Opportunity Cost

Opportunity cost signals what opportunities a business or business owner has missed out on due to choosing one option over another option. In the financial world, opportunity cost typically refers to what a business owner has forfeited by choosing one financing method over another, but opportunity cost is not limited to finances. It can also refer to many decision-making processes.

Relative to financial decisions, businesses should strive to limit opportunity costs as much as possible. In the business world, this could mean choosing one financing method over another, such as a small business owner using invoice factoring rather than a bank line of credit.