By Julie Goh
With limited resources and a need to make tangible and immediate investments, SMEs tend to focus on things they can see, touch, and quantify. However, this approach may overlook a crucial aspect of their success: investing in human capital. While physical assets like equipment and inventory are important, the true value and potential for growth lie in the skills, knowledge, and abilities of the people within an organisation.
Let’s do a realistic comparison!
DEPRECIATION (Physical Assets): When it comes to physical assets, such as machinery or equipment, depreciation refers to the decrease in their value over time. Physical assets tend to wear out, become outdated, or lose value due to factors like wear and tear, technological advancements, or market changes. As a result, businesses often have to allocate funds for maintenance, repairs, and eventual replacement of these assets. Depreciation is a normal part of managing physical assets, and businesses need to plan and budget accordingly. The older the machine gets, the more it needs maintenance and repairs.
APPRECIATION (Human Capital): In contrast, when it comes to human capital, appreciation refers to the increase in value over time. Investing in employees' skills, knowledge, and development can lead to their growth and increased expertise, which positively impacts their performance and contribution to the company. As employees gain experience, acquire new skills, and develop professionally, their value to the company appreciates. This appreciation can result in improved productivity, innovation, and overall business success. The more the employee is developed, the more expert he/she becomes.
While physical assets typically depreciate, human capital has the potential to appreciate. This distinction highlights the importance of ongoing investment in employees' growth and development. By continuously supporting and nurturing their skills and abilities, businesses can enhance their human capital's value, leading to long-term benefits for the company.