Understanding Financial Statements as an Entrepreneur

One of the most important skills an entrepreneur develops over time is the ability to read financial statements. I am talking about the balance sheet, profit and loss statement, and cash flow statement.

In my earlier company, I did not give these documents the attention they deserved. The workload was too high, and since we were profitable, I never felt the urgency. Looking back, I realise that even when things are going well, understanding your numbers is not optional. It gives clarity on where the business truly stands and what decisions need to be made.

When I started my startup, I went through the same struggle for the first two years. But later, I began sitting with my CA every six months during the filing period. I would go line by line through the statements to understand the financial health of the company. It wasn’t always easy, and at times it was overwhelming, but it helped me track our cash flows, debt and areas where we needed to optimise. We were in loss as an ed-tech platform, but being aware of these numbers helped me make improvements every year.

I do not come from a commerce or accounting background. I am from science. But I made it a point to learn, because it is important.

And you don’t have to be an entrepreneur to do this. You can start with your personal finances. Understand your liabilities, where your money is going, what assets help you earn apart from your salary, and how your savings and investments are growing year by year.

It might feel difficult in the beginning, but like any other skill, it improves with practice. Over time, reading financial statements can become an essential tool for you to gain clarity and support in better decision-making.

Whether for a business or for your personal financial growth, knowing your numbers changes everything.