Opportunity cost and trade-offs

9.1 Introduction to opportunity

For a new business start-up, the most important opportunity cost issues are as follows:

• Do not tie up too much capital in stock as this cash could be used more productively elsewhere in the business.
• Do not overstretch yourself: good decisions take time, so make sure you are not doing too much yourself.
• Take care with every decision that uses up cash, at the start of a business it is hard to get more of it, but more is always needed.

9.2 Opportunity costs in developing a business idea

Personal opportunity costs:

• The owner of a first business will probably come from a background as a well paid salary earner. So the first opportunity cost is missing out on the opportunity to earn a regular income. As it could take 6 months or longer to get a business going, this is a long period of financial hardship.
• Then comes the investment spending itself, such as the outlay on a lease, on building work, machinery and on HR to make everything work with a human face. All this uses money that that could otherwise be sed on the proprietor's house, holidays, and so on. The personal opportunity costs add…