How to Work Out the Real Profit of a Karyana Store
A busy karyana store can feel profitable, yet leave little money at the end of the month. The reason is simple: sales are not profit. Profit is what is left after the cost of the goods sold, and after the costs of running the shop. This guide shows how to work out that real profit, step by step, with a simple monthly check.
Sales are not profit
Sales are the total value of goods sold in a month. That number looks large, because it includes money that must go to suppliers, rent, bills and staff. It is not money the owner can take home.
For example, a shop that sells Rs 8,50,000 of goods in a month has not made Rs 8,50,000 of profit. Most of that amount paid for the goods themselves. The rest paid for the shop. Only what is left after all those costs is profit.
Many shop owners make this mistake when they judge a month by the till total alone. A high sales month can still be a low profit month, if costs were also high. A lower sales month can be a better profit month, if costs were kept low.
Put a cost price on every product
Cost price means what you paid for one unit of a product. Sale price means what the customer pays for it. The difference between the two, for one unit, is the gross profit on that unit.
You need a cost price for every product you sell. Without it, you cannot work out profit at all. You can only guess, and a guess will not show which products make money and which do not.
Update cost prices when a supplier changes a price. If you keep an old cost price, your profit will look higher than it really is, because the new stock cost more. A cost price must match the stock you actually sold, not the stock you bought last year.
Work out gross profit
Gross profit is the first profit number to work out. The formula is simple:
Gross profit = sales - cost of goods sold
Cost of goods sold means the cost of the items actually sold in that month. It does not mean all purchases in that month. If you bought stock that is still on the shelf at month end, its cost is not yet in cost of goods sold. It becomes cost of goods sold only when that stock is sold.
For example, if sales are Rs 8,50,000 and the cost of the goods sold is Rs 6,80,000, then gross profit is Rs 1,70,000. Check it: 8,50,000 minus 6,80,000 is 1,70,000. That Rs 1,70,000 must still pay for rent, bills and salaries. It is not the final profit yet.
Take away rent, bills and salaries
After gross profit, take away the costs of running the shop. The main costs for a small shop are usually rent, utility bills, and salaries.
Rent is the monthly shop rent. Bills include electricity, and any other regular shop bills. Salaries are the pay for staff who work in the shop. Do not forget small regular costs, such as shop supplies, if they happen every month. Add them in the same list, so the total is complete.
In the example, gross profit is Rs 1,70,000. Take away rent of Rs 35,000, bills of Rs 18,000, and salaries of Rs 40,000. Those costs add up to Rs 93,000, because 35,000 plus 18,000 plus 40,000 is 93,000. Take 93,000 away from 1,70,000, and the result is Rs 77,000. That Rs 77,000 is the net profit for the month, before any other one-off costs or taxes the owner must also consider.
Khata given is not cash in hand
Khata means the record of money customers owe you. When you sell on khata, the sale counts in sales, and its cost counts in cost of goods sold. So the profit on that sale counts in the monthly profit. But the cash has not arrived yet.
That difference matters for spending. Profit on paper is not cash in hand. If a large part of sales is on khata, the shop may show a profit, yet have little cash to pay rent or buy new stock. The owner must track khata separately from cash.
Khata received is different from khata given. Khata received is cash paid by a customer for an old khata balance. It improves cash in hand, but it does not create a new sale or a new profit in that month. The profit was already counted when the sale was first made. Keeping khata given, khata received and cash apart stops a common error: spending money that customers still owe you.
A simple monthly check
Do this check once a month, on the same date, so months can be compared. Use the same lines every month. A fixed format makes a change easy to spot.
Here is an example with example figures.
| Monthly check line | Amount |
|---|---|
| Sales | Rs 8,50,000 |
| Less: cost of goods sold | Rs 6,80,000 |
| Gross profit | Rs 1,70,000 |
| Less: rent | Rs 35,000 |
| Less: bills | Rs 18,000 |
| Less: salaries | Rs 40,000 |
| Net profit | Rs 77,000 |
Check the maths in two steps. First, 8,50,000 minus 6,80,000 is 1,70,000. Second, 35,000 plus 18,000 plus 40,000 is 93,000, and 1,70,000 minus 93,000 is 77,000. If your own numbers do not add up, check the cost prices and the expense list first. Those two places cause most errors.
After the check, ask one question: which line changed most from last month? If sales rose but profit fell, check cost prices and expenses. If khata given rose fast, check cash in hand before ordering more stock. A monthly check is useful only if it leads to one clear action.
How SundarVahi does it
In SundarVahi every bill knows the cost of each item sold, so gross profit is worked out for you. Reports → Summary shows sales, gross profit, expenses and net profit for any dates, and Ctrl + E downloads it to Excel.
Tip: do the monthly check before you order large new stock. A clear profit number helps you decide how much cash is really free for new stock.
Questions
Is a high sales month always a good month?
No. A high sales month can still give low profit if the cost of goods, rent, bills or salaries were high. Judge a month by net profit, not by sales alone.
Why is my cash low even when my shop shows a profit?
A common reason is khata. Sales on khata count as sales, but the cash has not arrived yet. Check khata given and khata received separately from the profit check.
Should I count stock I bought but did not sell in cost of goods sold?
No. Cost of goods sold is the cost of items actually sold in that month. Stock still on the shelf stays as stock, and its cost counts only when it is sold.
Try SundarVahi free for 15 days
Billing, khata, stock and distributor tools, on Windows (works without internet), web and phone.