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Challenges of Growing a Note Business

Growing Note Businesses face a range of challenges. As a note or cash flow business grows, different problems and opportunities demand different solutions – what worked a year ago might now be not the best approach. All too often, avoidable mistakes turn what could have been a great note business into a failure.

Recognizing and overcoming the common pitfalls associated with growth is essential if your note business is to continue to grow and thrive. Crucially, you need to ensure that the steps you take today don’t themselves create additional problems for the future. Effective management of your note business will help you make the most of the opportunities, creating sustainable growth for the future.

In this article I will highlight the particular risks and mistakes that most commonly affect growing note businesses and outline what you can do about them.

Keeping up with the Market – Market research isn’t something you do as a one-off when you launch your note business. The note business environment changes continually, so your market research should be continuous as well. Otherwise you run the risk of making business decisions based on out-of-date information, which can lead to business failure. 

The more you succeed, the more competitors notice – and react to – what you are doing. A market-leading note offer one day may be no better than average a few months later.

Apparently “loyal” note holders can be quick to find alternative note buyers who provide a better deal.

Information sources – Published information can provide useful insights into market conditions and trends. As a growing note business, your own experience can be even more valuable.  You should be able to build up an in-depth picture of what note holders want, how they behave and which of your marketing approaches work best.

Taking the time to talk to your note holders pays off. Effective systems can make it easier to analyze key information such as note holders selling behaviors and preferences.

Planning Ahead – The plan that made sense for you a year ago isn’t necessarily right for you now. Market conditions continually change, so you need to revisit and update your business plan regularly. As your note business grows, your strategy needs to evolve to suit your changed circumstances. For example, your focus is likely to change from winning over note holders to building profitable relationships and maximizing growth with existing note holders.  At the same time, every note business needs to be alert to new opportunities. There are obvious risks to relying solely on existing note holders. Diversifying your note holder base spreads those risks.

Following the same business model, but bigger, is not the only route to growth. There are other strategic options such as outsourcing and affiliate relationships that might provide better growth opportunities. It’s important not to assume that your current success means that you will automatically be able to take advantage of these opportunities. Every major move needs planning in the same way as a new note business.

Watch out for being too opportunistic – ask yourself whether new ideas suit your strengths and your overall vision of where your note business is going. Bear in mind that every new development brings with it changing risks. It’s worth regularly reviewing the risks you face and developing contingency plans.

Cash flow and Financial Management – Good cash flow control is important for any note business. For a growing note business, it’s crucial – cash constraints can be the biggest factor limiting growth and over extending can be fatal.  Making the best use of your finances should be a key element in planning your note business and assessing new opportunities. With limited resources, you may need to pass up promising opportunities if pursuing them would mean starving your core business of buying and brokering notes. Every element of working capital should be carefully controlled to maximize your cash flow. Planning ahead helps you anticipate your needs so you can plan for it

Problem Solving – New note businesses often run in perpetual crisis mode. Every day brings new challenges that urgently need resolving and you may spend most of your time troubleshooting.  As your note business grows, this approach simply doesn’t work. While a short-term crisis is always urgent, it may not matter nearly as much as other things you could be doing. Spending your time soothing an irritated note holder might help protect that one relationship – but focusing instead on cementing relationships with your note investors could lay the foundations of substantial business for years to come. 

As your note business grows, you also need to be alert to new problems and priorities. If you are focusing on individual marketing campaigns, you might need to devote more resources to developing your brand.  Identifying the key drivers of growth is a good way of understanding what to prioritize. Instead of treating each problem as a one-off, you should try to develop systems and structures that make it easier to handle them in the future.

The Right Systems – All note businesses produce and rely on large volumes of information – financial records, interactions with note holders and other business contacts, note investor details, regulatory requirements and so on. It’s too much to keep track of – let alone use effectively – without the right systems.

The larger your note business grows, the harder it is to ensure that information is shared and different functions work together effectively. Putting the right infrastructure in place is an essential part of helping your business to grow.

Documentation, policies and procedures also become increasingly important. The informality that might work with one or two investors and a handful of note holders simply isn’t practical for a growing note business. You need proper contracts, clear terms and conditions, effective procedures and so on.

Many growing note businesses find using established base standards one of the most effective ways of introducing best practice. Investing in the right systems is an investment that will pay off both short and long term. You benefit every day from more effective operations.

Skills and Attitudes – Entrepreneurs are the driving force behind creating and growing note businesses. All too often, they are also the people holding them back. The abilities that can help you launch a note business are not the same as those you need to help it grow. It’s vital not to fool yourself into valuing your own abilities too highly. The chances are that you’ll need training to learn the skills and attitudes required by someone who is leading growth.

To grow your note business, you need to learn to trust your investors and give up control of every detail when appropriate. It’s all too easy to stifle the process, creativity and motivation with excessive interference. As the note business becomes more complex, you also need to develop your time management skills and learn to focus on what’s really important.

As your note business grows, you may need to bring in outsiders to help. You’ll want to delegate responsibility for particular areas to different specialists. As you start tackling a new opportunity, someone who has experience of that activity can be vital.  For many successful note business entrepreneurs, learning to listen to – and take – advice is one of the hardest challenges they face. But it may also be essential if you are going to make the most of your opportunities..

Welcoming Change – Complacency can be a major threat to a growing note business. Assuming that you will continue to be successful simply because you have been in the past is very unwise. Regularly revisiting and updating your note business plan can help remind you of the changing market conditions and the need to respond to them.

An up-to-date plan helps you identify what action you need to take to change your note business and the way it operates. You need to be fully committed to your strategy, even if it takes you out of your comfort zone. This may involve hard decisions – for example switching note transactions away from note investors you have become friends with. But unless you’re prepared to do this, you risk putting your note business at a dangerous competitive disadvantage.

I hope this helps get you in the right mindset for the coming year.  This is going to be an amazing year in the note business, be prepared and mindful of the work you need to do. Remember success demands action, keep on marketing, it’s going to work!  TWITA! (That’s What I’m Talkin’ About!)

Jeff Armstrong of Armstrong Capital, your favorite Master Buyer, has been in the cash flow industry since 1991.  Specializing in the private mortgage note niche and seller financed notes he can be reached at 818-865-2322 or by email at info@armstrongcapital.com. For beginning to advance training opportunities, resources, to learn more or to obtain a quote visit armstrongcapital.com and secretsofpaper.com.

1 thought on “Challenges of Growing a Note Business

  1. It’s a great article enumerating the challenges both brokers/buyers face growing their business. My take is that the cash flow business is not a one plan fits it all. I think with that attitude, one is able to make progress. Thanks Jeff.TWITA!

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