One of the problems involved in running a business that is measured by deal volume is that success is only possible if the deals never stop. It can be very difficult to make improvements to a company when the work never ceases. It’s akin to performing maintenance on an automobile without ever turning it off. When we don’t have the opportunity to examine our enterprise at rest, it can be difficult to know when we should make changes and which changes will be of most long-term benefit to the company. Fortunately, when it comes to many of the technological systems we use, there will often be signs that can serve as clues if we know what to look for.
Financial and accounting software for the mortgage origination business is a good example. There are a number of clues that will tell executives working in a growing mortgage company when it’s time to upgrade their software. In this article, we’ll tell you about four of the most common clues so you can look for them in your own business.
Microsoft Excel is not financial accounting software. It’s a spreadsheet program that can be useful for performing analysis on sets of numbers, including company financial information, but it has never been sold as an accounting package. And yet, if you find Excel worksheets open on every desk in your accounting department, you’ve uncovered the first clue that it’s time to upgrade.
Many originators don’t try to run their business on spreadsheets. A large percentage of them will use an off-the-shelf accounting package, like Intuit QuickBooks (QB). Unfortunately, there are many things that QB just can’t do, but that mortgage lenders must do, such as accounting for loan officer commission, interim servicing, loan level reconciliation and branch accounting. When growing mortgage companies bump up against the limits of their accounting software, they launch Excel.
There are plenty of problems with this and it increases the overall risk to the enterprise. There are problems when information is transferred into the spreadsheet incorrectly. These are sometimes referred to as “fat finger” errors and they can cost the company a lot of money and put it at risk of falling out of compliance. Over time, these spreadsheets grow and small mistakes made early on can become more significant with time, especially when you’re compensating employees based, in part, on past experience.
Another risk is that the formulas within the spreadsheet — which are all custom — could easily be be wrong. When you’re accounting for a number of branches in a large spreadsheet, it can be easy to send numbers from one into the summary for another. Even the smallest formula error will create havoc over time. In addition, as spreadsheets grow in and size and complexity end user machines tend to struggle as they are not built for heavy computing workloads.
Spreadsheets can get lost. The data can be stolen off an employee’s laptop. They can fall prey to version control errors when more than one person is updating the same information on different versions of the same sheet. And they can cause work stoppages when the only person who knows how to run the spreadsheet is unavailable, tasked with other work or leaves the firm. Balancing loans and reconciling the transactions in a spreadsheet opens the company up to increased audit risk.
The biggest problem with Excel is that it sucks up so much time. The manual labor involved in creating, updating and generating reports from Excel is significant, more so than many executives realize. It can literally be the difference between spending days laboring over a spreadsheet or pressing a single key. When executives compare an investment with a real mortgage accounting software application with Excel, they must not exclude the labor and time savings that will come from using the right software.
We are certainly not suggesting Excel shouldn’t be part of the finance team’s armory of tools, but when its moves from complementing a larger tool set to being relied upon as ‘the answer’ it’s time to consider making a move to a better accounting solution.
Mortgage executives don’t use Excel because they need a handy place to store numbers. They do it because they need to make sense of the operational data they are collecting about their business. When reporting is fast and easy, decision making becomes easier. That’s usually not the case with spreadsheets, especially not when they grow large. But without them, smaller lenders can find it very difficult to analyze their data appropriately.
The reason for this has to do primarily with cost center analysis. Most small businesses constitute a single cost center and all the accounting software has to do is count expenses against revenue to provide meaningful reports. That’s not the case in the mortgage lending industry. We have multiple, overlapping cost centers that must be analyzed if financial managers want to make sense of what’s really going on in their businesses.Systems such as QuickBooks do not allow this with ease. At best, users must use a classification for various revenue items and then count costs against those.
Even some accounting software packages specifically written for the mortgage industry face challenges here. If you’re being forced to set up multiple accounts in the general ledger to perform meaningful cost center analysis, it’s a clue that it’s time to upgrade.
Without the ability to assign expenses to multiple cost centers, it becomes very difficult to break expenses down by multiple cost centers, for instance by loan officer, branch or region. Say, for example, you want to analyze your appraisal fees over 10 different branches. A QB user could use a classification to analyze data across its branches, but would not also be able break that down by region, loan officer, product type or any other way with ease.
Companies using these legacy software packages often find that in order to break down and analyze their data across their entire enterprise, they may have to set up hundreds or even thousands of general ledger account codes. Loan Vision uses a single G/L account and then its use of dimensions allows you to track expense and revenue across eight customer personalizable cost centers.
If you’re still setting up hundreds of accounts for fees at the branch level, that’s a problem, but it’s also a clue.
The result for many companies is that they will limit their analysis to the few cost centers that seem to give them the most return for the effort. That’s the tradeoff they are forced to make, but it’s not necessary with the right software. It’s a clue that it’s time to get into a more powerful application and change the way you manage your business.
About the author:
Carl Wooloff is Business Development Manager at Bestborn Business Solutions, the company behind Loan Vision, the mortgage industry’s fastest growing provider of accounting and financial management solutions. Carl can be reached at Carl.wooloff@bestborn.com.
