The crisis. Devaluation. The impact on small and medium-sized businesses on real examples

    I am a business consultant and an active Internet user, and, like many others, I constantly look at publications in various media for the situation in the economy, including for the reason that my well-being directly depends on this. Like many, I am interested in the causes of the crisis, its development, possible prospects, because if small and medium-sized businesses do not develop, my activity will also cease due to a lack of clients.

    In this article I will not touch on the causes of the crisis, as well as deal with forecasts of its possible development. I am interested in: how do different companies respond to the crisis, which of them successfully overcomes difficulties, which do not, and why this is happening.

    Here and now, I decided to systematize my own observations. By the nature of my activity, as a business consultant, I constantly come across a wide variety of companies. These can be potential clients, customers with whom I worked before or are currently working. New and old clients regularly contact me: someone with a question, someone with a problem.

    If I come across a new company, I will definitely study its working methods, since without this stage I will not be able to draw up a plan for solving the task and calculate the cost of work. If old customers turn to me, I’m always interested in how they do business, what problems interfere with their work, how they manage. Based on the statistics I have collected over the years of work, I have already written one articleHow to lose a business. Real stories from a business consultant.

    And today I want to share with you my practical observations collected during the last year, from the first days of the crisis to today.

    So, the initial data: my personal experience in communicating with entrepreneurs from Moscow and St. Petersburg. Unfortunately, I don’t know anything about the regions, since in recent years I have not worked with business outside these cities. I think that there will not be many differences for regional small and medium-sized businesses, but still, I ask you to take this nuance into account.

    What is a crisis?

    Today in the media and at all kinds of trainings you can constantly hear about the crisis in the economy. Many experts and trainers talk about the difficulties of the current period, about problems in the economy, but all these are common words. But what does the crisis express in practice for small and medium-sized businesses and how to act in order to preserve their business and pave the way for future development, not a single expert says. In the article I will try to talk about this phenomenon as an example of one of the parties to the crisis, namely, the example of devaluation.

    What a business crisis looks like: devaluation shock and its consequences

    Devaluation is one of the most important business problems in times of crisis. The depreciation of the ruble, as a result - an increase in the value of imported products, as well as a drop in the level of household incomes, lead to a noticeable decrease in sales volumes, as well as to a wide range of related business problems.

    I will cite four different companies as examples. Of course, I will not voice their real names, this is not important, because in one way or another a lot of people try to solve the problems associated with the crisis.

    Company 1. Importer of cosmetics for professionals

    This company sells imported professional cosmetics: buys goods abroad, delivers to Russia and sells here. Naturally, the business associated with the resale of imported goods suffered greatly during the crisis. Moreover, in this case, the goods are not just cosmetic products designed for the final consumer, but materials necessary for professionals to provide services. At the same time, any rise in price of the material leads to a decrease in the profit of the master of a beauty salon, since it is not advisable to raise the price of services in a crisis. As a result, many professionals in the crisis tend to use cheaper analogues.

    How did this company work?

    All pricing here was tightly tied to the euro. In the period of exchange rate stability, the price changed once every few weeks, and it was insignificant, which was not critical for customers. But with the beginning of the devaluation, the purchase price in rubles began to grow almost every day.

    For example, a product, which until recently cost 800 rubles, in a week could cost 900, then grow in price to 1000 rubles and more. And when the euro exceeded 80 rubles, the cost of a unit of goods in this company became incredibly high for such products.

    How did the buyers react?

    Most began a search for more profitable suppliers, if possible those whose cost of production is not connected (or not so tightly connected) with the euro. The company also began to receive requests to switch to prices in rubles and abandon such a tight link between the cost of goods and currency fluctuations.

    What did the company do to deal with the problems?

    First of all, they opened a new website, made a landing page, and actively engaged in the promotion of their products on the Internet. During this period, I was assigned many different tasks, of course, I realized them. Our updates started successfully, advertising worked, people came to the site, showed interest, made 1-2 purchases and left. Even then, it was clear that the company needed to reduce the price, or at least fix it at a certain level. Any buyer will be nervous about the constant change in prices, which we have observed in practice.

    To which I received a very specific answer: “Our cosmetics are like a Mercedes car. Mercedes, as you know, will be sold at all times. So our cosmetics will be sold in any case, regardless of its cost. ”
    At the same time, the price of goods in the price list of the company was indicated in arbitrary units tied to the euro. As a result, the buyer who ordered the goods (at a rate of 50 rubles) in the amount of 1000 rubles, in 2-3 days could be confronted with the fact: the euro already costs 55 rubles, and the invoice is billed for the same list of goods, but already in the amount of 1100 rub. Of course, no one will like such surprises.

    After that conversation, 5 months have passed, and now the situation is as follows:

    • Their sales fell more than 2 times both quantitatively and financially (turnover and, accordingly, profit, also became lower).
    • They try to lure buyers with discounts (up to 50%, moreover, the total purchase price for receiving a discount has also become noticeably lower than before).
    • Management has begun the layoffs of sales managers. (After 5 months, only one experienced specialist remained in the department, the rest were newcomers).

    But none of this helps return buyers. If the client has left, returning him even in the best of times can be much more difficult than starting a collaboration from scratch with a new person.

    In addition, nervous and panic decisions also did not contribute to increasing customer confidence. You should not raise prices, and then arrange tremendous discounts on the B2B market, which this company also refers to, consider such behavior as a sign of a company’s weakness, which does not help increase customer confidence.

    The approach of this company looked like this:
    We raise prices - we continue to invest in goods and hope for successful sales - we believe in our infallibility.

    As it turned out, the market is arranged somewhat differently, and such an approach does not justify itself. In this company, sales fell, the quality of service decreased. Major buyers are gone.

    What is the problem of this company:

    If you trade in imported goods, the price of which is increasing due to changes in the ruble exchange rate, your buyers will start to buy cheaper analogues from your competitors if you do not provide them with any special conditions. And if in retail sales you can still avoid collapse even in such difficult conditions, then when you sell materials or tools necessary for a business, the buyer will be especially careful about the cost of your products, because their own profit depends on it.

    It is very important to remember that today is not 1998 or even 2008. Internet trading is now very developed. Therefore, if your buyer is not satisfied with any of the possible aspects of cooperation, he will simply type in the search engine the name of the desired product and will be able to choose any supplier from the extensive list. At the same time, he will compare prices online, terms of cooperation online and turn to the place where the cost of goods and related services will be the best.

    And therefore, updating the composition of managers and large discounts of this company have not helped. The client, who was dissatisfied, has already left. Now he has a new supplier, concluded contracts, suitable conditions for cooperation. In conditions of working with professional cosmetic products, most likely, former buyers have already completed training in working with new materials, the masters have mastered new technology, and therefore it will not be profitable for such a buyer to return to the previous supplier.

    Company 2. Trade in finishing materials

    The devaluation process found this company during the transition to a new accounting system. And the first thing they did was fix the price. Those. revaluation in the company occurs no more than once a week. An exception could be only a case of a very strong jump in the course, about which customers were informed in advance. If no force majeure circumstances arise, then within 2 weeks the price does not change regardless of exchange rates.

    Thus, the buyers of this company know for sure: if they ordered goods at a certain price, it is at this price that the goods will be shipped.

    How was the problem of the supply of imported goods to the buyer solved?

    • The invoice is issued in the amount in rubles fixed at the time of the order. The price of the goods does not change due to the change in rate.
    • The term for shipment of the goods is 2 days. If the goods have not been paid for during this period of time, they are removed from the reserve and the account ceases to be valid.
    • The company did not provide any additional discounts, the management chose as its advantages - reliability in operation and price fixing.

    What was the crisis for this company?

    Devaluation shock. Due to the increase in the price of imported goods, a significant part of buyers began to choose inexpensive domestic counterparts. On the one hand, it is even good for a domestic manufacturer and for many buyers. On the other hand, domestic production was not ready for a noticeable increase in demand; accordingly, Russian manufacturers could not fully satisfy the demand for goods.

    The company significantly decreased sales of imported goods. The sale of luxury finishing materials was particularly affected. Buyers who previously bought luxury materials turned their attention to the middle price category of materials, which, due to rising prices, became as expensive as the elite categories of goods until recently, and buyers of goods from the middle price category began to choose cheap materials. As a result, the company's total turnover decreased.

    What is happening now:

    • The company works stably, although some nervousness and uncertainty in the future remains.
    • The company's management has revised a significant part of the costs and transferred the workflow to a saving mode.

    Of course, there were losses during this period, and not only on the volume of sales, but also on exchange rates, when the sale was carried out at a fixed price, while the purchase of material was already taking place at a new rate. But due to the reputation of a reliable partner who does not change the terms of the transaction in its process, as well as reasonable cost savings, these losses have not become critical, and the company is stable and is likely to survive this crisis successfully.

    During a crisis, it is especially important to concentrate on the main thing, but now it’s not the preservation or increase of profit, which is almost impossible, but the preservation of partnerships with customers. And company 2 has so far successfully coped with this important task. The crisis cannot last forever. As a result, some companies will leave it with regular customers and partners, while others will be forced to restore their customer base from scratch.

    Company 3. Producer of food products from imported raw materials

    This company also experienced a devaluation shock. The cost of raw materials that they purchased for the production of their products has grown markedly. This problem was partially offset by profit. As a manufacturer, this company had such a mark-up on goods before the crisis that would keep the price at a competitive level even now.

    The second component of the crisis that this company felt on itself is related to Russian counter-sanctions. Due to the ban on food purchases in Europe, there was an urgent need for new suppliers. Goods had to be ordered in Puerto Rico, Latin America, etc. As a result, the company was in a fever very much, because it was necessary to find the analogues necessary for production, and, at a reasonable price, check the quality for compliance with the requirements and enter into new contracts. Such changes, also urgently, always cause increased nervousness in the enterprise.

    The consequences that this company felt:

    • Sales volume decreased, and very noticeably (2.5 times at the peak moment).
    • At the same time, five out of seven major buyers (retail chains) refused to cooperate.

    How did the company respond to the crisis:

    • Conducted staff reductions. So, out of 4 accountants only one chief accountant remained to work.
    • Held automation. As a result, it was possible to reduce the noticeable number of accountants and other personnel in the production and warehouse.
    • We switched to using cheaper information systems. For example, if earlier an information system of one company was used for workflow with a trading network, now a cheaper similar development has been found and implemented.

    If before the company did not think about many seemingly insignificant expenses, now all processes are being optimized. How do I know about this? I was ordered the automation and implementation of new information systems.

    Another rather non-standard solution that this company applied was abandonment of the office. If they did not touch the production, then they refused to rent the office at all. The servers were delivered home by company management, an accountant, managers and all the office staff needed to ensure the work of the company work at home, exchanging information using a collaboration system, telephone communication, email, etc.

    What happened as a result:

    Sales fell 2.5 times, production also worked intermittently in connection with the search for new suppliers, as well as in the absence of demand for products. But thanks to the timely transition to a cost-saving mode, the company managed to survive a difficult period.

    Now sales are gradually growing, buyers are returning, as there is always a demand for food products, stores need a decent assortment, and end consumers are already used to new price tags and are increasingly returning to their usual grocery set.

    Company 4. Telecommunication equipment

    For this company, the devaluation shock was very painful. They suffered losses due to fluctuations in exchange rates. Since the company did not have a strict accounting system, and the goods were purchased mainly on order, the following happened several times: buyers deliberately paid for the ordered goods on the basis of 100% prepayment in the shortest possible time in rubles at the current exchange rate. After that, due to devaluation, this product was purchased from a foreign supplier sometimes even more expensive than it had already been sold to the buyer in advance.

    In addition, sales fell very noticeably. Both small companies and private individuals started saving when choosing equipment in connection with the crisis. But most importantly, state-owned companies and large corporations have also noticeably cut the budget for the purchase of high-quality equipment. Someone refused the already signed contracts, someone postponed investment projects related to the purchase of equipment until better times, and someone decided to switch to other technologies that could save money, for example, to work in the cloud, etc. .d.

    As a result, the company also made staff reductions, and also began to use more actively methods of stimulating customers (promotions, discounts, gifts). Also, expenses were optimized and a more efficient accounting system was introduced. But, nevertheless, demand fell significantly on equipment, and therefore the company is going through a difficult period.

    What is needed and what should not be done in a crisis?

    So, a crisis in the economy is a fact that we all have to live with. At the same time, I want to save the company, minimize losses and, if possible, save the customer base and income.

    Using examples, I showed different options for responding to the crisis in various business areas and briefly outlined the results of certain decisions. Now I want to give you recommendations: what you need and what you don’t need to do in a crisis.

    So, what does not need to be done in a crisis:

    • Do not be nervous at all. Emotional decisions made in stress are often unsuccessful. Be as calm as possible that some kind of loss is inevitable. And calmly think about what you really can do.
    • If your business is connected with import, and, as a result, the cost of goods depends on exchange rates, it is necessary to reduce the timeframe for fulfilling contractual obligations. Those. the minimum possible time should pass between placing the order and its payment, it is best if it is no more than 2-3 days. After the period you specified ends, the goods can be withdrawn from the reserve or offered to the same buyer, but at a new price. Thus, you can fix the price in rubles, but avoid losses due to possible fluctuations in exchange rates.
    • In no case do not tie the price to foreign currencies, you do not need to indicate the price tags in "cu". With this approach, your buyer risks losing money on the so-called exchange rate difference if he places an order with one dollar or euro, and pays with another. And this causes discontent and reduces customer loyalty. In addition, if you tie the price of a product to the dollar or euro, you start selling not so much the product as the currency. Your customers do not look at the product, but at the scoreboard with exchange rates. This is wrong, because you are selling a product, and your buyer should see the product, its characteristics and price, and not fluctuations in exchange rates.
    • Do not take ill-conceived staffing decisions. From the fact that you dismiss the entire sales department or because of your nervousness create unbearable working conditions for people, the sales volume will not increase, but rather, on the contrary. Good sales specialists, despite the crisis, are very much in demand. And if experienced sales people quit due to your ill-conceived personnel policy, it will be difficult to find a worthy replacement for them.
    • If you work in the field of B2B (business to business), in no case do not try to attract customers with "anti-crisis" discounts. Paradoxical as it may sound, but in business, a company that begins to actively use discounts to attract customers in a crisis is seen as a weak player in the market. As a result, all relations with such a company are built on a short-term basis. And this is a big minus.

    What needs to be done in a crisis, what measures will help him successfully survive:

    • If possible, choose Russian suppliers. Browse your procurement list and discard imports wherever you can. Thus, you will reduce your dependence on exchange rates, which is very beneficial in a crisis.
    • Open your production. If you do not find domestic suppliers of the goods you need, think about it, maybe you can become a manufacturer. Open clothing, food, furniture or any other production. Of course, this solution is not for all industries. But where possible, own production will help you increase profits and reduce dependence on exchange rates when reselling imported goods. Troublesome? Difficult? Fearfully? Of course. But Einstein also said that only a madman is waiting for some changes, continuing to do the same.
    • Improve your service. In a crisis, customers become very picky. If a client used to work with you for 3-5 years, now in a crisis he can change his supplier within a month just because someone offered him the best conditions or the best service. In a crisis, people who are ready to buy understand their strength and become more demanding of all aspects of cooperation.
    • Improve logistics, optimize properly stock balances. I personally saw two companies who felt that they would be able to wait out the crisis through the trade in inventories in warehouses. They linked all their hopes with the cost of goods in a warehouse purchased at pre-crisis prices. But, as practice has shown, these residues did not help them. Most of the residues, as one would expect, was therefore deposited in a warehouse, which was related to slow-moving goods. Other goods that could be sold were not in the best condition: somewhere the packaging was damaged, somewhere there were no accessories, etc. As a result, with a significant amount of stock balances, it turned out to be nothing to trade. And the reason for this discrepancy is the lack of thoughtful logistics.

    The current crisis in Russia is both a test of strength for any business and the opportunity to conquer new markets and new customers. Now that customers have become much more attentive to both the service and the prices of any goods and services, for companies that work in the B2B sphere, a real opportunity has appeared to expand the list of their customers.

    In a crisis, familiar business relationships can be destroyed in a matter of days, companies that can offer the best price or some other advantage get a chance to achieve significant success in the short term. Moreover, today many corporations are interested in considering small and medium-sized businesses as potential business partners, because a small company is more flexible, adapts faster to changing market conditions, and therefore can offer better prices and conditions in comparison with the usual large suppliers.

    More recently, domestic business was on the rise, companies were developing, business profitability was growing, and the reliability of a familiar and convenient partner was valued higher than a more favorable price. Many agreed to overpay a little just to continue working with a convenient partner.

    Today, due to the crisis, revenues have declined markedly, including among large corporations. Large companies can also go bankrupt if they did not know how to quickly adapt to changing market conditions. Therefore, the purchase price of goods has become a very important factor. As a result, small companies can now enter the market in the new quality of business partners for large corporations. And those who will be able to establish business relations in a difficult period will retain new contracts after the crisis and will be able to actively develop their business. I believe that this opportunity must be taken.

    I believe that the crisis that we are all seeing for business looks like a combination of devaluation and falling incomes of the population, and, as a result, is accompanied by a drop in sales and a decrease in the total amount of cash in the economy.

    But even such difficult circumstances can and should be used. I described one possibility above - a small company gets a chance to become partners and suppliers of a large corporation. Another opportunity is the opportunity to become a manufacturer.

    I decided to say this, even despite the fact that these my thoughts can cause minuses (although I really hope that this will not be so). The fact is that the situation in which our compatriots, due to falling income levels, are not able to buy the necessary equipment, clothing, materials and much more abroad, has not only negative aspects. There is a plus here: money remains in the country.

    What happens when we buy goods abroad? Funds go abroad, earns, first of all, a foreign manufacturer, and our country gets only profit from the delivery of goods and, in some cases, customs duty.

    Now, when purchasing power has fallen, you can establish your own production, and they will buy from you! Of course, I do not mean areas such as the automotive industry or the production of sophisticated equipment. You can develop light or food industries.

    So, for making high-quality and inexpensive clothes, not so much investment will be required, similarly, a sausage or pastry shop can be a great helper in a difficult period. Moreover, you can also buy materials and products mainly in our country. And with decent quality, combined with a low price, your products will become very popular.

    Why am I writing about this? I really want you to understand, like me, that a crisis is not only a problem, but also a new opportunity. It has many minuses, but there are pluses. And we must strive to benefit from any situation, and look at life and our prospects positively!

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