File Found

Records management requires dollars and diligence

By Amy Campbell

With theadvent of computers, ZIP disks and super-quick e-mail, many imagined the amount ofpaperwork generated annually would begin to diminish. Instead, today's litigation, companyreports and priority memos require more paper than ever. While producing these documentsis fairly simple, storing them is not. With office space absorbed quickly by desks,computers and copy machines, there's little room available for boxes and boxes ofessential documents. More companies are turning to records-management centers to catalog,file and store their paper trails, which means the growing industry could be just theniche you've been looking for to generate, not paper, but profits.

A New Demand

One of the main reasons for the booming business of records management is litigation."Many large corporations have gotten themselves into costly litigation due to poor orinadequate record keeping," says Tim O'Neil, president and CEO of O'Neil SoftwareInc., headquartered in Irvine, Calif. "You read over and over how large corporationshave been forced to pay millions, which could have been avoided if they had followedproper records-management procedures."

Another reason records-management centers are thriving is simply location. Becauseoffice space is limited and costly, most companies don't want to waste precious space andmoney on storing boxes. "The records center does not require the same 'prime' realestate as that of its customers. It can invest in a less desirable location," O'Neilsays. "Customers--law firms, insurance companies and the like--find itcost-prohibitive to store their records on-site when the record center can do it forless."

It also typically costs less to outsource the job than to have an in-house staffcatalog, file, store and retrieve thousands of documents each year. "A commercialrecords center can do it more efficiently," says Steve Hyman, president ofFlorida-based DHS Associates. "The cost of hiring professional records managers isnot cost-beneficial in most cases. And, if a person is sick or there is a lot of turnover,you may find yourself without a person to deliver records on a particular day."

There's also the "get it out of here" mentality, O'Neil says. "Many ofthe smaller and mid-size corporations that have not yet been stung by the threat of largeand costly litigation just want their records to go away. They pick up the phone, call thefirst number they come to, barcode the boxes and out they go. As long as they have a listof what the record center has and it is out of their offices, their problem has beensolved. It takes the headache away and they are more than willing to pay for it."

The market is appealing to self-storage operators because they likely already have acompany storing boxes in two or three units. "At some point, that's not acost-effective way to store large quantities of records," says Larry Borses,president of Lawrence Borses and Associates, a records-management consulting firm inCalifornia. Because storing boxes in a handful of units is not efficient--and doesn'tprovide someone who can catalog or retrieve files regularly--the company will eventuallybe forced to look elsewhere to fill its needs.

"Rather than lose them, it makes sense to cater to them by creating a recordscenter where you can give the service they want and be more cost-effective, rather thanjust renting them units and units," Borses says. Adding records management doesn'tmean a total overhaul of your existing facility, either. Borses says self-storageoperators can begin with just one storage unit, adding more as the demand grows."They're able to charge not only for the storage but services, deliveries andpickups; and they found this is a pretty nice business," he adds.

The Right Tools

Getting a records-management business off the ground requires the right tools--andplenty of capital. "The first thing you need is a big bank or an excellentrelationship with a bank because the business is a cash consumer in the initialstages," says Lee Miller, president of Andrews Records Management and AndrewsSoftware Inc. in Ohio. "Somewhere between 100,000 to 150,000 cubic feet of paper iswhere you begin to make some money, and it takes a little while to get that quantitywithin your business confines. After that, you're seemingly always confronted with thepurchase of more racks and more building space so the need for cash goes on. At somepoint, it becomes a positive cash environment as opposed to a negative cashenvironment."

Whether you're thinking about converting all or merely part of your facility, you willneed the right tools. One of the most important factors will be the height of yourfacility's ceiling. Although the industry standard is 40 feet high, manyrecords-management centers run successfully with lower ceilings. You will also needdurable cell boxes, mezzanine racks with catwalks or order pickers to retrieve boxes, anda quality software program to run the operation.

Following the Paper Trail

When Andrews Moving and Storage embarked into the records-management business in 1984,the company couldn't find a software program to meet its needs. So it invented one."We decided we wanted it, and the only way to get it was to make our own. We wound upin the software business," Miller says. "We use the software we write every day.By virtue of doing that, we've fallen down and picked ourselves up enough times to prettymuch know how it ought to run or which way it runs the best."

Records-management software has one primary purpose--follow the paper trail. "Oursoftware is the foundation of the records center," O'Neil says. "It provideseverything from the fundamentals such as barcode tracking of containers, files and tapes,to invoicing and such high-tech features as Internet access."

One of the most important aspects of records-management software is barcoding. "Itallows you to automate your process so you can move items around the warehouse and thesystem knows where they are at all times. There's less room for human error," Hymansays. "It cuts down on labor. It cuts down on what are called 'no finds,' where theyare unable to find an item for a client. It makes the whole process more reliable."Barcoding can even correct mistakes. "If they happen to scan a record and file itback in the wrong box, the system will even know that. And it will actually report awarning," Hyman says. "The goal is to get the file back in the box."

Equally important is access to files. "If the people who work for the companydon't know how to find it or don't know how to index it, then it's a liability, not anasset," Miller says. "It's something they're spending money for, but they'rereceiving little to no benefit. The real challenge is providing tools to the customer thatallow him to index the information on the front end and search, query and retrieve fromthose indexes."

One way to ensure employees have easy access is through the Internet. Mostrecords-management centers now offer some kind of online service that allows customers toorder, if not view, selected documents. "They can go to the website where the indexis, find what they want and click on 'retrieve.' It automatically sends an order forservice to our facility," Miller says. "The order is processed automatically andno one in our facility has to key the name, rank and serial numbers, or any of the box orfile numbers. It automatically comes up as a service order. It is put on a pick list,selected at night and delivered the next morning--or immediately if it's anemergency."

Making Money

"The records-management business is extremely profitable," Hyman says."Typically, once you reach an economy of scale, it's not unusual to see the profitequal up to 25 percent of the gross revenue, which is pretty high."

The records-management company makes money every time a file is handled. In addition tothe storing charges, there's a fee to pull a file, index, examine, deliver or fax it."They will sell the containers the information is stored in," Hyman says."The cost for that is a couple of bucks with a 100 percent markup. Most of thecommercial records companies offer what they call inspection rooms in their building wherethe client can actually have boxes pulled and they can come in and examine them. Theycharge for all of those services. For many of the rooms, they charge by the hour," hesays. "They charge for indexing. It wouldn't be unusual to charge 25 cents forindexing every file in that box. So if you had 50 files in a box, it's 50 times 25. It's avery profitable business with really good margins."

Records management is also an annuity business. "It has the aspect of recurringrevenue, which is something you certainly see in self-storage. In the moving business, youdo have corporate clients that you may move over and over again; but with residential,you're always looking for new customers," Hyman says. "Whereas in therecords-management business, once you've got an account, you keep it and it typicallygrows about 5 percent per year." For example, a client with 1,000 boxes will addabout 50 boxes a year.

Although the majority of contracts run three to five years, most clients will stickwith a records-management company longer simply because it's costly to pull filespermanently. "There's financial incentive because they will have to pay $3 to $5 perbox to take them out of storage," Hyman says. "Unless there's a compellingreason, most companies don't pull their files."

Do Your Homework

While there's no doubt there is a market for records-management entrepreneurs, there'smore to the business than just buying boxes and barcodes. "You need an understandingof the records-management business," Hyman says. "You need to educate yourselfon what are the issues in the records-management business so when you go in and talk topeople, you have a knowledge of what it is you're trying to sell."

One way to learn about the industry is by joining a professional association such asthe Professional Records and Information Services Management (PRISM), or the Associationfor Information Management Professionals. Both organizations offer members informationabout the industry, education and networking opportunities. PRISM hosts a semiannualseminar for people interested in launching a records-management business. "We're veryinvolved with educational programming directed at people who operate commercial recordscenters, media vaults and imaging service bureaus," says Jim Booth, executivedirector for PRISM.

Like other business ventures, records management requires diligence and dedication.It's still a fresh concept that calls for creative marketing techniques. "One of thethings that's different about the records-management business than, say, the self-storagebusiness, is you put a sign out front and people drive by and you get clients," Hymansays. "Well, the records-management business isn't like that. You have to dedicatestaff to marketing. Certainly, the Yellow Pages can be a source of leads, but it's a fatalflaw to think you're going to open up a records-management business and just put an ad inthe Yellow Pages."

However, in the end, the hard work will definitely pay off. "You have all of theaspects that make a good business," Hyman says. "It's very profitable while youown it. It has an annuity benefit and it also has this payday at the end of the daybecause there's a ready market for selling records centers."

For more information on records-management operations, startups and marketing, seethis magazine's monthly column, "Records Management," by Cary F. McGovern. Pastcolumns can be accessed on the article archive at www.insideselfstorage.com. Other sites tovisit include www.prism.org and www.arma.org.