Quick Snapshot
A mobile phone spare parts wholesale business (10+ years old) was growing year after year, but something didn’t add up.
- Turnover: Increasing for 2–3 consecutive years
- Profit: Dropped year after year
- Outcome by Year 3: Around ₹20–₹30 lakhs loss (from an earlier annual profit of ₹40–₹60 lakhs)
- Other red flags: Payables increased and stock increased, yet cash pressure kept rising
They weren’t facing a sales problem.
They were facing a profit leakage problem.
The Problem: In the Words of the Founder
“Sales are higher than before. But profit is going down. Stock is increasing. Payments are pending. Where is the money going?
This is one of the most common patterns in trading businesses: growth without control.
The business was working harder, investing more in stock, selling more, but earning less per sale and losing visibility over what was happening inside.
That’s when DAIM stepped in for an internal audit.
- Turnover: Increasing for 2–3 consecutive years
- Profit: Dropped year after year
- Outcome by Year 3: Around ₹20–₹30 lakhs loss (from an earlier annual profit of ₹40–₹60 lakhs)
- Other red flags: Payables increased and stock increased, yet cash pressure kept rising
They weren’t facing a sales problem.
They were facing a profit leakage problem.
What DAIM Found: The Real Reasons Profit Fell
DAIM’s audit highlighted four core issues behind the loss:
1. Pricing did not cover the full cost
Product pricing was being decided without fully considering the direct expenses associated with procurement and sales.
So while the business was selling more:
- margins were silently shrinking
- “profit per item” was no longer safe
- higher turnover actually increased the damage
They weren’t facing a sales problem.
They were facing a profit leakage problem.
2. Damaged stock was not being treated as a loss
The portion of the inventory that had damage/quality issues wasn’t being recorded properly.
That caused:
- stock value on paper to look higher than reality
- profits to look “okay” until cash started getting hit
3. Billing gaps created stock leakage
Not all sales were being billed properly.
When this happens:
- stock reduces physically
- revenue doesn’t reflect fully
- inventory and profit reports become unreliable
4. Accounting in Tally was messy and hard to trust
Expense heads were mixed and not grouped correctly, which made reports confusing.
In effect:
- the business depended mostly on stock entries
- other reports from Tally couldn’t be trusted for decisions
What DAIM Did: The Fix
DAIM didn’t just “adjust entries.” We rebuilt the operating system.
Cleaned up accounts and rebuilt the structure:
- Corrected and reorganised the full accounting setup
- Segregated expense heads properly
- Made reports dependable for decision-making
Rechecked and corrected the entire stock system:
- Carried out a stock clean-up to match reality
- Ensured damaged items were accounted correctly
- Segregated inventory into:
- Fast-moving
- Slow-moving
- Zero-moving
This made it clear what stock was earning and what stock was blocking cash.
Introduced a clear pricing policy:
- Created pricing rules so every price includes the full cost
- Removed guesswork from rate-setting
- Protected margin item-by-item
Cleaned up accounts and rebuilt the structure:
- Corrected and reorganised the full accounting setup
- Segregated expense heads properly
- Made reports dependable for decision-making
Fixed billing discipline during sales:
- Ensured every sale is properly billed
- Plugged stock leakage
- Improved accuracy of stock and revenue reporting
Put a debtor-creditor policy in place (cash control):
At one point, too much money was stuck outside as receivables.
So DAIM introduced:
- A credit policy (limits + timelines)
- Controls on how many debtors/creditors to maintain
- Caps set using simple ratio-based logic (so it matched real cash capacity)
Before vs After: A Clean Comparison
Before DAIM
- Turnover rising, profit falling
- Stock increasing, but cash tightening
- Pricing didn’t include all direct costs
- Damaged stock not tracked as loss
- Billing gaps → stock leakage
- Tally reports unreliable for decisions
- Too much money stuck with debtors
After DAIM
- Clear margin-focused pricing policy
- Clean, dependable accounts and reports
- Stock made accurate + damage accounted
- Every sale properly billed → leakage reduced
- Inventory classified (fast/slow/zero) for smarter decisions
- Credit policy introduced → cash control improved
- Clear limits on debtors/creditors based on business capacity
Results
The most important outcome wasn’t just “better books.” It was control.
The business owner could finally see:
Which items were actually profitable
Where cash was
getting stuck
Whether pricing
was safe
What stock was moving vs what stock was blocking money
And why profit was falling even when sales were growing
Founder Takeaway
If your turnover is increasing but profit is dropping, don’t assume it’s only competition.
In most wholesale businesses, profit falls because of:
- weak pricing discipline
- stock damage/shrinkage not recorded
- billing gaps causing leakage
- messy accounting that hides the truth
- uncontrolled credit to customers