What is Opportunity Cost and Why is it Important in Your Business?

4 minute read
What is Opportunity Cost and Why is it Important in Your Business

Opportunity cost isn’t something many business owner’s discuss as frequently as other costs, but they impact the outcomes of individuals and businesses every single day. This is primarily because opportunity costs don’t show up on your financial statements. 

Don’t let out of sight be out of mind, however, as taking these costs into account when making decisions for your small business can make a big difference to your bottom line. 

What does opportunity cost mean?

Whenever a business (or individual) chooses one investment or course of action, they are also rejecting a range of alternative options. Those alternatives may have also resulted in a benefit for the business. The foregone potential benefit a  business doesn’t get is the cost of the missed opportunity. 

Factoring in this cost is a good practice for any entrepreneur because it encourages them to carefully consider the range of options available to them whenever they make a decision for their business. A small business owner can then choose the option that minimizes th