You buy something for 100 and sell it for 200. On paper you are delighted with a 100% profit. In reality, you may already be running into a loss, not just on this transaction but on the customer, the vendor or even the market segment as a whole.
The problem is simple. Businesses often look at selling price minus purchase price and call that profit. But in a real business environment, cost is far more complex. Let us look at where the illusion of profit disappears.
Hidden Sales Costs
Your sales team did not just send a quote and collect the order. They visited the customer five times, spent 20 hours in total and claimed travel and other expenses. Where did you factor in that?
If you value a salesperson's time even conservatively at 500 per hour, 20 hours adds up to 10,000. Add the travel reimbursements and incidental expenses. This "profitable" deal already looks very different.
Transactional & Operational Costs
The landed cost of a product is rarely just the vendor's invoice. In the 100 to 200 example, you paid 100 per unit but also spent:
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10 on commissions
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20 on transport
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20 on labour for loading and unloading
The actual cost is now 150, not 100. That 100% profit has already dropped to 33%. And we have not yet looked at after-sales obligations.
Customer Support Overheads
Most businesses provide support long after the sale. Warranty handling, site visits, training and troubleshooting all require manpower. Over two to three years, your team will spend hours and resources on this customer.
If each visit costs 5,000 and you make three visits, you have lost another 15,000. Where did you factor that in your profit calculation?
Financial & Credit Costs
A sale is not complete when goods leave your store. It is complete only when the customer pays. If payment is delayed for months, the cost of blocked capital and interest burden falls on you.
Even a three-month delay can eat 6 to 7% of your margin if financed through bank credit. If you borrow to pay your suppliers while waiting for customer payment, the cost multiplies. Add the cost of storage when goods are lying unpaid in your books.
Vendor & Market Dependencies
Profitability is also tied to vendor reliability and market stability. If your vendor delays delivery, you may end up with excess storage cost. If the market price shifts while you wait for payment, your apparent profit can vanish.
Selling at 200 might look like a win, but if the market drops to 180 while your money is still stuck, you effectively lost money despite selling "at a profit".
Profit is More Than a Price Difference
The point is clear. Profit is not what you get when you subtract purchase price from selling price. Real profit is what remains after you calculate:
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Sales effort cost
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Commissions and operational cost
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Transport and labour cost
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Support and warranty obligations
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Finance and credit cost
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Vendor and market risks
Unless you capture these in your system, you are only looking at margin, not profit.
When Financial Accounting Masquerades as Management Accounting
This problem worsens when financial accountants start doing management accounting. Financial accounting and management accounting are two different disciplines.
In financial accounting, the primary objective is compliance and reporting. Expenses and incomes are booked under different heads based on standards, taxation rules and the requirements of financial institutions. The profit and loss statement you file is designed to meet those external obligations.
Management accounting, on the other hand, is about internal decision-making. It answers questions like:
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Are we really making money on this customer?
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Which products are bleeding despite good margins on paper?
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What is the true cost of serving a market?
When compliance-focused financial data is mistaken for management insight, businesses often miss the real story. They see a healthy P&L but continue to lose money on customers, vendors or entire market segments.
The Problem with Aggregates
Financial accountants are also least interested in the drill down. If product A and product B together show a profit, they are satisfied. It is not their responsibility to check if product B is actually dragging the numbers down.
From a management perspective, this can be dangerous. If product B is discontinued, product A may show even higher profitability. But without drill down, that insight never emerges. Management ends up subsidising loss-making products or customers simply because the aggregate picture looks fine.
The Blind Spot of Opportunity Cost
In financial accounting, loss of opportunity cost is less relevant simply because you cannot post it directly to the books of accounts. If you have borrowed money and are paying interest, that will reflect clearly in the P&L.
However, management accounting has a wider lens. It considers the finance cost even if the money is your own. Capital tied up in stock, delayed receivables or underutilised assets carries an opportunity cost. That money could have earned returns elsewhere.
Ignoring this cost creates a false sense of security. On paper, the business may appear profitable, but in reality it is earning less than it could or should. Management decisions that ignore opportunity cost are often the ones that lead to stagnation or decline.
Static Financial Value vs Living Cost Price
In Tuhund, every report that is not strictly for financial accounting, such as Balance Sheet and P&L, clearly shows both the financial cost and the actual cost to procure.
The financial cost reflects the static value posted to the books of accounts. Once recorded, it cannot be touched, except for genuine corrections made before finalisation of the balance sheet for that period. This is necessary for compliance and consistency.
The cost price, on the other hand, is a living figure. It is calculated at the level of each individual unit. You might have bought the same product a month ago with lower overhead costs, and today with higher expenses. Tuhund records the complete cost trail for each piece.
For price planning, Tuhund recommends the latest cost value but it does not limit you to that. Management can choose which cost basis to apply. A temporary dip in expenses does not have to distort long-term pricing strategy, and a sudden spike can be analysed without overreacting.
This granular approach means management does not just see an "average cost," it sees the precise cost of each unit with the flexibility to plan prices strategically rather than reactively.
Time as a Cost Factor
One of the biggest hidden costs in business is time. Every visit, every call, every hour of support is not free, it is a cost.
Tuhund takes this into account by converting time spent into financial figures, recording every minute and valuing it according to CTC (Cost to Company).
In Tuhund there is a distinction between actual CTC and true CTC:
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Actual CTC reflects what the company is directly paying, salary, allowances, contributions and benefits.
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True CTC goes further. It captures the real worth of a person's time, including intangible costs like infrastructure, systems and overheads. For business owners and key people, this becomes even more important. Just because they take a smaller amount as compensation when the business is not generating enough money does not mean their time is worth only that much. True CTC values their time at its actual worth, not at the reduced salary they draw.
By valuing time in this way, Tuhund ensures management sees the real cost of every sales visit, every support ticket and every decision-making hour. Profitability is no longer distorted by ignoring the human effort behind transactions.
How Tuhund Bridges the Gap
Tuhund recognises this difference. It does not stop at financial accounting compliance. It extends into management accounting by capturing all relevant costs, linking them to transactions and giving management a transparent picture of true profitability.
It enables managers to go beyond aggregates. Every product, customer and vendor can be analysed individually, with costs and revenues tied to the exact transaction. You can drill down to see whether a single product is eroding margins, whether a customer is unprofitable despite large order volumes or whether a vendor relationship is costing more than it contributes.
Tuhund also allows you to simulate and measure financial impact beyond statutory accounting. It highlights the burden of delayed receivables, blocked stock or slow-moving products not just in terms of book entries but in terms of real finance cost, including opportunity cost.
This ensures that management sees the whole picture: not only the compliance-driven financial statements but also the true economic profitability of the business.
Conclusion
Profit is not a number you assume. It is a number you calculate. If you rely only on purchase price vs selling price, you may be looking at an illusion. If you rely only on financial accounts, you may be looking at compliance, not management insight.
True profitability comes only when you consider the full picture: hidden sales costs, operational expenses, after-sales overheads, finance cost, vendor and market risks, opportunity cost of capital and the value of time.
Tuhund ensures you capture all these dimensions so you always know your real profit, per transaction, per product, per customer, per vendor and per market.
