Was last month profitable? Find out with 1 subtraction a month

There are moments when someone asks whether last month was profitable and you cannot answer straight away. Whether it was busy, you know in your body. Whether it earned anything is a different question. Sometimes the busier month is the one that left less money in hand. Even if you have never kept a set of books, there is a way to answer that question once a month. The reason you could not answer it before is that there was never an occasion to check.

Checking is a once-a-month job. It is not something to do every day. The daily part is writing 1 line whenever money moves. The monthly part is sorting those lines into 3 piles and doing 1 subtraction.

Here is how. Add up all the money that came in last month. Then add up what you paid for the things you sell. Then add up everything else you paid: rent, electricity, phone and data, delivery, wages, transfer fees. Subtract the last 2 totals from the first. If something is left, the month was in the black; if not, it was in the red. Nothing in those steps is an accounting term.

There is a reason for keeping what you pay for goods apart from everything else. The first kind rises and falls with how much you sold. The second kind leaves your pocket at the same size whether you sold anything or not. When the 2 are mixed, you cannot read what is happening in a month when sales go up. Kept apart, you can answer a question like how many more units you need to sell to cover the rent.

There is 1 pile that is easy to forget: your own share. If you do not count what you take out of the shop for yourself as a cost, you end up with months that look profitable on paper while your own work was the thing that went unpaid. Treat such a month as a good one, keep doing the same thing, and all that accumulates is tiredness.

I got this wrong myself. In the early days of the company I thought a month with higher sales was a good month. In fact, when sales rose, the payments that go out with them rose too. Until I started doing the monthly subtraction, I could not say which months had actually been good. When I lined up a year of them, the busiest month turned out to be the month with the least left over.

One thing to watch. Having more cash in hand is not the same as being in the black. What you sold on credit has not become cash yet, and rent you paid 6 months ahead has already left in cash. So if you judge a good month or a bad month by what is in the wallet, the timing gap will catch you. That subject needs its own piece, so I will write it another time.

A word about months that come out in the red. One month in the red is not a reason to close the business. What you look at is which of the 3 piles is large. Is it heavy on what you pay for goods, or have the other payments piled up. If it is the first, the conversation is about your prices or your supplier. If it is the second, the conversation is about counting again the things that leave at the same size every month. The same red number points at different next steps.

A month in the black also deserves more than the single word profit. This subtraction cannot tell you which product is the one leaving money. Even so, once you line the months up, the shape of good months and bad months starts to show. Is it the season, or was it the month you changed something in how you work. After about 3 months of lined-up numbers, the habits of your own business become visible.

KAZENA Books, which we build, is a tool for not doing this subtraction by hand. Upload a receipt, an invoice or a bank-statement CSV and AI reads it, proposing the account, the amount and the tax; the person reviews and approves. From the approved lines, the trial balance, profit and loss statement, balance sheet and general ledger are generated automatically and export to CSV or PDF at any time. The table called a profit and loss statement is exactly the result of this subtraction.

Still, even with a tool, deciding whether a given payment belonged to the shop is a person's job. And no tool can produce a line that was never written. Paper and a pencil give the same answer to this subtraction. So it is quicker to do it once than to choose a tool first.

A note on tax. I am not a tax accountant or a lawyer, so please confirm anything about filing and payment with a professional. What I can say is that the contents asked for at filing time are roughly the same 3 piles. Doing it once a month means less remembering of a whole year when that time comes.

One thing to do today. It does not matter that today is the middle of the month. Take what came in, what you paid for the things you sell, and everything else you paid, from the start of this month until today, sort them into 3 piles and do the subtraction once. It takes about 15 minutes. Do not worry today about whether the answer is exact. What matters is that a question you had no answer to now has 1 answer, in your own numbers.