Reasons Why Some New Mortgage Businesses Fail (and how not to be one of them!)gary
In the US 80% of small businesses fail within the first 18 months. The UK’s figures aren’t quite so bad, with 20% failing in the first year and 30% in the second year. This is possibly due to less people taking the leap into independence over here maybe coupled to possible failure still being seen by some as having something of a stigma attached to it. “It’s better to try something even if it scares you rather than spending your life full of regrets and wondering what might have been” is an often quoted maxim, but if you’re new to hang gliding and have just discovered you’re not very good at it, you maybe wouldn’t agree as you spiral rapidly to mother earth!
This list of five problem areas in no particular order of importance includes the main problems which can sink a new business, so hopefully once you’ve read this article and thought about them a bit, you will be in a slightly better position to avoid them:
- Lack of planning – Please don’t just jump in and hope everything will be OK or think that you’ll be able to hoof it and just do what is needed as you go along. This really won’t happen, so plan what you aim to do if everything works out as you expect and then plan what you can do when everything doesn’t actually work out exactly the way you expect, also known as “realism” in some circles. Likewise, when you are planning don’t use “best outcome” figures in your projections. There’s no need to be massively pessimistic, knocking 30% or so off reasonably predicted earnings is not usually a good thing but don’t be crazily optimistic either. Just keep a level head and you’ll be on the right path. Also, remember to try to plan for everything you can think of within your control. Sub-plans are generally a good idea for marketing, business sources, a break-down of running costs and how you might increase earnings. You’ll might occasionally hear someone say, “If I’d thought to hard about the problems, I’ve had in my business I would have stayed in bed and wouldn’t be the success I am today.” But for everyone one of those, the other 99 out of 100 people who jumped into a business and failed royally because they didn’t have any idea of what to do once they were sitting in the office will be a lot less forthcoming about their experience! So, forget all about the natural entrepreneurs and geniuses and JUST PLAN!
- No financial backing – This doesn’t mean you need to have £ millions behind you before you start up, but it does mean you need to look at your business plan (remember the really important one you’ve just written) and tailor your marketing to your funding. If you’ve got a secondary income or a decent lump of cash from somewhere to fund your start-up for the first 3 months for example, then that’s great, but if not, then you need to save at least enough to give you a 3-month cushion. If you are starting a UK mortgage broking business for example, it will almost certainly be at least a couple of months before any commissions and proc fees start to come through and that’s assuming you start writing business on day one!
- No Unique Selling Proposition – Or if you have one, then failing to tell everyone about it is just as bad. It might not be obvious if you’re John Smith the mortgage broker with about 350 other John Smiths or derivatives of it on the FCA register, but your business has one USP straight away, that’s you. Nobody else will give their clients exactly the levels of care and expertise that you can bring them. Looking at it from another point of view, do you specialise in one, two or more particular types of business, adverse, forces, police, health professionals, equity release, new buyers, self-build, older clients, local clients, buy to let, ultra-high or ultra-low net worth clients? The list is pretty much endless, but if you specialise in an area, while usually not turning other kinds of business away, then make sure everyone knows about it. Business cards, stationery (printed and email), home page of your website, Tweets, Blogs or postings on Face Book it doesn’t matter how you get the message out there, but in a world of over 7 billion people and lots of them talking over each other, you need to make sure anyone who could use your services, knows you can help!
- Marketing – Arguably the most crucial component in any mortgage broking business. You need to have an idea where you’re going to get your clients from. Whether its referrals from introducers, referrals from existing clients, advertising, purchased leads, or social media. The where is pretty irrelevant as long as it’s legal and it works for you, but clients are your businesses life’s blood. There are thousands of mortgage advisers who are very good at their work and with increasingly sophisticated sourcing software which makes that side of the job quite a bit easier, but for a successful business you need to sort out the marketing.
- Pricing – Last but definitely not least, don’t underestimate the value of your service. Having been in the industry for some 20 years now I have never seen a mortgage broker go bust because they charged a broker fee. I have seen some businesses fold because they charged an unrealistic broker fee i.e. in the thousands for a very small mortgage, but never for charging a reasonable fee. I can’t really get into numbers here because the actual amount of the fee is very dependent on your client type and the size of the mortgage but remember these two things. 1) You’re a qualified professional and people expect to pay qualified professionals, such as solicitors, accountants and mortgage brokers. 2) People are much more likely to act on advice that they have paid for, that makes you an adviser not a salesman. DON’T BE SCARED TO CHARGE FOR YOUR EXPERTISE!