Dental Practice Finance:
Sunk Costs

By definition, a sunk cost is any cost you’ve made in the past. Problems with sunk costs arise when you have to make new plans, and they can easily get in the way of your best interests.

For example, let’s say you recently bought an existing dental practice in a small town. The patient pool was great on day one, but about a month later, the town’s largest employer announced plans to relocate. It’s been a year since then, and as the town’s jobs have moved, so have the majority of your patients. What now? Whatever your choice, if the time and money you’ve already invested influences your decision, then sunk costs have unfortunately muddled your thinking.

Fascinatingly, this not so contrived example was put to the test in 1993 by two Stanford professors, who, using ADA data, found that dentists often fell victim to sunk costs, especially dentists with local monopolies.

Remember, that as a business person planning ahead, it’s critical to stay focused on the full breadth of your future opportunities. If past decisions needlessly narrow your options, you’re only letting sunk costs keep you down. Stay open minded by regularly considering growth opportunities in your nearby markets as well as other ways to reach new patients.