Do You Really Need a Management Company?
|Copyright 2014 by Virgo Publishing.|
|By: Pamela Alton|
|Posted on: 11/01/1998|
Do You Really Need a Management Company?
By Pamela Alton
Self-storage is a wonderful business. Of course, we all know it's easy to operate: Just open the doors and tenants will flock to your site. You will be full in a month or so and the money will come rolling in, it will be a piece of cake. You have been in other businesses over the years and certainly this one can't possibly be that hard. You think, "Why should I pay a management company to run the place when I can just hire Joe, the retired guy from my lodge, to run the store for me?"
If you are a new owner or contemplating buying or building your first facility, then you probably have attended at least one of the national trade shows. After you attended these conventions, I am sure your head was spinning. Which doors are best? What building company should you use? What alarm and software company should you go with? Where do you begin?
Perhaps you have been in the self-storage business a while and are getting tired of the hustle and bustle and would like to relax and retire or maybe move on to that new project you've been thinking about. For whatever reason, the time has come for you to consider hiring a management company.
Why Have a Management Company?
If you are an inexperienced new owner and have business partners or a financial lender involved with your facility, they may request that you employ a management company for the first year of the project. After all, if you have no experience in self-storage, without professional management guidance, you may find yourself paying a higher interest rate because of your lack of management experience and, hence, you are a higher risk. A good management company will help you start off on the right foot and achieve the needed results to begin paying that mortgage. A management company can help guide and direct you so that you don't make costly mistakes and help save you money.
If you are looking to retire or move on to other projects, a management company could be the answer for you. They can provide you with the freedom to pursue other interests, handle the day-to-day operations of the facility and give you full financial reports on a monthly basis.
Just like when you started in the business, once again you are faced with several questions: What services does a professional management company provide and what are the costs involved? Where do you find them? How do you choose the right one for you, and do you really need a professional management company?
Various Levels of Management
A professional management company should offer various levels of management, from full-service property management to "operations only" to management placement, consulting, training, audits and inspections. Within these levels, they should give you the option to choose only those services you need. For full-service management, most companies will charge a monthly fee based on the gross income of the facility. The average fee for this is 6 percent or a minimum monthly fee of around $1,500 to $2,000. Having said that, I have heard of 7 percent or 8 percent in some areas of the United States. For this fee you should get the total management package, which includes staffing your site, training the management and handling financial obligations, conducting regular audit and inspections, providing you with monthly profit-and-loss statements, be available to discuss any situation with you and be willing to meet with you on a quarterly basis. When choosing a management company, ask what services you will get for the fee you will be paying.
With an operations-only program, the management company should offer a reduced fee for fewer services. This means they will staff, train, conduct audits and inspections, be willing to meet with you, etc., except they do not handle any of your accounting functions.
Many owners are leery of turning over the checkbook to what amounts to total strangers, so the operations-only concept is perfect for those owners. The average fee for this type of service is usually 4 percent to 5 percent with a minimum monthly fee of about $1,350 to $1,500. If the company insists on controlling the checkbook and resists offering some type of operations-only program, I would be very cautious about employing that company and giving them access to my bank accounts. I have actually had management companies say to me, "But if I don't have the checkbook, I can't hide things."
Consulting, start-up training and audits and inspections is another alternative for owners that want the expertise of a professional management company but don't want to be obligated to them for a 12-month contract or longer. With these services, an owner can pay a flat fee for what they need. Perhaps you only want a management company to conduct audits and inspections every six months at your site or come in and train your staff how to do their own audits and inspections. If you are just getting started, now is the time to use consulting services before you make any costly mistakes. Once you are ready to open, new start-up training is well worth the initial investment. A professional management company can train you how to find, hire and train your onsite management staff how to sell, market and manage your facility before the doors are ever opened. The fees for these services will vary, depending on the company you hire.
Choosing the Right Management Company for You
Finding management companies is as easy as opening this magazine and looking at the ads. When choosing a management company, the following areas should be considered:
Location. You should choose a company in your general geographic area, or one that is not further away than a two-hour plane ride, unless the company is one of the larger national management companies with an extensive management support system in place. It's unlikely a management company in say, the Southeast, can manage a property in the Pacific Northwest and do it effectively.
Track Record. If you are new to the industry, you need someone that has actually put in "apron time" behind the counter of a facility and opened new sites. The same theory should apply to a distressed facility. Choose a management company that has turned around facilities and made them profitable. Ask questions when interviewing a management company, just like you would ask questions when interviewing an onsite manager to oversee your facility: "What is your track record of reducing delinquencies? What marketing programs have you successfully instituted? Have you ever actually managed a facility, or just managed from behind a desk? How many facilities do you currently manage? How many did you manage in the past, but don't anymore, and why? What are your management resources for placing a manager at my site? What training programs do you have? Can I have a list of current and past owners you have worked with?"
References. When hiring a company to manage your investment, don't only ask for references, but actually call them. Go look at facilities they manage in your area and ask others in the industry about the management company's reputation.
Checks and Balances. You should also have your own checks and balances in place. If you choose a full-management program, you may want to be more thorough in your checks and balances. Just because the budget says it includes $300 for medical insurance, you need to find out the actual cost. You should only be charged the actual cost, not the budgeted cost. Some management companies have been known to charge an owner a few dollars here and few more there, and before you know it, you could be paying thousands of dollars a month more to the management company than its monthly 6 percent.
Philosophy. Lastly, do you like the people you will be working with? If you feel comfortable with them, their management style and their philosophy, and believe that it is the right company for you, sign the agreement and let them get to work making you the money you deserve.
Pamela Alton is the owner of Mini-Management, the largest nationwide manager-placement service. Mini-Management also offers facility management in the Western United States, policy and procedures manuals, sales and marketing training manuals, inspections, audits consulting, new start-up training and training seminars. For more information on the various services offered by Mini-Management, call (800) 646-4648.