Your shop's real profit, and why the register never shows it

Ask a shopkeeper how business is and you will usually get an answer about sales. "Achi hai, is mahine teen lakh ka kaam hua." Ask how much of that he kept, and the answer gets slower.

That pause is not carelessness. It is that nothing in a normal shop is set up to answer the question.

Turnover is not profit, and the gap is bigger than people think¶

Three lakh of sales does not mean three lakh came in, and it certainly does not mean three lakh was earned. Between the two sit four things, and all four are easy to lose track of.

• What the goods cost you. Not the rate you quote — the rate you paid, on that consignment, including whatever the freight was.
• Discounts you gave. Every "chalo bhai, 200 kam kar deta hoon" at the counter.
• Money that went out on udhaar and has not come back yet. It counted as a sale. It has not yet counted as money.
• The shop's own expenses — rent, bijli, wages, freight, chai. They come out of the same pocket.

A month can look excellent on sales and leave you with less cash than you started with. Usually the reason is the third one, and you can read more about keeping that visible in the article on the udhaar khata.

Real cost is the number most shops get wrong¶

Here is the common version. An item was bought at 400 eighteen months ago. The rate has moved to 520 since. The shopkeeper still thinks of it as "a 400 rupee item" and sells it at 600, believing he made 200.

He made 80. And when he replaces it, he pays 520.

This is not an accounting technicality — it is the difference between a shop that grows and a shop that slowly runs out of stock without anyone noticing. If your margin is calculated against a cost you paid two years ago, you are quietly funding your customers.

Profit has to be worked out against what the goods actually cost, on the purchase they came from. That means the purchase rate has to be recorded at the time, per consignment, and carried through to the sale.

Why the register cannot tell you¶

A sales register records what left the shop. To know profit you need what it cost, what was discounted, and what was spent — three more books, and nobody keeps four books.

So the figure gets estimated. And an estimate is fine for a feel, but it is useless for a decision: whether to stock more of something, whether a line is worth the shelf it sits on, whether the discount you give your biggest customer still leaves anything.

The giveaway is simple. If you cannot say which five items made you the most money last month — not sold the most, made the most — then you are deciding what to buy next on memory.

The three figures worth knowing every month¶

• Gross profit — sales less what those goods cost you. This tells you whether your rates are right.
• Expenses — everything the shop spent, in one list, including the small things that do not feel like business spending.
• Net profit — gross profit less expenses. This is the only number that is actually yours.

Most shops can produce the first with an afternoon of work and have never produced the third at all. The third is the one that tells you whether this year was better than last.

Doing it without four registers¶

Every POSPlus system records the purchase rate when stock comes in and carries it through to the sale, so profit is worked out against what you really paid rather than what you remember paying. Discounts are recorded as discounts instead of a changed price, so they show up instead of disappearing. Expenses live in the same book. The Day Book shows the day's money in and out on one page, and the reports show gross profit, expenses and net profit for whatever period you choose — with your best-earning items, not just your best-selling ones.

Offline on one computer, one-time price, free 15-day trial. But the point is not the software. The point is that the number exists, and most shops are running without it.