Sunk Costs- Know When to Walk Away

What is “sunk costs”? Generally speaking, sunk costs are past expenses that are no longer relevant to your current decisions. For instance, if you purchased new software and hired the firm to install the software on your computer system and for whatever reason, there are a lot of errors that keep occurring. Soon you find that you are having to spend even more cash to have the software company update the system over and over. You have to decide if the cost is worth it or if it’s time to move on to something different.

Sometimes an owner or manager may feel they have invested a lot of time and money and if they moved on to something different they will have wasting all their initial investment. This is not true. This is “sunk cost”. It’s time to move past sunk costs with the confidence of knowing it's the smartest business decision you can make. 

Other examples of sunk costs are sometimes found in advertising, inventory, equipment, or even research on a product. In these areas a business spends money that they can’t recover. This spending becomes irrelevant for current decision making. It may be time to ditch it and go with something else. No amount of money will salvage a poor business investment or decision. It can be a difficult to admit something isn’t working, that's why it's important to know when it's time to move on to something more relevant to your current and future business.

At Summit CPA we offer multiple resources to get your business on the right track. If you need assistance resolving your "sunk cost" issues contact our office at (260) 497-9761 to schedule an appointment with our advisors.