How to not let a sunk cost hurt your business

The life of a business can be a roller coaster.There are ups and downs in everything, and sometimes they can be good for your business.Other times they can hurt your business.This is especially true of sunk costs.They happen.Sometimes there's nothing you can do about it.But the key is to not let the sunk cost ruin your business.So keep reading and learn some tips on how not to let a sunk cost hurt your business.

If your business is starting to struggle, the most important thing that you can do for your business is pull the plug before things get worse.You need to know when to pull the plug on failing endeavors.When people thing of sunk costs, they usually think of throwing good money into a bad project.While this is a big part of it, there are more to sunk costs than just failing projects.A sunk cost can be anything related to dumping money into a "bottomless pit," with little or no change of return on that investment.Pointless spending is part of sunk costs.But they can also include the failure to admit errors or to pull out before it gets too late, both of which often lead to spending more on a lost cause.

Sunk costs may occur in any business and may or may not be the fault of the business owner or manager.However, if the primary decision maker of the business insists on being seen as infallible, clinging to a failed plan or method of doing things, the sunk costs of the business probably are due to the manager.Funding a project despite all the evidence screaming that it's a failure in the making is a recipe for business disaster.And if you can't identify the problem, or won't listen when other identify the problem, your business may be doomed to failure, taking the company, employees, customers, vendors, and families down along with them.

It's a bleak picture, isn't it?

But don't despair!There's still hope.To avoid this kind of business disaster, let's try to understand the concept of a sunk cost.In its simplest form, a sunk cost is money that is already spent and is unlikely to yield any form of return.Sunk costs occur in both private and business life.For example, that gym membership that you paid two hundred dollars for, but never got around to using, is a sunk cost.The money has already been spent, regardless of whether you ever go to the gym.

The first step toward preventing sunk costs from hurting your business is to recognize that an idea or project was not a good one.You need to identify and then admit the mistake.Then, after you've identified the culprit, don't keep throwing money at the problem.If it's already a sunk cost, stop the project.Don't try to remedy a failed situation.Instead, consider more testing, market research, or pilot programs to manage and reduce the risk to your company.

You should also include your employees in this process.Some of your employees might notice the sunk cost before you do.It's important that you listen to them and let them help remedy the situation.Sometimes all it takes is a pair of "fresh eyes" to fix the situation.Then, as a company, you can decide if the best decision is to eliminate the sunk cost, or repair it.If there's no hope for it, start over with a new idea.That way, sunk costs don't have to hurt your business.Sure, they can be a challenge for any business.But if you know how to handle it properly, sunk costs should be little more than a bump in the road.