I had a free consultation with an accountant a few weeks ago to discuss my blogging and freelance writing gigs. While there, I also discussed my eBay business, which I plan to close this year.
After I had expressed my frustration with the eBay business, both in trying to pay off the residual debt and get rid of the remaining inventory, she looked at me with sympathy and said, “Have you ever heard of sunk cost?”
Honestly, I had not heard that term before, but immediately, just the sound of it sounded right. What is sunk cost? It is when you make decisions for your future based on previous expenses that cannot be recovered.
In my case, I spent 5 years trying to grow my eBay business. I operated under the faulty assumption that the more items I had in my store, the more quickly I would turn a profit. I assumed a great deal of debt, the majority of it incurred during my second year of business. This debt made it virtually impossible to turn a profit because all of my earnings went to debt repayment. I never earned anything off of my business—nothing in five years. Definitely not a good business model.
In 2011, I have earned $200 to $300 from blogging and freelance writing a month. Not huge money, but enough to make it much more profitable than my eBay business ever was. However, I am also dedicated to my role as full-time mom, which leaves me with about 2 hours during nap time to work and 2 hours at night after the kids are in bed to work. In addition, my husband gives me 2 hours on Sunday to go to Starbucks and write my posts. That adds up to 22 hours a week. However, I am easily spending 12 hours a week on eBay, the venture that earns me NO money.
My sunk cost is operating on the premise that by trying to sell off all of my inventory, I will be able to make money to repay my debt. Because eBay currently takes so much time, I am unable to assume more freelance writing (or, in all honesty, to maintain my other two blogs besides Mom’s Plans). I am turning down work I know is profitable to try to correct my past mistakes.
The accountant actually suggested that I may want to just stop selling on eBay and sell off inventory as time permits. She said it might be better to just accept the current debt and pay it down from the additional freelance work I will be able to commit to.
I am not ready to just accept the debt now because it is too high for me to be comfortable with (and too high for me to even admit here how much it is). However, I am trying to sell off as much as I can. I no longer care if I make much money from it. I just want to get rid of it so I can apply it to the debt and continue to grow my freelance business.