SHG Business Profits vs Member Wages: Keeping Accounts Clear
When an SHG runs a group business, pay wages to working members as a cost, keep profit separate from savings and share it only from real cash. ₹65,000 example.
In this article (9 sections)
When a self-help group (SHG) runs a business together, such as a papad unit, tailoring centre or canteen, treat wages for members who work as a cost of the business, and treat profit as what remains after all costs including loan interest. Keep the business in its own cash book (and ideally its own bank account), separate from members' savings and internal loans, and share profit only from cash actually left after loan instalments and a reserve. Practices described here are as of November 2026; your State Rural Livelihood Mission (SRLM) or promoting agency may give formats for group enterprises.
Most SHG credit under DAY-NRLM goes to members' own livelihoods, but groups also run joint units. For how SHG bank loans are sanctioned, see our NRLM SHG loan guide.
Three kinds of money that must not mix
| Money | Belongs to | Recorded in |
|---|---|---|
| Member savings and internal loans | Individual members / group fund | Savings register, loan ledger |
| Business sales, costs and stock | The business | Enterprise cash book, stock register, sales book |
| Wages for work done | The member who worked | Attendance and wage register |
| Business profit | Members as per rules, or reserve | Profit and distribution record in minutes |
Our guide to SHG savings vs loan fund records covers the first row. This article is about the rest.
Write these rules before the first sale
- Who works and at what rate: daily or piece rate for each task, recorded in the minutes.
- Who shares profit: all members equally, only working members, or in proportion to money each put in.
- Reserve: a fixed share of profit kept back for repairs, slow months and loan instalments.
- How often profit is calculated: monthly or quarterly, after stock is counted.
- Who handles cash and signs: at least two members, with a monthly report to the meeting.
- What happens to a loss: carried forward, covered from reserve, or wages reduced by agreement.
Records for the business
- Enterprise cash book: every sale and every payment, with bills.
- Attendance and wage register: who worked which day, rate, amount paid, signature.
- Stock register: raw material bought, used and left; finished goods made and sold.
- Sales and credit register: who owes the business money and since when.
- Loan register: if the business has its own loan, show EMI split into interest and principal.
- Asset list: machines and equipment, with who owns them. If the group is buying equipment, decide who owns the asset and whose name goes on the invoice first.
Worked example: a papad unit's month
The figures are illustrative.
A 15-member SHG runs a papad unit. Four members work in it for 20 days each at an agreed ₹250 a day. The unit has a bank loan for a machine with a monthly EMI of ₹5,000, of which about ₹1,200 is interest this month.
Profit calculation
| Item | ₹ |
|---|---|
| Sales | 65,000 |
| Raw material | (30,000) |
| Packaging | (4,000) |
| Electricity and rent | (2,000) |
| Wages: 4 members × 20 days × ₹250 | (20,000) |
| Profit before interest | 9,000 |
| Loan interest | (1,200) |
| Profit after interest | 7,800 |
What the rules say: 25% of profit to reserve, the rest shared equally among all 15 members.
- Reserve: 25% × ₹7,800 = ₹1,950
- To share: ₹7,800 − ₹1,950 = ₹5,850, or ₹5,850 ÷ 15 = ₹390 per member
Cash check
| Item | ₹ |
|---|---|
| Profit before interest | 9,000 |
| Full EMI paid (interest + principal) | (5,000) |
| Cash actually left | 4,000 |
The paper share-out is ₹5,850, but only ₹4,000 cash is left, because ₹3,800 of the EMI was principal repayment. If the group pays out ₹5,850, it will have to dip into savings or skip the reserve. A safer choice is to share no more than the cash left after the reserve, or to carry part of the distribution to a better month. Our guide to profit vs cash flow explains this gap in detail, and you can check the loan schedule in the EMI calculator.
The four working members each received ₹5,000 in wages (20 × ₹250) plus the same ₹390 profit share as everyone else. Wages pay for work; profit share is a return to members as owners. Keep the two lines separate in the registers and passbooks.
A simple monthly report for the meeting
Read this out at each monthly meeting so every member, not only those who work in the unit, understands the business:
| Line | This month (₹) |
|---|---|
| Sales (cash + credit) | |
| Raw material and packaging | |
| Other running costs | |
| Wages paid (days × rate) | |
| Loan interest | |
| Profit after interest | |
| Loan principal repaid | |
| Cash at start of month | |
| Cash at end of month | |
| Money owed by customers | |
| Stock of raw material and finished goods |
Compare with the previous month. Rising sales with falling cash usually means customers are paying late or stock is piling up. Two months of losses in a row is a signal to review prices, wage rates or the product itself before more savings go in.
Common mistakes
| Mistake | Fix |
|---|---|
| Not paying wages, calling everything "profit" | Pay agreed wages first; profit shows whether the business really earns |
| Paying wages from members' savings | Pay wages from business cash only |
| Sharing profit before counting stock and credit sales | Count stock and unpaid bills before calculating profit |
| Treating the full EMI as an expense | Expense only the interest; principal is a cash outflow |
| Sharing more cash than is left | Distribute from cash after EMI and reserve |
| One member keeps all cash and bills at home | Two signatories, monthly report to the meeting |
When the business grows
As turnover grows, ask your SRLM staff or a chartered accountant about registrations, GST thresholds, food safety licences for food products, and whether a producer group or other legal form suits you better. Separate books from the start make any such move easier. For individual women who want their own enterprise loans beyond the SHG, see loan schemes for women entrepreneurs.
Related guides
Key takeaways
- Wages for work are a business cost; profit is what is left after all costs including loan interest.
- Keep a separate cash book for the SHG business, apart from savings and internal loans.
- In the example, profit after interest was ₹7,800 but cash left after the full EMI was only ₹4,000.
- Share profit only from available cash after EMI and reserve, under written rules.
- Record wages and profit shares as separate lines for each member.
Frequently asked questions
Are wages to members who work in the SHG business a cost or a profit share?
Wages for actual work are a business cost and should be paid before profit is worked out. Profit is what is left after all costs, including wages and loan interest, and is shared or retained as the group's rules say.
Should an SHG business keep a separate account from savings and loans?
Yes. Keep a separate cash book and, where practical, a separate bank account for the business, so its sales and costs do not mix with members' savings and internal loans.
Can an SHG distribute all its business profit every month?
Only if the cash is actually available after paying loan instalments and keeping a reserve. Profit on paper can be higher than cash, because loan principal, stock and unpaid customer bills also use cash.
Is the loan EMI an expense of the SHG business?
Only the interest part is an expense in the profit calculation. The principal part reduces the loan and uses cash, but it is not a cost of running the business, so track both lines separately.
What if only some members work in the SHG business?
Pay wages only to those who work, at a rate the group agrees and records. Decide in the rules whether profit is shared among all members, only working members, or by some other basis such as capital contributed.
This article is for general education and is not personalised financial, tax or legal advice. Rates and rules are as of 3 Nov 2026; confirm current terms with your lender, AMC or a qualified adviser.
