A Mid-Year Course Correction

“Being a small, nimble, and opportunistic company is an advantage.”

Every year we start with a business plan that we believe will work. But things change. Interest rates move differently than planned. Some key people leave and others join the team. Mistakes are made and good breaks come our way. These changes alter what we had planned. So at this time of the year, it is important to reevaluate your business plan and determine what changes and corrections need to be made.

I was recently talking with a group and indicated that with all of the changes made this year, I believed I could see that light at the end of the tunnel. Someone said, “Are you sure it’s not an oncoming train?” That’s a sobering thought. It is not unusual for many of us to feel so confident that we become overly optimistic. How many times have we said, “This month wasn’t the best. But applications looked okay and we just added more loan officers, so next month will be more profitable”? Is it really getting better? Are there signs that suggest business won’t improve?

It’s easy to be so involved with day-to-day activities that we fail to take stock in where the business is really going. Are we profitable and making the progress we expected? To find the answers to these questions, we must take a reality check when we reach mid-year. We also need to take a detailed look at where we have come from, where we are, and when we will reach our goals. Do you need to re-vamp your business plan? To find out, ask yourself the following questions:

  • In which direction are the major business indicators moving?
  • How does the business look in the details?
  • What is working the most and the least?
  • What opportunities were not considered?
  • Is it time for a new plan?

Analyze Your Business
There are basic truths in every business, which are proven every year. In the mortgage business, it is true that loan volume dictates revenue and without it there is no business. It is also true that the proper management of expenses drives profitability. Given these two simple principles, there are many business metrics that tell a story. They describe the health of the company and the individual branches. Review the total application and funding volume, the funding and applications per branch, the volume and number of loans per loan officer, and the number of loans per salaried staff. It is also important to review the mix of loans and the market value per loan. Fees collected and overage per loan are also important business revenue indicators.

Given these basic business measures, how well has the business done month-to-month, quarter-to-quarter, and year-over-year? Are the trends positive and how do they compare to what you expected? Are the number of support employees and the fixed overhead in line with current volumes?

If the trends look good overall, then most likely your business is performing well. It is more than likely with the current interest rate environment that the trends show weakness. But even if this is not the case, overall financial results mask individual successes and failures.

Review Branch Level Trends
It has been said, “The devil is in the details.” It is certainly true in mortgage lending. It’s good to start at the top and evaluate how well the company is performing overall, but it is best to evaluate performance on the branch and department level. Even if interest rates rise and the competitive market tightens, the impact is not felt at the same intensity in every market. Product mix may help some branches and not others. Some branch sales and support teams are stronger than others and have better performance. Business can be improved if adjustments are made at the branch level.

Branch level trends are critical. If some branches are unprofitable, how unprofitable are they? Have there been changes in management or sales staff? What are the trends by branch and by market area? Is business getting tougher? Is competition what was expected or are there significant competitive changes that must be evaluated? Compare one branch to another. Evaluate the strength of each manager and the effectiveness of each loan officer.

If there are managers or branches where you were waiting to see improved performance, you probably cannot afford to wait any longer. If the last three months’ production trends and branch revenues are not favorable, is anything really going to turn it around? Are expenses under control? Is there a definitive business plan in place that management is committed to and has confidence that it will be achieved?

Pay careful attention to economic and interest trends and the health of each market. If the situation in each branch and market is not likely to get better, then it is time to make sure that expense levels are adjusted to support the most likely volume of origination and revenue. If the trends are moving in the wrong direction, they are not likely to get better soon. It is time to make those hard decisions.

Reevaluate Your Current Initiatives
As the year started, initiatives and actions were planned that you expected would move the business ahead. Perhaps it was additional branches, new investors or products, specific marketing strategies, or a number of other possibilities. Well, how well has each one done? What progress has been made? How much time and resources have they consumed? Have you received what you expected from the time and money invested? Be as objective as possible in reviewing each one.

Money becomes especially tight when business softens and competition tries to hold onto the business it has. There may be an opportunity to improve your specific situation by reevaluating your new initiatives. Can the most successful of these strategies or initiatives expand to create more revenue and bottom line profit? Review each initiative to make sure value is maximized. If a strategy or tactic has not been successful, it may be time to change the plan or stop it altogether. Correct what is not working or determine if it is best to abandon the effort completely. With less revenue coming in, your business cannot afford to invest in ideas or programs that do not work.

Identify New Opportunities
As the year has progressed, undoubtedly new ideas or opportunities become evident that were not initially anticipated. Maybe the competition is trying something that is working and you need to counter it. Perhaps new employees have brought ideas that need to be explored. Critically evaluate these opportunities. There may be enough time left in the year that they can have an impact on your business. Don’t let the barriers of “it wasn’t invented here” stop progress on ideas that will add to your bottom line.

More than likely it will be necessary to make a tradeoff. You cannot afford to do everything. By eliminating previously planned initiatives that are not contributing immediate economic value, you may be able to afford to try new opportunities. If you’re not a particularly big company (and in the mortgage business there are only a few really big companies), you will need to be able to regularly reinvent your business plan. Being a small, nimble, and opportunistic company is an advantage. Make sure you develop a culture in your company to recognize opportunities and create the ability to quickly take advantage of them.

Critique Your Plan
It is particularly important to review your plan and make sure the one you have will ensure profitability and keep you moving forward. If something isn’t working, change it.

From an employee’s perspective, no one wants to work for a company that is stagnant and not reacting to change and market conditions. If you are not moving forward with a plan, the troops will get restless — and for good reason. So once you have committed to making changes, make sure that everyone on the team knows why the changes are necessary and what results are expected from the change.

by Jerry Baker