Short answer
To track profit and loss, record every sale, work out the cost of the goods you sold using opening and closing stock, then subtract operating expenses grouped into clear categories. Do it every month, on the same day. Keep receipts for each expense, separate the owner's withdrawals from business costs, and compare margins month to month.
On this page
Many business owners know their daily sales by heart but cannot say what the business earned last month. Sales are visible; the costs that eat into them are scattered across supplier invoices, petty cash notes, mobile money messages and the owner’s memory. A profit and loss statement, often shortened to P&L, pulls all of that into one page. This guide shows how to build one each month, how to organise expenses so they are easy to track, and how to read the numbers once you have them.
What a profit and loss statement shows
A P&L covers a period, usually one month or one year, and answers three questions in order:
- How much did we sell? Total sales, after returns and discounts.
- What did the goods we sold cost us? The cost of goods sold, often written COGS.
- What did it cost to run the business? Rent, salaries, utilities, transport and every other operating expense.
The layout always follows the same order:
| Line | How it is worked out |
|---|---|
| Sales | Total invoiced and till sales, less returns and discounts |
| Less: cost of goods sold | Opening stock + purchases − closing stock |
| Gross profit | Sales − cost of goods sold |
| Less: operating expenses | Rent, salaries, utilities, transport, charges and so on |
| Net profit (or loss) | Gross profit − operating expenses |
Step 1: Get sales right
Every sale needs to be recorded once, including:
- Cash sales at the counter
- Mobile money sales, whatever the provider
- Credit sales, recorded the day goods leave the shop, even though payment comes later
- Sales from every branch
Subtract customer returns and any discounts given. If a cashier gives TSh 2,000 off a TSh 50,000 sale, the sale is TSh 48,000.
A POS that records every sale as it happens does most of this work for you. In SmartBiashara, till sales and invoices are recorded in the same system, so the month’s sales report is ready when you need it.
Step 2: Work out the cost of goods sold
This is where many home-made P&Ls go wrong. The cost of goods sold is the cost of what you sold, which is different from the total you paid suppliers that month. If you bought a lot of stock in March that will sell in April, counting all of it as March’s cost would make March look terrible and April look wonderful.
The formula:
Cost of goods sold = Opening stock + Purchases during the month − Closing stock
All three figures are at cost price, not selling price. Closing stock comes from a stock count or from a stock system you trust. If you have not counted in a while, our stock taking guide explains how.
An illustrative example for a mini-supermarket:
| TSh | |
|---|---|
| Opening stock (1 August, at cost) | 8,400,000 |
| Add: purchases in August | 11,200,000 |
| Goods available for sale | 19,600,000 |
| Less: closing stock (31 August, at cost) | 9,100,000 |
| Cost of goods sold | 10,500,000 |
Stock lost to theft, damage or expiry ends up inside this figure, because it is missing from closing stock. That is one reason to record adjustments with reasons: it lets you see how much of your cost of sales was goods you never sold.
Step 3: Group your expenses
Operating expenses are everything it costs to run the business that is not stock for resale. Group them into a small number of categories and use the same categories every month, so you can compare.
| Category | Typical items in a Tanzanian SME |
|---|---|
| Rent and premises | Shop rent, warehouse rent, service charge, security |
| Staff | Salaries, casual workers, staff meals, statutory contributions |
| Utilities | Electricity (LUKU tokens), water, internet bundles |
| Transport and delivery | Fuel, bodaboda and bajaji deliveries, lorry hire for stock |
| Mobile money and bank charges | Withdrawal and transfer fees, bank account fees |
| Marketing | Printing, WhatsApp and social media adverts, signboards |
| Repairs and maintenance | Fundi for shelves, fridge repairs, generator service |
| Licences and fees | Business licence, permits, professional fees |
| Software and phones | POS or accounting subscriptions, airtime for business lines |
| Other | Anything that does not fit above, kept small |
If “Other” grows large, it is a sign you need another category.
What does not belong in operating expenses
- Stock for resale. That goes through cost of goods sold.
- Owner’s personal spending. Record it as drawings.
- Loan principal repayments. The interest is an expense; the repayment of the amount borrowed reduces the loan.
- Large equipment purchases such as a fridge, a motorbike or shelving. These are assets used over several years. Your accountant will spread their cost through depreciation.
Step 4: Put it together
Continuing the illustrative mini-supermarket example for August:
| TSh | % of sales | |
|---|---|---|
| Sales | 13,800,000 | 100% |
| Cost of goods sold | 10,500,000 | 76.1% |
| Gross profit | 3,300,000 | 23.9% |
| Rent and premises | 900,000 | 6.5% |
| Staff | 1,200,000 | 8.7% |
| Utilities | 280,000 | 2.0% |
| Transport and delivery | 210,000 | 1.5% |
| Mobile money and bank charges | 95,000 | 0.7% |
| Marketing | 60,000 | 0.4% |
| Repairs and maintenance | 85,000 | 0.6% |
| Software and phones | 75,000 | 0.5% |
| Other | 40,000 | 0.3% |
| Total operating expenses | 2,945,000 | 21.3% |
| Net profit | 355,000 | 2.6% |
Percentages of sales make months comparable. If gross margin drops from 23.9% to 21% next month, something changed: supplier prices rose, discounts increased, or more stock went missing.
Step 5: Read the numbers
A P&L is only useful if it changes what you do. Each month, ask:
- Did gross margin move? A falling margin with steady sales usually points to supplier price increases you have not passed on, too many discounts, or stock losses.
- Which expense grew fastest? Compare each category with last month and the same month last year if you have it.
- Which products earn the margin? Overall margin hides the detail. A product report showing margin per item often reveals lines that sell well but earn almost nothing.
- Is net profit enough? After paying yourself a fair amount as drawings, is there money left to grow or to build a reserve?
Profit and cash are related but separate. A month with good profit can still leave you short of cash if customers owe you money. Our cash flow guide covers that side.
Managing expenses day to day
A P&L built from incomplete expense records will overstate profit. These habits keep expense tracking honest.
Keep a record for every payment
Every shilling that leaves the business needs a record: a receipt, a supplier invoice, a mobile money message saved as a screenshot, or a signed petty cash slip. Write the category on it the same day.
Control petty cash
Small payments, such as a bodaboda delivery or a bucket of water, add up. Run petty cash as a fixed float:
- Give one person a fixed amount, for example TSh 100,000.
- Every payment from it needs a slip with date, amount, reason and signature.
- When it runs low, add up the slips, record them as expenses, and top up the float to the fixed amount.
- At any time, cash in the petty box plus slips should equal the float.
Separate business and personal money
Use business wallets and a business bank account for business payments only. When the owner takes money, record it as drawings on the day. This single habit makes the P&L far more reliable.
Approve before paying
Decide who can approve which expenses. A branch manager might approve up to a set amount; anything larger needs the owner. Write the rule down and apply it every time.
Review recurring costs
Once a quarter, list every recurring payment: subscriptions, internet bundles, security, rented equipment. Cancel what you no longer use and renegotiate what has crept up.
A monthly close routine
Pick a fixed day, such as the third working day of each month, and work through the same steps.
- Confirm every sale for the month is recorded, including credit sales and all branches
- Enter all supplier invoices received for the month
- Record every expense with its category, including petty cash slips
- Record owner drawings separately
- Count or confirm closing stock at cost
- Prepare the P&L and calculate each line as a percentage of sales
- Compare with last month and note the three biggest changes
- Decide one action, such as a price change, a cost to cut, or a product to stop stocking
- Share the P&L with your accountant or bookkeeper
Doing it in software
A spreadsheet works for a single shop with a careful owner. As transactions grow, the work of copying sales, purchases and expenses into it becomes the bottleneck. In an integrated system, sales and stock costs flow into the books automatically and expenses are entered once against a category, so the P&L is a report you open rather than one you build.
SmartBiashara includes double-entry accounting, an expenses module for recording business costs, and profit and loss among its business reports, with export to Excel, PDF or WhatsApp. Accounting is included from the Starter plan at TSh 15,000 a month, excluding VAT; the pricing page has the full plan list. The ERP software overview shows how sales, stock and accounting connect.
For annual accounts, tax returns and TRA filings, keep working with a qualified accountant. Good monthly records make their job faster and your figures more reliable.