Understanding Key Financial Statements and Key Metrics for Entrepreneurs

Lusia Donovan
Jul 23
4 min read

Let’s be real—most entrepreneurs don’t start a business because they love spreadsheets. But understanding your numbers isn’t just about being “good with math.” It’s about being in control.

Whether you’re planning your first launch or you’ve been running your business for a while, financial clarity is non-negotiable. It’s what helps you make confident decisions, plan strategically, and sleep better at night knowing your business is on solid ground.

So let’s simplify this. I’ll walk you through the three essential financial statements every entrepreneur should know and the key metrics that help you track the health of your business.

🧾 The 3 Financial Statements You Need to Know

1. Income Statement (a.k.a. Profit & Loss Statement)

This shows your revenue, expenses, and net profit (or loss) over a specific time period.

Why it matters: It tells you whether your business is actually making money.

Key sections to pay attention to:

Revenue/Sales – Total income from your products/services
COGS (Cost of Goods Sold) – Direct costs to produce your offerings
Gross Profit – Revenue minus COGS
Operating Expenses – Rent, salaries, marketing, software, etc.
Net Profit – What’s left after all expenses are paid

🔑 Tip: Look at your net profit margin monthly to see how efficient your business is.

2. Cash Flow Statement

This shows how cash moves in and out of your business.

Why it matters: Profit doesn’t always mean cash in the bank. This helps you avoid surprises like not being able to make payroll even though your sales are strong.

Key sections:

Operating Activities – Day-to-day cash flow from business ops
Investing Activities – Equipment, real estate, and long-term investments
Financing Activities – Loans, repayments, or equity funding

🔑 Tip: Watch your cash burn rate if you’re in startup mode. Know how long your runway is.

3. Balance Sheet

This is a snapshot of your business’s financial position at a given moment.

Why it matters: It shows what you own (assets), what you owe (liabilities), and what’s left over (equity).

Key elements:

Assets – Cash, inventory, property, accounts receivable
Liabilities – Loans, credit cards, unpaid bills
Owner’s Equity – The net value of your business

🔑 Tip: Aim for a healthy current ratio (current assets ÷ current liabilities) to avoid cash flow crunches.

📊 Key Metrics Every Entrepreneur Should Track

Even if you’re not a numbers person, these metrics can become your best friends. They’re like vital signs for your business.

✅ Break-Even Point

How much you need to sell to cover your expenses. After this point, you’re profitable.

✅ Gross Profit Margin

(Gross Profit ÷ Revenue) x 100Shows how much money is left after direct costs. You want this margin to be healthy and growing.

✅ Net Profit Margin

(Net Profit ÷ Revenue) x 100Reveals what percentage of revenue you get to keep. This is a strong indicator of your business’s overall profitability.

✅ Customer Acquisition Cost (CAC)

How much it costs to gain one paying customer. This helps you evaluate your marketing ROI.

✅ Lifetime Value of a Customer (LTV)

How much money a customer brings over time. Ideally, LTV should be at least 3x your CAC.

✅ Cash Flow Forecast

A projection of future cash in/out. Critical for planning expenses, hiring, or launching new products.

🧘‍♀️ My Final Thoughts: Financial Clarity Brings Relief

Understanding your financials doesn’t mean you have to do it all yourself—it just means you’re informed enough to ask the right questions and make sound decisions.

If this feels overwhelming, that’s okay. You don’t need to know everything. You just need to know enough to lead well—and ask for help when you need it.

And that’s what I’m here for.

If you're unsure where to begin or need help interpreting your numbers, let's talk. I’ve walked this road with countless entrepreneurs—helping them move from chaos to clarity, one decision at a time.

Want more support like this?

Join my T.R.E.I. Business Accelerator Community where I break things down simply, support you through execution, and help you focus on what really matters.

Because understanding your numbers isn't just about profit—it's about peace of mind.

It’s never too late to build the business you’ve always wanted—start now with clarity and confidence. Here are a few ways you can take action today:

Just Starting Off? If you’re thinking about starting a business or have just launched within the past year you are in the right place. Go here to get started on your journey!
Already Making Money? Go here to access my growth support resources that help provide stability, clarity, and a clear roadmap for growth, allowing your business to weather challenges and scale effectively over time.
Follow me on Instagram – Stay inspired and connected for tips and insights as you grow your business.
Subscribe to my YouTube Channel – Get valuable video content designed to help you navigate your entrepreneurial journey.
Learn more at www.lusiadonovan.com – Explore everything I offer and find the resources that can take your business to the next level.

Oh, and don’t forget to bookmark my blog, The Launch Pad, for all the latest updates and strategies to fuel your success!

“YOU CAN, YOU SHOULD, AND IF YOU'RE BRAVE ENOUGH TO START, YOU WILL.” - STEPHEN KING