Myths about cash flow and profit margins

05 Oct, 2021 admin

Myth in simple words refers to the false belief or idea one perceive as the true fact. Myths about cash flow and profit margins is a misconception an individual holds without any facts and belief that it’s all true.

Likewise businesses are too now living with misconception about cash flows and profit margins. Misconception leads to failure or contracts the business growth. So coming over such irrelevant facts will assist business to carry on its activities more effectively and efficiently. And ultimately maximizes the growth while washing away myths regarding cash flow and profit margins. Profitability margins of UK companies.

Five Myths about cash flow and profit margins are mentioned below:

Higher the sales higher will be the margin

Generally, higher sales mean more cash inflow and also the higher margin. But think, Does higher sales is ultimately the higher profits? Well no, the higher sales takes place when production is higher and expenses too will rise. Hence, higher sales and increasing expenses at the same time won’t constitute higher margin.

Cutting down staff remuneration and other office expenses

Staffs are the lifeblood of any business to carry out the business activities. To retain the competitive staff paying good salary along with benefits is very crucial. What you pay is what you get. If you pay well to your qualified staff, they pay you back in many ways. Motivated staff will not only give good productivity but innovative ideas and many more that will help in tremendous growth.

Expensive product will make us loose our customers

Costly products will make customers to find alternatives but not when price has negligible rise. A rapid increase is harmful but mild increase is understandable. So losing customers due to rise in price of product is not really happening, rather you will have positive cash flow and even the profit will rise.

Positive cash flow means profitable business

Simply understanding, positive cash flow means we have more cash inflow and low cash outflow. But it doesn’t really mean that your business is earning good returns. You can have positive cash flow without making any profits. As cash inflow might be the case of having cash from borrowing or cash to counteract your previous loss.

Increment in product price is ultimate source of profit

Increasing the price of products is what normally taken as solution to have good returns. Price of the products if increased along with change in its attributes which is acceptable to the customers will be fruitful. But not if the product has no change or doesn’t provide the quality as paid. It might end up making negative impacts on brand image. So having patience is must for earning a good return.