need to add value to labor to turn it into an asset. You will find that employees are so thrilled that most will stay longer than your conservative estimates of an asset allowed. You will win. They will win. Your stakeholders will win. The best kind of scenario.
Meanwhile, your balance sheet reveals a true picture of your expense and assets as an organization. Are you ready for the current economy? Your new balance sheet will tell.
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“Growth in the Service Sector.” (n.d.): n. pag. World Bank. Web. 16 July 2016.
Management, Valuation, and Risk for Human Capital and Human Assets: Building the Foundation for a Multi-Disciplinary, Multi-Level Theory . Palgrave Macmillan. Kindle Edition. Russ, Meir. N.p.: n.p., n.d. Web.