The line loses money on the P&L. Closing it removes almost no cost.

Allocated overhead makes some of the healthiest work in a business look like a liability, and the decision that usually follows makes the remaining numbers worse.

By Steve 4 min read
Abstract bridge artwork for The line loses money on the P&L. Closing it removes almost no cost.

A management pack arrives showing four service lines. Three make money. One shows a loss of four per cent. The conversation that follows is almost always about whether to close it, and it is almost always the wrong conversation, because the loss is largely an accounting artefact of how overhead was spread rather than a description of cash leaving the business. The question worth asking first is not whether the line is profitable. It is which of its costs would actually disappear if it stopped tomorrow. What absorption costing is…

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Important: General information only. Rialto Bridge articles describe patterns and considerations that may apply to a business; they are not financial, legal, tax or accounting advice, and they take no account of your particular circumstances. Consider your own situation and seek advice from a qualified professional before acting.

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