Opportunity Cost Definition
Opportunity Cost Definition

See Also:
The Future of the Accounting Workforce
Future Value
Cost Driver
Certified Public Accountant (CPA)

Opportunity Cost Definition

Revenue that has been forfeited for an alternative use of time or facilities. Often times these types of decisions are made because a company or person forgoes an immediate cash stream for hopefully a larger one in the future.

Opportunity Cost Meaning

Opportunity costs decision making is often based on the potential for higher cash streams in the future. This can happen if a company is developing a new product, and in the meantime has available capacity it could rent out. However, the company keeps it idle in hopes that the new product will develop higher cash flows and use the idle capacity.

Opportunity Cost Examples

Here are some common opportunity costs examples:
– A person who just graduated high school has the chance to take a job at a factory or go to college and gain further knowledge. Often times, the student will go to college because he/she believes that they will be able to make more in the long run over the years by investing in an education.
– A company decides that it needs to invest in new software. It may costs a lot, but if the company becomes more efficient it would be worth it. If the costs to maintain the software is reduced and sales increased it could pay for itself and more in the long run.
– A bank has outstanding loans that have broken covenants. The bank could ask for the full amount right now, but often times they will work with the company so the bank can realize the interest payments along with the principal.
Learn how you can be the best wingman with our free How to be a Wingman guide!
Opportunity Cost Definition
[box]Strategic CFO Lab Member Extra
Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.
Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]
Opportunity Cost Definition


The Accounting Gap Between Large and Small Companies

The Accounting Gap: It’s unfortunate, but true. A large gap exists between the accounting departments of large or publicly traded companies and smaller or private companies. In our past 25 years of consulting we’ve noticed that more often than not, these smaller/private companies will fill the gap with Bookkeepers, rather than the degreed Accountants/CPAs they

Read More »

Changing Markets Affect on Valuations

Economics back in January 2021 Back in early 2021 there were certain signs that the economy was going to change in some way, and many predicted this change would not be positive.  Post Pandemic in January 2021 the U.S. Government continued to pour billions of dollars into the economy by printing more money. Economics 101

Read More »

The Struggles of Private Company Accounting

Building your Accounting Department… When I meet a business owner operating at a successful $10+ mil in revenue I often hear them say “My CPA…” and I immediately know they are referring to a tax CPA. One thing ALL entrepreneurs have in common is that they have to file a tax return. So from day

Read More »


Financial Leadership Workshop

MARCH 28TH-31ST 2022


Financial Leadership Workshop


June 12-15th, 2023

WIKI CFO® - Browse hundreds of articles