By Bryan Orr
As small business owners, when a project doesn’t go well we feel the loss deeply; every job seems to matter and every decision that doesn’t go well affects us in a real way; both emotionally and financially. One of the greatest costs we can encounter in our business is when we allow ‘sunk costs’ to sink our ship.
What are sunk costs?
Sunk costs are expenses and/or investments of time that we’ve put into our business, and whether it was a good decision or not, the time and money is spent and the project is over with, therefore ‘sunk.’ What we don’t want to do is hold on to sunk costs that are unprofitable.
You might ask: Why would we hold on to something unprofitable when all we want to do is make a profit?
Surprisingly, as business owners we will often hold on to unprofitable investments, projects or ideas because we don’t want the time and money spent on that idea to go to waste. We become attached to something that we invested in, regardless of its profitability.
For example: Let’s say you spent two years developing an expensive web program for your business, only to find out that a free and better software comes out right after you finally launch yours. You’ve already sunk the money into your software and you don’t like to “waste,” so you continue to use your inferior product.
Stop it and just let go. Use the free and superior product that will in turn help you grow your business better. As business owners, always be making decisions based on what is ahead of you not on what is behind you. Sunk costs are over, you can’t do anything about them, so don’t allow them to hold you back from forward thinking.
Whatever stage you are in with running your business, I suggest that you take a look at your sunk costs. Maybe it’s a process, a product, an employee, a business location. Whatever losses you are experiencing, don’t be afraid to address them face to face, and decide what is the best decision you should make in moving ahead.
I’ve found more than a few, and though it felt painful to be realistic about them, it has brought about emotional and financial freedom.
A few examples for my business would be:
- Hanging on to an old vehicle just because: “We already spent so much on the lettering package.”
- Not considering other locations for an office because: “We already invested so much into the space we are in.”
- Failing to let an employee go until it’s gotten really out of control because of the investment made in training them.
It simply comes down to making the very best decision MOVING FORWARD, don’t worry about the past, focus on the future.
What sunk costs are you still holding onto that are weighing down your business?
