The financial world as we know it suddenly changed with the outbreak of COVID-19. To what extent, we do not know and we may not know for some time. The situation remains fluid without a clear view of the future.
It is obvious, however, that these are disruptive times. And, given the uncertainty for commercial mortgage brokers in today’s market, the question is how to best prepare for a future that is impossible to predict.
It is important to remember that economic change is one of the constants in our world. This may be the start of a new phase for commercial real estate, but change has been with us since the beginning. Economic business cycles will be part of our lives forever. These changes can have many outcomes, including opportunities for great success.
Accepting consistent change and having the attitude to readily adapt is essential to our financial and emotional well-being. There is no one right way or single best practice to face either a Black Swan event or a more predictable economic change. But there are basic strategies that, if followed, may help to mitigate the risks and lead to a speedier recovery.
In most cases, we cannot predict the next crisis, but it is possible to be prepared for it. Unexpected business disruptions can impact companies of any size and in any location. Unexpected disasters — including severe weather, fire, extended power outages or virus outbreaks — will most likely affect all businesses. So, all businesses should develop a plan to ensure their continued and uninterrupted operation.
These challenging times will be hard to face without a plan that looks ahead to the post-pandemic recovery while arming you with a way to deal with the serious threats to your continued existence as a company. This is known as a business- continuity plan. The objective is to enable a mortgage broker to continue to serve borrowers during a crisis while lessening the chances that your clients will go to a competitor. A well-crafted business-continuity plan aims to decrease broker downtime and details a course of action that maintains the broker’s continued existence.
Challenging times present an opportunity to reinvent yourself. You can try something different.
The primary objective of the plan is to encourage the broker to look across their organization and develop new strategies that help their day-to-day operations. The first step in solving any problem, however, is to first recognize that a problem exists.
In many cases, there will probably be more than one issue to solve. As challenging as this may be, you must identify all of your business’s deficiencies and then prioritize solutions based on the difficulty of the problem. You may face intensified competition for limited lending opportunities, resulting in a serious decrease in revenue. Other deficiencies can be weak brand recognition, a high-cost structure or a lack of access to various lenders.
Once the individual challenges are identified, the next step is to consider several scenarios that will improve your business. This is not an easy process. It forces you to think outside of your comfort zone. Once you have decided to implement a change, you need to form a plan to achieve your goal, as well as to ensure the goal is attainable and that you have the resources to do it. If the goal is out of reach for whatever reason, abandon that scenario and move on to the next alternative.
Challenging times present an opportunity to reinvent yourself. You can try something different. This may range from discontinuing certain unprofitable product lines or adding new loan products, changing locations, incorporating a new level of technology or creating an expanded marketing campaign. It could involve more dramatic changes, such as forming new partnerships with other brokers, lenders, Realtors or contractors. Under the right circumstances, you may decide to merge your business with another commercial mortgage broker. As the saying goes, there is strength in numbers.
Once you have a plan, you should then try to achieve your goals, but you also must be prepared to rapidly adopt an alternative scenario if you don’t make progress in a reasonable amount of time. Do not spend time or money if positive results are not readily achieved.
An integral part of validating a new strategy is to prepare a pro forma income and expense budget, broken out by month for the ensuing year. Incorporate any new revenue sources or losses of income into the strategy, as well as the added expenses resulting from your change. If the pro forma rep- resents a net loss, then develop a budget for another year. The objective is to determine when your plan will break even. Estimating future income requires a detailed analysis of all closed transactions by loan type, size, term, rate and other relevant information so that an origination fee can be calculated. It also is desirable to identify your lenders. You will have to consider their underwriting standards, rates and fees.
At least two questions must be addressed. One, does the considered scenario reflect a reasonable break-even point? Two, are there sufficient cash reserves available to sustain operations throughout this period? If the answer is no to either question, then it may be best to move on to the next alternative.
A mortgage broker also should develop a list of their perceived strengths and weaknesses. This can be useful when attempting to decide on a new business direction. To spot a competitive advantage and needed areas of improvement, you first need to know your talents and limitations. This knowledge will help you in planning and decisionmaking during turbulent economic times.
Your strengths may include an ability to get the most out of your team; knowledge of products; competence with technology; relationships with new business sources and lenders; and business location. A mortgage broker constantly needs to draw on their strengths and resources to maintain a competitive market advantage.
It helps to build on what you do well, to address what you’re lacking, to minimize risks and to take the greatest possible advantage of your opportunities. You must identify your weak- nesses. It is always difficult for any of us to admit or even recognize what we need to work on. Nonetheless, this is a necessary exercise and, in the long run, makes us stronger.
All companies are constrained by internal and market-related challenges. In many cases, internal weaknesses may be easier to overcome. These can include a lack of management experience or measurable goals, limited product availability, no sense of urgency or an inability to close loans in a timely manner. External challenges, by contrast, can include interest rates, more restrictive lender underwriting standards, rising unemployment rates and today’s global pandemic.
You should promptly identify and address these areas of concern, and write down your goals and objectives. Of equal importance is the need for a course of action that will reduce costs, achieve profitability and serve the long-term interest of the brokerage. The way forward is to try something new.
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To quote the book “Re-imagine!” by Tom Peters, if you don’t like change, you’re going to like irrelevance even less. It helps to build on what is done well, to address what can be improved and to minimize risks. This effort will greatly increase your probability of success. You are the architect of your future, so start building.