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12 • The 100 Greatest Ideas for Building the Business of your Dreams

businessman realised immediately, was that taking his salary out of the costs of his
original business and transferring it to the new entity put him half way to achieving
the profit growth target at a stroke. Neat eh?

Now consider this. When you are dealing with a large organisation with a view
to taking one of their less prosperous bits off their hands, you are looking at it as
TICK- think in cash, knucklehead Idea 55. However, the manager of the bit you are
buying is thinking in terms of his or her management accounting system. In most
big organisations, for example, head office does not allow that its own costs, which
are apportioned to the divisions, must make some sort of contribution or be cut.
Here is what happens if head office believes that its costs are inevitable and fixed.

In this case head office costs of £24 million are allocated to divisions by turnover.

Division A B C Total

Turnover 1 00 50 50 200
Divisional contribution 18 7 5 30
HO costs 12 6 6 24
Profit 6 1 (1) 6

The long-term viability of division C is plainly not there and the decision is taken
regretfully to sell or close the division. By definition head office costs are unaffected
in total and need to be re-allocated.

Division A B Total

Turnover 1 00 50 150
Divisional contribution 18 7 25
HO costs 16 8 24
Profit 2 (1)
1

Oh dear, now division B faces the chop.