Regrettably, it is all too common for companies to fall behind in the face of inflation because of their failure to regularly review and adjust their rates, negotiate favorable contracts and reassess their strategies during times of economic volatility. Instead of taking a proactive approach to safeguarding their profit margins, many business leaders react only after experiencing a cash flow crisis, when they find themselves teetering on the brink of failure.

As a landscape professional, it is imperative that you recognize the impact of inflation on your financial decision-making. Inflation refers to the gradual rise in prices over time, which erodes the purchasing power of money. It affects various aspects of your operations, from the cost of materials and equipment to labor expenses.

By understanding the influence of inflation, you can strategically plan and account for increasing costs. Incorporating this knowledge into your pricing structures and budgeting processes ensures the ongoing profitability and sustainability of your business in the long term.

Throughout the past few years, I have collaborated with various industry partners to gather data and analyze inflation trends within Colorado’s landscape industry. This involved comparing these trends with the broader U.S. Consumer Price Index, which serves as a measure of core inflation across a range of goods and services, as demonstrated in Exhibits 1 and 2. Notably, Exhibit 3 highlights significant price increases of 8.3 percent in plant materials over the last year, with even steeper increases of 14.8 percent observed in landscape supplies.

Now, envision the potential impact of these rising material costs, coupled with labor expenses, on your bottom line if you fail to adjust your pricing effectively and in real time. On one hand, I have witnessed numerous companies struggle as they find themselves caught between escalating costs and stagnant prices. Conversely, those who proactively adapt their pricing strategies tend to fare well during periods of inflation. You may be wondering about the possibility of not being able to raise prices because of price-sensitive customers, potentially resulting in a loss of business. In such cases, it becomes crucial to identify alternative areas for cost-cutting or focus on improving operational efficiencies to avoid experiencing a squeeze on profits.

Furthermore, it may be worthwhile to revisit your overall business strategy to navigate these challenging economic conditions.

What can you do? Inflation has a direct impact on your bottom line and profitability, with the potential to jeopardize your business. As the prices of goods and services rise, your expenses will also increase, potentially squeezing your profit margins and ultimately affecting your cash flow. By remaining well-informed about inflation and incorporating its effects into your pricing structures and budgeting processes, you can proactively adapt to rising costs and ensure the financial stability of your business.

Here are five key tips to help you combat the detrimental effects of inflation.

1. Keep a watchful eye on inflation and other macroeconomic trends.

2. Regularly review and update your rates.

3. Consider negotiating favorable contracts to safeguard your profitability.

4. Engage in monthly Financial Strategy Review (FSR) meetings.

5. Boost your financial literacy skills.

In the second part of this series, I will delve deeper into these tips and provide insights on how to effectively weather these economic times.