The True Value of HR

“Your people are your business’s most valuable asset.”

When it comes to an external buyer or investor looking at your business this adage is very true. A new buyer or investor can learn about a company from asking a few simple questions about the team and human resource function within it.

As a leader or owner in your business, you should have answers to these three questions. What your answers are say a great deal about the state of your human resources.

How often do people leave your company?

The person asking this question is interested to know what the turnover is in your company. High turnover is expensive because the team is constantly training and recruiting. High turnover is an indicator of possible culture or recruiting issues.

It is important to know why people are leaving and how you can take steps to slow down the turnover rate. If people are leaving your business, then uncover why. Is it the culture? Is it the work environment? Is it their role or responsibility? If your turnover rate is high because you are terminating people, it is important to understand what the core problem(s) is/are. Have people been properly recruited and vetted? Are fit, skills and experience all being considered? Is your training function working properly? Are expectations clearly defined?

At the end of the day, high turnover is a drain on a company. It is important to understand why people are leaving and how you can slow the flow.

What is the average tenure at your company?

Tenure is the opposite side of the turnover coin. The person asking this question is seeking insight about culture, but also about skill level, knowledge stores and key personnel. A high team retention rate (compared to similar industry averages) can be both an asset and a liability. An asset because it can speak to a positive culture, appropriate compensation packages and potential efficiencies. High tenure can be a liability because it may mean the knowledge or key customer relationships are housed within individuals, changes may be slow to be adopted or fought against and sometimes long-term employees may even be kept because of habit or out of fear.

It is important to understand if your company’s tenure data is an asset or liability. Here are some things to consider:

• What is the culture of your organization? Does it lend itself to people choosing to stay?
• If there are people with long tenure or inherited hires, are they still the right fit for the role they are in or is there room to modify to achieve better results?
• Does the historical, institutional knowledge held within long-term individuals exist in writing anywhere?
• Are relationships maintained with long-term employees also fostered by other individuals?
• Do long-term team members impede evolution or changes due to habit or are they resistant to change? (i.e., ‘That’s not how we do it.’)
• Are long-term team members a good representation of the culture and brand you want your company to represent?

Your answers to these kinds of questions will give you an indication of weather your company’s average length of tenure is an asset or liability.

Can I see your HR files?

Documentation is the backbone of any company. Having documentation on important functions, procedures and policies is key. Human resource documentation is varied and critical. From codes of conduct and role descriptions to vacation tracking and annual reviews. The amount and quality of HR documentation tells a story about the company.

If you were an outside investor or buyer, what story would your HR documents tell? Are your job roles clearly defined? Are there updated nondisclosures in place? Are HR policies and procedures up to date and enforced? How much vacation, sick or banked time is owing? (This can be a huge, looming cost if not properly managed.) Are reviews done regularly and with proper documentation? Regular reviews lead to an optimal team with proper competencies, attitudes and culture fit making sure those at the company are there for the right reasons.

If these three questions have given you pause and left you feeling a little uncomfortable, chances are your human resource function could use work. Like many parts of a business, HR grows and changes as the business evolves. It is important to keep all the elements of human resources current and relevant for maximum day-to-day efficiencies and in the event a buyer or investor is in your future, this effort will add value.

Getting a clear, unbiased understanding of your company’s human resources is a critical component in the overall value of your business. An external investor or buyer is very interested in the ins and outs of your organization’s human resources. There are immediate things you can do to improve where they are and move to where you want to be. Connect with us to help understand your human resources and next steps.