Lance Geda | Director of Strategic Finance
Often, companies think of Human Resources and Finance as opposite ends of administrative functions. The people arm, HR, is interested in culture and emotion–not necessarily the bottom line. They are driving productivity through engagement with little regard for costs, at times. Finance, on the other hand, is concerned about the bottom line and tends to see people as walking costs that need to be managed.
Both departments are support functions. They don’t generate revenue for the company, but they do help ensure that the company can continue operations to generate revenue. And, more importantly, both functions have a hand in controlling costs.
Bringing HR and Finance Together
In high functioning companies, Human Resources and Finance work together. There are three major areas where collaboration between these departments is beneficial.
- Planning
- Advisory
- Compliance & Risk Management
Planning
Preparing an operating budget and comparing actual results to that forecast is typically thought of as a finance function. But, labor costs account for the vast majority of operating costs in any company–frequently up to 70% of the total operating budget.
Understanding the people that make up a company is critical to achieving budget goals. Without HR input, the finance team cannot know the number of open positions that a department is looking to hire–which means, they can’t accurately reflect labor costs.
There are many financial implications related to the labor pool. The cost of recruiting candidates in relation to the churn rate for terminations or resignations is a fluctuating target. A good budget will have a merit pool that allows for wage increases–an investment that will help retention and reduce those associated turnover costs.
Advisory
Successful department leaders have a team that supports them. They have a finance partner that helps them project what they will spend for the next year and then helps them allocate resources wisely throughout that year. They have a human resource partner who works with them on employee morale, talent acquisition, and potential employee issues that might hurt strategic or operational goals.
Together, finance and HR can help department leaders navigate the challenges that a team of people can bring, whether it’s a sales team that needs a commission structure that aligns with the company’s revenue objectives, or a manufacturing department where sick and vacation shifts need to be covered by another person. Finance and HR can advise on strategic and tactical decisions to ensure each department’s goals align with the company’s goals.
Compliance & Risk Management
This third area is also known as ‘protecting the company flag’ or compliance and Risk Management. Companies operate under various levels of risk. Compliance and Risk Management are necessary activities that help protect the company from adverse effects of risk like lawsuits, employee malfeasance, and misbehavior, or anything that might seriously hurt the brand’s reputation.
While all employees have some responsibility here, finance and HR bear the brunt of the workload. Human resources is responsible for employee handbooks and policy and procedure communication, while finance works with insurance providers to ensure the right level of coverage is carried at a reasonable cost. Finance also works with HR to ensure that governmental compliance for hiring and letting of employees is met–just to name a few of the compliance responsibilities these departments navigate.
Together, these two departments can ensure that applicable state and federal laws are adhered to and reporting requirements are met. They can strategize on finding the right balance between risk mitigation and risk tolerance with respect to how funds are allocated.
Realizing HR-Finance Synergy
Looking back over some of the most successful post-merger downsizing efforts, it’s always the teams where Human Resources and Finance function in lockstep that have the smoothest transitions.
In one example, the company cut 150+ employees. They spent three weeks between notifying employees and administering severance packages and at the end of it–not one employee pushed back. Nobody refused the offer, nobody threatened to sue. Together, HR and finance established clear goals, timelines, and expectations. They developed a communication plan that ensured consistent messaging across all stakeholders. They carefully evaluated a detailed analysis of the financial situation and the cost-saving targets to create severance packages that were appropriate for each termination. And, they accounted for all legal and compliance needs with regular check-ins and debriefings throughout the process.
When a company realizes the power of collaboration between these support functions, they can accelerate their growth and free up founders and senior executives to concentrate on vision and growth.
If the thought of hiring a full-time CFO and CHRO seems daunting, consider exploring fractional options that can give you this type of direction and proactive support without the commitment of hiring a full-time resource.
Contact Embarc Advisors today to learn more.
