The five most critical types of information to track are:

• Cash flow, both current and projected. Cash is like fuel to an airplane; you want to anticipate a fuel shortage long before the panel display flashes: “WARNING! You’re almost out of fuel.” Related to cash flow is accounts payable and receivable information, with the age of those accounts. Many companies run into serious cash problems because they mismanage their payables and receivables during a period of rapid growth.

• Financial accounting information (balance sheet and income statement) and financial ratios. It’s particularly useful to have comparative statements (this period compared with last period, compared with last year). A list of useful ratios is given on page 296.

• Cost information. Many companies make the mistake of continuing unprofitable product lines because they have no idea they’re losing money on those lines. Put in place systems for determining costs and profitability by product line (or service line). Know your costs.

• Sales information. Track sales trends in each product or service category, which can be sorted or analyzed along dimensions relevant to your company (geography, price points, by distribution channels, etc.).

• Customer information. Customers are one of your best sources of information; they’ll tell you what’s good and bad about your products, how you stack up against the competition, why they buy your products, what suggestions they have for improvements and new products, what they use your products for, and just about anything else you ask. They’ll even tell you who they are, what they do, how much they make, and where they live. Most important, they’ll tell you when you’re missing major trends or market needs.

In general, you’ll pick a Critical Number that will address either an opportunity or a challenge on the People/Balance Sheet side of the business (e.g., reduce employee turnover, improve customer service scores, or dramatically reduce a credit line with the bank) or the Process/Profit & Loss side (e.g., improve gross margins, reduce production cycle time, or increase sales close ratios).

Gross margin doesn’t get enough respect. It’s bad enough that it’s stuck in the middle of the P&L and often gets glossed over. It’s actually THE most powerful indicator of an effective sales team, a differentiated strategy, and real growth.

I call this a hump chart. Whenever you can assign profit or gain to individual products, outlets, areas, segments, or any other portion of the total, you can build a hump chart.

Often, a core skill of middle management is the ability to manipulate the financial reports to compensate for a set of numbers that aren’t giving the right answer. Everyone who has put together a business plan knows that if you can’t fudge the key assumptions to justify the decision your boss wants to make, you don’t know enough about the business.