Businesses need to understand what sunk costs are.

Imagine a gambler having lost tens of thousands of dollars at a casino and still playing in the hope of "recovering" the lost money. Sounds far too familiar doesn't it? Common sense would say that the fact the money has been lost should have no impact on the gambler risking more money but he/she still does. The age old gambling thinking is the simplest example of why businesses need to understand sunk costs.

Sunk costs by the very definition are those costs that have already been incurred and cannot be recovered. If no matter what you decide to do, the sunk costs are gone, you should deem them irrelevant for the future decision making.

It's  a norm for a business to spend thousands of dollars in developing a product, service or an idea. If even after trying its best the product/service/idea is not profitable, then it would make sense to cut your losses and drop the idea. The fact that you have spent thousands of dollars (sunk costs) to get to a certain stage does not give you the license to waste many more thousand of dollars in the hope of turning things around.

Don't sink your business further to recover the sunk costs!

BY SURESH RAJANI

Suresh Rajani is the Tax and Business Adviser at TAX FIRST (A tax and business advisory firm)

www.taxfirst.com.au

What is the worst that can happen?

Fear and lack of confidence holds us all back. The fear of what would happen if you do something or lack of confidence in yourself knowing something can be done but not believing in yourself to be able to do it.

We all have ideas that we are not sure would work or things that we don't bring into motion as we are uncertain if they will be successful. Next time you have any of these thoughts, just ask yourself "What is the worst that can happen if I do this?" As long as the answer to the question is not "You will die", then go ahead and do it.

Have an idea that you think can be a great business but are pursuing it? Go ahead and get it in to play. What is the worst that can happen? You will loose a bit of money. There are lots of jobs out there and money can be earned back.

Have a thought about how the business that employs you can be improved? Go ahead and let the manager or owner know. What is the worst that happen? It would be knocked down as not such a great idea or not implemented. At least you would be seen as someone who cared about the business and what happens in it instead of just getting paid for your work.

BY SURESH RAJANI

Suresh Rajani is the Tax and Business Adviser at TAX FIRST (A tax and business advisory firm)

www.taxfirst.com.au

What a business can learn from a car indicator?

You are driving down a busy road and you realize you have to change lanes as the lane is either moving too slowly or your exit/turn is coming up. You flick the indicator to let others know of your intention to change the lane and to your surprise, no one gives you the space to change the lanes. You are furious as you think the other people are intentionally not letting you change lanes. With lots of struggle you somehow manage to change lanes and barely make it to your destination. 

 

Next day while driving the same thing happens and you wonder why. You check the car and realize that the  the signal light at the back of your car is not working and now you understand why no one was giving you way.

The above scenario is very much relevant to every business out there. You believe your business offers great products and/or services but no one seems to be willing to give you a chance to break in to the market or grow your business. The reason may not necessarily be the people around you. Maybe you are flicking the indicator but the indicator light is not blinking enough to catch the attention of your potential customers. So instead of blaming everyone else for not wanting to buy your great products and/or services, you should fine tune your business practices and find ways to improve what you do.

BY SURESH RAJANI

Suresh Rajani is the Tax and Business Adviser at TAX FIRST (An accounting and business advisory firm)

www.taxfirst.com.au