The Profit & Loss Workflow Nobody Explains

The Numbers Game: Part 1

Jamal used to think spreadsheets were for dudes who wore Patagonia vests and used words like "synergy" without irony. Back when he was running barbacks ragged at Fancy's Cocktail Lounge, the only numbers that mattered were pour costs and tips at the end of the night.

But a lot has changed since then.

These days, Jamal owns Mabel, the kind of cozy neighborhood bottle shop where you can pick up a skin-contact white from a tiny producer in Slovenia and stay for the old Nina Simone records on Friday nights. The walls are lined with handwritten notes tacked up describing each bottle, and if you hang around long enough, Jamal will inevitably tell you a story about one of the winemakers' grandmothers or the time he first tasted a wine that made him cry.

the local watering-wine-hole mid-launch in 2021

He's built something that feels like it matters. And now, Jamal's ready for more.

The plan is ambitious: a second location across town, and his own wine label. He envisions a tight, rotating selection he'll curate himself by working with small vineyards and makers who believe in the same kind of magic he does. The sourcing, the importing, the brand—it will all be his.

There's just one problem.

His financial tracking system (if you can call it that) is an Excel file named money_stuff_FINAL_final2.xlsx. It works fine when he's tracking a single shop's inventory and cash flow. But adding a new location, plus the logistics of sourcing and distributing his own wine? That's a different animal.

When Fancy stops by for a glass of pét-nat and a chat, Jamal confesses he's flying blind on the numbers side. She doesn't hesitate.

"Honey, you need Ruth," she says, helping herself to some Spanish tinned fish and sea salt crackers off the bites shelf.

"Who's Ruth?"

"She's an old friend, and she's a restaurant consultant. She'll teach you how to build a financial system that can actually grow with you—and she won't make you feel like an idiot for asking what gross profit means."

Jamal doesn't know what gross profit means.

"Can you share her number with me?"

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Three days later, Jamal steps off an escalator into a high-rise lobby that smells like expensive coffee and freshly printed contracts. Everything gleams. The walls are glass, the plants are real, and the people striding through the space look like they belong on magazine covers with captions about next-gen leadership.

He checks the directory twice to make sure he's in the right place.

"Seventeenth floor," he mutters, adjusting the hem of his bomber jacket. He feels like a fixie bike in an Audi showroom.

Upstairs, Ruth's office is nothing like he imagined. It's clean and modern with a mid-century walnut desk, warm light, and pop art on the walls. There's a record player in the corner, an open bag of gummy bears on the table, and a little potted plant leaning toward the sun. Thelonious Monk plays softly through the speakers.

"Jamal," Ruth greets him with a grin, standing to shake his hand. "I've heard good things."

She's in a crisp jumpsuit and green suede sneakers, tortoiseshell glasses perched on her head. She radiates the kind of confidence that comes from knowing you're excellent at what you do. It's not what he expected. And for the first time since he walked in, his shoulders drop a fraction.

"Alright," she says, gesturing for him to sit. "Tell me where it hurts."

Jamal laughs, and it feels good.

He explains the bottle shop, the community, the vibe, the plan for a second location, the wine label, and the producers he's met. He shares how he can see it all unfolding so clearly, but when it comes to the numbers, it's like a fog rolls in.

"I've got this pathetic little Excel sheet," he admits, "and I keep thinking, if this thing actually takes off, I'm gonna drive it straight into a wall because I'll have no clue what's happening with the money."

Ruth nods, scribbling a few notes in a well-used notebook.

"Did Fancy tell you that I used to run a little hotel?" she says casually. "I loved that hotel. It was so quaint, and there was this historic little bar attached that was the place to be at the time. The first year I took over, the whole thing was running on wishes, double pours, and duct tape. I had no clue where the money was going."

Jamal perks up. Now they're speaking the same language.

"Hospitality people are operators. We can read a room and know when the vibe's about to tank before a guest even opens their mouth," Ruth continues. "But the numbers? No one knew how to teach us that language. Master the numbers, and you win the whole game."

And something about the way she says it—not polished for TikTok, just matter-of-fact—makes him believe her.

Over the next two hours, Ruth lays out how to begin thinking about financial tracking systems. She draws diagrams on a big desk-sized pad of paper, circles things in highlighter and sharpie.

At one point, she zooms in on part of the system that starts to lift the fog for Jamal.

"Let's talk about the Profit and Loss Statement," she says, flipping to a fresh page.

"I've seen those. My CPA drops one on me every year when he does my taxes... honestly, I think P&Ls are useless. They don't match what I'm actually doing day-to-day."

"Yeah, that's super common. Most accountants don’t provide managerial financial reports for F&B businesses, even when you ask, unless they already happen to know how to build them,” states Ruth.

Jamal's thrown. Is it possible that his accountant doesn't actually get how his business works? The numbers he gets each year sure don't look like his bank statements.

"Wait, what do you mean managerial? I thought a P&L was a P&L."

"Let me show you the difference. Your accountant organizes everything in a way that makes filing taxes easy—which is fine for the IRS, but useless for you day-to-day." Ruth flips to a fresh page. "So let's start with the basics. How do you make money at Mabel?"

"Well, I sell wine to customers. Hopefully for more than I bought it for," Jamal jokes.

"That's right. What else do guests pay for?" she asks.

"We have wine bottles, glasses of wine, food—little snacks and charcuterie stuff. Oh, and events. Winemaker tastings, holiday parties, that sort of thing."

"Perfect! So I might illustrate those sales like this," she says as she starts drawing on the big paper.

"All these things together are called Revenue."

"Yeah, that's the money hitting my POS every night and showing up in my bank account each week."

"Absolutely. The tricky part in managing the business is knowing how much money you had to spend in order to get that revenue."

"I cost out everything. For by-the-glass pours, I take the bottle cost times four. When I started, everyone said times three, but the stuff I bring in is pretty special—it can handle the higher pour cost."

"Perfect! That's exactly how you start getting a feel for COGS—Cost of Goods Sold. Just fancy talk for what you as a business actually pay for your wine and snacks." Ruth starts drawing more bubbles on the paper. "Revenue minus COGS gives you what your accountant calls Gross Profit."

"So if I sell a bottle for $30 and it costs me $12, I'm making $18 gross profit."

"You got it."

Jamal grins. "Man, I've been psyching myself out over basic math."

"It's just bar math," Ruth shrugs. "You do this every shift. This is the same thing, just a longer timeline.

Sometimes, though, what we think our COGS should be based on how we have costed out the menu and what they actually turn out to be are totally different stories. By costing out your bottles and pours ahead of time, you have an idea of your target cost. Once we get your P&L set up, you can check what you spent on COGS to make sure that you hit your target at the end of every month. Sometimes it can surprise you."

"Now," Ruth continued, "I told you that your accountant would talk about Gross Profit. I want you to learn about something called Prime Cost instead."

"So I don't need to worry about Gross Profit?" Jamal's bummed, he literally just figured that out.

"For hospitality? I'd focus on Prime Cost instead, it’s way more useful for what you're doing. Prime Cost is COGS plus Labor—including paying yourself for working the bar."

"I'm basically working for groceries and good vibes right now," Jamal laughs.

"Hopefully we can start to change that soon," Ruth comments. "We might illustrate Prime Cost like this."

"Why does Prime Cost matter?" Jamal asks, finally getting comfortable enough to ask the questions he's been too embarrassed to ask other people.

"Prime Cost matters because—look, we can't sell wine without way more labor than, say, a grocery store. Labor is part of your product. You're not just selling wine, you're selling the whole experience." Ruth taps her pen on the paper. "This gets even bigger if you're running a restaurant; there’s a ton of labor that goes into crafting that level of experience.

When you get comfortable with Prime Cost, you've got a shortcut to knowing if your business is healthy."

Jamal's confused. "My accountant doesn't put labor near COGS. I swear it's buried at the bottom somewhere."

"Right? Let's keep going. I think this'll make sense by the end. Then we can teach your accountant what you actually need to see."

"What other things do you pay for at Mabel, beyond the wine, food, and your staff?"

"Rent, utilities, garbage pickup, POS fees, that kind of stuff."

"Exactly. Bills you've got to pay whether you sell one bottle or a hundred. Operating Expenses. Operating Expenses are sometimes called Fixed Costs since they don’t typically fluctuate based on your sales. They just are what they are.”

Jamal is starting to see how all of these accounting code words are really just big labels on a second-grade math problem.

"So, to recap, we have all of the things you sell like wine and events up top. Added all together, they are your Revenue. Then we start subtracting all the things you spend money on, which we put into three categories: COGS, Labor, and Operating Expenses. After all that, what's left over is Profit."

"Profit is a word I can understand," Jamal laughs as it all starts to click together.

"Let me show you what this would look like as an accounting report." Ruth opens her laptop to show Jamal an example of a Profit and Loss Statement. "You can see here at the top is the Revenue, then the next heading is COGS followed by Labor and the combined Prime Cost. Then Operating Expenses and Net Profit!"

"That's it?" asks Jamal.

"That's it," shrugs Ruth, laughing because she sees that Jamal is starting to get it. "Do you see here on the side we have two types of numbers? We have the dollar amount and a percentage?"

Jamal looks over the P&L and notices how each category notes how much the dollar amount is as a percentage of total revenue.

"When the P&L is structured this way, those percentages can quickly tell us how the business is doing and if something is wrong.

After a while, we will be able to determine exactly what each of those percentage ranges should be for Mabel. That way, when you start getting your P&L each month, all you have to do is look at those percentages if you want to know if you were profitable or if you got off track somewhere.

For instance, if your Labor and Operating Expense percentages are on target but your COGS percentage is off, you'll know you need to assess how you are costing your products or that there might be some wastage happening somewhere. Maybe there are too many comps. It's like a little compass telling you where to look to get back on track."

It finally clicks for Jamal. "Oh shit, like a vibe check for the money!"

"Exactly!" Ruth laughs. "You’ll also notice, if you pay attention, that the expenses are in order from easiest to change to hardest to change. For instance, it’s easy to change the prices on your menu or to bring in different products which are the basis of your COGS. It takes a little longer if you want to change how much you’re spending on labor because any real change there usually means hiring or cutting someone’s shifts. The thing that would be the most difficult to change, and take the longest, would be those fixed expenses like how much your accountant costs or how much you pay your landlord.

Next time, we'll dig into how to actually get these numbers onto the P&L and get your accountant on board."

By the time he leaves, his notebook is full of sketches and notes, and for the first time, those numbers feel less like a threat and more like tools. They are the tools he needs to make his vision a reality.

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Send this to the operator full of passion & in-need of financial clarity. Good lookin’ out!

Ruth walks him to the elevator.

"You belong here, Jamal," she says, leaning against the doorway. "Not just in your neighborhood. Here. In rooms with investors. In spreadsheets. In board meetings. In expansion plans. You've got the vision. This is just the part that makes sure you get to keep it."

And just like that, something shifts.

When the elevator doors open, Jamal steps in, tucks his notebook under his arm, and grins.

He's coming back next week.

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