These financial reports are important to understand for the health of your business and should be well understood. The balance sheet is the value of all your assets (i.e. cash and other valuables) minus your liabilities (i.e. debts) equals your equity (i.e. what you are worth). The income statement shows how much money came in as revenue and how much you spent and whereas expenses. The leftover if is your profit (aka net income). These 2 reports together can tell a lot about the health of the business. The 3rd critical report is a cash flow statement, but that is usually not critical for self-employed individuals since they use the cash basis for accounting (instead of accrual accounting).