Financial Literacy Still Low Among First-Time Entrepreneurs, Say Consultants

Mumbai, August 2025 — India has seen an unprecedented rise in entrepreneurship over the past decade, with thousands of small businesses, startups, and independent ventures taking shape in every corner of the country. Yet, while ambition and innovation are driving this growth, many first-time entrepreneurs continue to face challenges with one fundamental aspect of business management: financial literacy.

Tax professionals and consultancy firms across Mumbai say that a majority of their new clients are young business owners who lack even basic knowledge of GST compliance, tax filing procedures, or the implications of failing to maintain proper accounts. This knowledge gap, though often overlooked at the start, can quickly snowball into penalties, legal notices, and severe cash flow constraints.

“Most of the young or first-time business owners we meet are excellent at their core business — whether it’s retail, services, or startups — but they underestimate compliance requirements,” said Izhaan Khatri, Senior Accountant at HalfPace, a Mumbai-based tax consultancy firm that works closely with SMEs. “By the time they approach us, they are often already facing notices or struggling with mismatched filings. In some cases, businesses have even lost out on crucial tenders or contracts because of non-compliance.”

The Roots of the Problem

Industry experts point out that the issue is not limited to Mumbai or big cities but is visible nationwide. The reasons are structural: most school and college curriculums in India provide little or no exposure to practical taxation, accounting, or financial management. As a result, aspiring entrepreneurs enter the business world confident in their products or services but unaware of the tax framework that governs them.

According to HalfPace and similar firms, entrepreneurs often make the following mistakes:

• Delaying GST registration until turnover crosses the threshold, not realising the risks of early transactions being unreported.

• Improper invoicing, such as raising bills without GST when it is legally required.

• Mixing personal and business expenses, leading to accounting confusion and inaccurate returns.

• Ignoring deadlines, resulting in late fees and interest charges.

“Compliance is not just a burden; it’s the backbone of business credibility,” Khatri added. “A vendor or client looks at whether your GST filings are clean, whether your tax records are up-to-date, and whether you can produce documents when required. A weak compliance record affects business growth as much as it does regulatory safety.”

Why Financial Literacy Matters

The problem is compounded by the fact that many new entrepreneurs rely entirely on external accountants or agencies without trying to understand even the basics. While outsourcing is practical, experts believe a minimum level of financial literacy is essential.

Financial literacy helps in:

• Better decision-making: Understanding how pricing, taxation, and compliance affect profitability.

• Cash flow planning: Ensuring businesses are not caught off guard by tax liabilities.

• Avoiding fraud: Being aware of what is filed in their name prevents entrepreneurs from blindly depending on third parties.

• Scaling up: Compliance is often a requirement for loans, investments, and government contracts.

Without this foundation, businesses often find themselves stagnating or burdened with unplanned costs.

Industry Response

To bridge this gap, some consultancy firms have started going beyond traditional tax filing. Initiatives like awareness drives, simplified workshops, and one-on-one advisory sessions are being introduced to demystify compliance for business owners.

HalfPace, for instance, recently began conducting free sessions for small traders and first-time entrepreneurs in Mumbai, focusing on GST basics, invoicing practices, and income tax filing. The sessions are designed not for accountants but for business owners themselves, with real-world examples and practical tips.

“Many entrepreneurs have told us that after attending such sessions, they feel more confident in running their businesses,” Khatri said. “It’s not about making them tax experts but about giving them clarity on what is expected from them as business owners.”

The Bigger Picture

India’s MSME (Micro, Small, and Medium Enterprises) sector contributes nearly 30% to the national GDP and employs over 110 million people. Despite this enormous impact, compliance remains one of the weakest links in the ecosystem. According to experts, improved financial literacy could reduce disputes, increase tax compliance rates, and enhance overall business efficiency.

There is also a cultural dimension. In many family-run or first-generation businesses, taxation is viewed as a back-end task, often handled only when deadlines approach. Consultants argue that this mindset needs to shift, and financial awareness must be treated as integral to entrepreneurship, just like marketing or product design.

Looking Ahead

As India continues its push toward digitization, with e-invoicing, online GST portals, and AI-enabled tax scrutiny, the gap between the compliant and the non-compliant is expected to widen. Businesses that invest in financial awareness early on will likely find it easier to scale, attract investors, and compete in both domestic and global markets.

“Financial literacy is no longer optional,” Khatri concluded. “It’s the foundation on which sustainable businesses are built. The sooner entrepreneurs recognize this, the better positioned they will be to grow and thrive.”

About HalfPace

HalfPace is a Mumbai-based tax consultancy firm dedicated to simplifying compliance for small and medium businesses. With expertise in GST, income tax, and financial advisory, HalfPace combines professional knowledge with a client-first approach. The firm is committed to building awareness and empowering entrepreneurs with financial literacy.

Media Contact

Izhaan Khatri

Senior Accountant, HalfPace

Phone: +91 81083 72252