Focus on these five critical areas to put your business in a competitive position for the new year.

Difficult times test even the strongest, most experienced leaders. Today’s market has proven to be no exception. As the leader of your company, now is the time to stay positive and engaged—while being prepared to make hard decisions.

Throughout nearly four decades of lending, interest rates have never moved as quickly within such a short period of time as they have during this past year. For the lending industry, this created huge problems with warehouse lines and the ability to sell loans at anything close to par, leading to margin calls, short- and long-term pauses on lending, restructuring of capital and, in some cases, closing doors.

Let’s consider five critical areas you can focus on to protect your business in 2023.

1. Know What You’re Solving For

Understanding key factors that will be business drivers for your company is critical to planning ahead. Some things to take into consideration when it comes to your business projections are:

• What are the current/anticipated inventory levels of real estate?
• What does current/anticipated real estate appreciation or depreciation look like?
• What impact do supply chain issues have on your business?
• How does the availability of contractors/subcontractors affect your business?

The lending pie has become much smaller, so as you forecast the year to come, the question is: How do you get a bigger piece? With increased rates and fewer transactions, everything you are solving for should be tailored to your unique business model yet be centered around the common theme of capturing a bigger piece of the pie while maintaining volume levels. Once your projections for your business drivers are made, you can turn your focus to your people.

2. Analyze Your Roster

Part of protecting your business means taking inventory of your team, but doing so entails so much more than an employee headcount. It means taking a very thoughtful look at your team’s talents and skillsets. Do you have enough employees to operate efficiently, or are there gaps to be filled? Or, do you have too many employees for your anticipated projections to support? Remember: Know what you’re solving for!

Marketplace sentiment today is that rates will be higher, and volumes will be lower. With fewer transactions anticipated in many 2023 projections, a reduction in workforce may be something to begin preparing for. A very busy market may have allowed your organization to add team members that perhaps were not vetted as thoroughly as you would have preferred. A market pullback, however, gives you time to define the criteria your organization can use as a guide if you are faced with difficult decisions. Consider what professional skills and knowledge are critical to each job. What business acumen is required? What discernment is needed?

The lending industry has seen ebbs and flows for around 40 years. Any time you have a reduction in workforce, you must conduct it is professionally, respectfully, and responsibly. Communicating empathy and understanding is important.

If you can help place the terminated individual somewhere else, you should certainly try. If you know a reduction will be around the corner, how transparent should you be? Your honesty will have a ripple effect throughout your organization, and integrity will prevail. Remember to give yourself permission to acknowledge the fear and uncertainty, but stay strong and stay positive for those who will remain under your leadership.

3. Be Financially Disciplined

Now that you’ve established your projections and prioritized your people, it’s time to control your expenses. Determining what you need as opposed to what you want will help you make judicious decisions.

Operating a profitable business is easier said than done. So, strive to operate your business profitably. Here are some goals to strive for so you don’t operate at a loss.

• Right-size your business so that in addition to everyone getting a paycheck and the utilities being paid, the business itself is getting paid too. If every department did this, a lot of bloat would be removed.
• Become hyper-focused on the products or services with the greatest impact on your bottom line, and invest your time in those areas.
• Watch and listen to what’s going on around you in the marketplace; pay close attention to shifts in the tide. Doing so will present opportunities to avoid potholes and take advantage of market shifts you might not have thought about.

As you analyze your finances, it is paramount to maintain access to capital. Stay on top of any requirements needed to keep it secure. Quality, quantity, and consistency drive capital market executions, so if you produce loans that perform at a higher level (and you do a lot of them on a consistent basis), capital partnerships and the terms of those partnerships will improve and strengthen to a net positive impact.

4. Own and hone your processes

When volume is down, it is a prime opportunity to reflect on process improvement. With smaller pipelines, several core business functions that may have been stretched can exhale, creating the perfect time to focus on improving your business’s infrastructure:

• Identify which areas of your company’s operations are a priority to focus your efforts on.
• Know the size of your company and the impact of any volume reduction; then make operational adjustments accordingly.
• Hone your processes and determine what you can be the best at.

In the current environment that demands “more” and “now,” technology delivers. In addition to assessing your operations, also take inventory of your technology:

• What does your technology infrastructure look like?
• Is now the right time to make big technology improvements?
• Should you invest in technology now or put it on hold?

Pulling the trigger on innovative advancements has everything to do with your capital base, so if it’s not a sound investment for your business (refer to #3), simply improve upon what you have.

5. Listen to your customers

The most critical defensive play you can make for your business is to genuinely listen to your customers. Their voice will always serve as a reliable pulse, a compass, to navigate your decisions. The perspective of customer feedback in a contracting market should be no different than in one that is thriving, because customer service begins at “hello” and ends … well… never.

• A customer should not be viewed as a vein to a commission. Although it is important to know your business’s numbers, don’t lose sight of your customers in a sea of data. Your customers require and deserve to be educated, guided, and supported throughout their customer journey.
• Know your customers and take time to understand your company’s customer experience. Investing in your customer and in the customer experience is money well-spent in any type of market.
• Market status updates in an ever-changing market is information your customer will find valuable and will appreciate.

When you are faced with critical business decisions every day in various areas of your company, it’s easy to lose sight of the big picture, so be sure to separate from the minutia and stay attuned to your greater goals.

Protecting your business during turbulent times is no easy feat, but when you approach the essential categories—planning ahead, people, finances, processes, and customers through a thoughtful and strategic lens, you will establish a foundation of strength to navigate the uncertainty. Coupled with integrity and transparency, this focus and prioritization of your business goals will serve as guide to survive and thrive in the year to come.