McBride for Business Blog

Sunk Costs Are Irrelevant

December 14, 2017 // R. Shawn McBride // No Comments »

R. Shawn McBride recently spoke about not spending time thinking about past expenses.

Folks, Shawn here with you talking about an important concept in business planning. I learned this early in accounting school, and it stuck with me for many years. I’ve been using this principle since the early to mid-90s, and I love it. What is it?

Sunk costs are irrelevant. What does this mean? If you’ve already put money into something, you’ve already spent the funds, you’ve already put that money out the door, you’ve bought the building, you’ve improved your leasehold space, you’ve bought the equipment. Anything you’ve paid to date, any money that’s already gone out the door, anything that’s contractually committed that you can’t back out of – irrelevant. Don’t use that as part of your planning. Look at where you are.

What assets do you have? What current market value do they have? Where are you now? What resources do you have, and where do you move forward? Whatever you’ve spent, if you’ve spent $100,000 on a building that’s now worth $50,000, do not consider the $100,000 you’ve spent. Only consider the $50,000. If you’ve put 10,000 hours into a project and that project’s not where you want it to be, don’t consider that 10,000 hours. Consider where the project is and what it will take to revise it and take it forward.

What you want to do is to ignore what your base is in something, what something costs, and what you want to do is start looking at its value and move forward. This is amazingly powerful because so often, people get caught up on something because they spent money on it in the past, and they think they need to keep spending money on it because they’ve spent money on it. This is called digging a hole deeper. It’s digging a well that just keeps going down forever.

What you really want to do is look, take a current assessment of where you’re at. Do not worry about what you paid for everything that you’ve accumulated, what the individual cost is. Look at where you’re at, the collective value of what you have. Think about what you might be able to sell off, what you can use, and then how do you move forward. So you’re always looking forward, future costs, anticipated and projected costs.

Start ignoring past costs and those types of things, and you’re going to open up a lot of power. You’re going to do a lot better planning. You’re going to make a lot better decisions. And that’s what it’s all about. I’m all about helping successful private businesses do more and build companies that stand the test of time. And this is one of the great tools, is that sunk costs are irrelevant. So consider it, keep it in your tool chest when you’re moving forward, understand it.

What are you struggling with? Let me know. Check me out at R. Shawn McBride Fans and Audiences on Facebook, or like our YouTube channel. Let me know how I can help you. Give me some thumbs up, thumbs downs on the videos. Let me know what content you’re looking for, and I will try to build stuff that will help you. I’m here for you.

I really want to stop for a second and just applaud you for doing all this hard work. It’s hard to build a business. It’s not the easiest thing in the world. There are a lot of stuff to think about. A lot of people aren’t taking the time and effort to think about the things you’re thinking about by watching this video. You’re going to be a step ahead of your competition. Let me know how I can help you. McBride for Business. Get your free business evaluation checklist. Check me out at Reach out to me. Let me know if I can come in and keynote, maybe train your employees, help you do more. I am here for you, folks. I’m R. Shawn McBride. I’m signing off, but I will talk with you again very soon.

Make sure you download our free checklist to assess your business.

This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. Gavin Mills.

About the Author

R. Shawn McBride is the Chief Innovation Officer at McBride For Business, LLC. His signature keynote, The 3 Laws of Empowerment, gives audiences an entertaining look at how they can prepare, plan and protect themselves. You can email R. Shawn McBride or (214) 418-0258.

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Posted In: Business, Management, Strategy

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