Protecting your business

31 Oct 2019 3:00 PM -

There are many advantages in diversifying your business. Some include, additional income streams, ring fencing your clients, providing a full-service model and keeping up to date with industry changes. Today, we will look at diversification and how it can protect your business against industry disruption.

INSURANCE THAT PAYS

Most of us, without hesitation, pay a monthly premium to insure the cars we drive and the homes we live in, yet do little to protect the income that pays for them. Furthermore, we invest in protection against the worst-case scenarios such as house fires, stolen cars and death or injury of loved ones. We cannot predict the unpredictable, and that’s scary! So month after month, year after year, we hand over our money ensuring peace of mind that in the unlikely event that one of these tragedies does befall us, we are protected. We pay to secure our future.

Despite this, it’s not uncommon to neglect the very thing that provides us the income we use to pay not only the insurance, but the lifestyle we live . The funding of our lifestyle encompassing the food we eat, holidays we take and clothes we wear is derived from our work. For mortgage brokers, that is a business that is unfortunately highly susceptible to industry changes. More so, consequently industry changes that can greatly affect and potentially make or break your business.

So on that notion, today we are not going to focus greatly on the risks, instead urge you to think about the factors you can control whilst providing protection against those you can’t.

INDUSTRY DISRUPTION

In this industry we see disrupters through technology advances, new financiers entering or exiting the market and governing bodies introducing new game changing policies. These are just a few factors outside our control, impacting the businesses that we’ve spent years building.

Earlier this year, we saw this transpire with the suggestion of a broker remuneration review and the discussion around the abolishment of trail income. It was an unnerving atmosphere these recommendations brought upon third party channels. Understandably, this saw industry bodies, individual brokers, aggregation leaders and many others step in to fight for their livelihoods. The uncertainty and instability did, on the other hand, bring a sense of camaraderie across all those affected and a sense of achievement when the decision was made to leave the model as it is, to be reviewed in 3 years.

With that said, have a think how your business would have been affected if these changes had been implemented. Many spoke of it being the end of the broking industry whilst others were not quite as worried. Regardless of your perspective on the changes, it was made clear the businesses you worked tirelessly to build grow and own, can very quickly be turned upside down by decisions that are not your own.

DIVERSIFICATION

Let’s start with diversification, a term thrown around so often it can lose its meaning. Diversification may mean something different to different people, but simply put, identify your core business e.g. writing residential home loans. Diversification is all of the different channels that you branch into outside of residential home loans. These extra branches to your business increase how diverse your offering is.

You’ve heard of the expression ‘Jack of all Trades Master of None’? This is something you want to avoid. Regardless of the motivation behind the decision to diversify, it’s safe to say the intention is to add value to your business. Preventing devaluing your business by biting off more than you can chew is imperative. Without adequate knowledge, you require collaboration with the right groups allowing you to leverage off their expertise.

It’s important to understand what you are hoping to achieve and then take the steps to generate the outcome you want.

Insurances and financial planning
Commercial finance
Asset & equipment finance
Personal and business cash flow solutions
Business planning and accounting

These are just a few avenues you can look at broadening your client offering. First whilst working out where to start, have a think what it is you want to achieve. Your objectives will help you to navigate through the various options available to you.

PROTECT YOUR BUSINESS

Simple, when a credit analyst assesses an application for a commercial client, one of the risks they will look for is a heavy reliance on one client or supplier. For example, let’s use a retail business who purchases their stock from a wholesaler and sells this product in their retail clothing store. If 100% of their stock was purchased from the wholesale business, where does this leave them if something were to happen to that supplier? If the wholesaler increases prices, closes the business, opens their own retail division etc. then in an instant this can completely derail the retail business. Likewise, if the wholesale supplier’s only client is the retail store, all of their income is also generated from the one place. If the retail store were to cease trading, then the wholesaler’s entire business income ceases along with it.

As a mortgage broker, the upfront and trail of the residential property loans you write might make up your entire income. If a fee for service model were introduced, the number of clients that use brokers would significantly decrease. Where would this leave you?

On the other hand, if you also wrote asset and equipment finance loans or assisted commercial clients find cash flow solutions, your income stream wouldn’t rely on one channel. Subsequently, should something happen in the industry to impact one of these channels, you have alternative income streams to fall back on.

There are two important tips we recommend when diversifying your business:

1. Leveraging off your existing knowledge
Use what you know to tackle the things you don’t! Identifying your strengths allows you to build the network providing the access, education and support you will require moving forward.

For example, if the majority of your existing business is with PAYG clients buying their first home, don’t market targeted cash flow solutions for commercial clients. Likewise, if the majority of your deals are for commercial properties, advertising recreational goods for consumers might not be the best place to start.

2. Creating a support system

Unfortunately, as every client, industry, asset and application is different, it’s impossible to know everything about the various channels, policies and products before you start. For that reason having the right network to collaborate with that aligns with your objectives is imperative. At NLG Leasing, we adapt our model to suit the needs of our broker partners.

We achieve this through a dedicated support line to workshop transactions and two referral models. This allows you to start with a less hands on method, watching as our team work with you and your clients to process applications. Alternatively, for brokers experienced in this field, we will provide you with the tools you need to quote, submit applications and utilise our 36 lender panel. Take comfort that our experienced asset and equipment finance specialists will review the application, lender and product before submitting, ensuring the best possible outcome for your clients. Tell us what you need, we tailor a solution for you.

Take the plunge with NLG Leasing and let us make diversification a more rewarding and less daunting experience.

Happy to help.

If you are looking for a solution to assist your consumer and commercial clients with all asset, equipment and cash flow finance solutions - but don’t yet have the knowledge and can’t justify the high costs associated with multiple accreditations, specialist systems or a full time specialist on the payroll – then NLG Leasing is the right business partner for you. If you would like more assistance, please contact the NLG Leasing team on 1300 722 011 or email support@nlgleasing.com.au

Need a hand? Call us on 1300 722 011