By Amy Campbell
With the advent of computers, ZIP disks and super-quick e-mail, many imagined the amount of paperwork generated annually would begin to diminish. Instead, today's litigation, company reports and priority memos require more paper than ever. While producing these documents is 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 of essential 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 the niche 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 or inadequate record keeping," says Tim O'Neil, president and CEO of O'Neil Software Inc., headquartered in Irvine, Calif. "You read over and over how large corporations have been forced to pay millions, which could have been avoided if they had followed proper records-management procedures."
Another reason records-management centers are thriving is simply location. Because office space is limited and costly, most companies don't want to waste precious space and money on storing boxes. "The records center does not require the same 'prime' real estate as that of its customers. It can invest in a less desirable location," O'Neil says. "Customers--law firms, insurance companies and the like--find it cost-prohibitive to store their records on-site when the record center can do it for less."
It also typically costs less to outsource the job than to have an in-house staff catalog, file, store and retrieve thousands of documents each year. "A commercial records center can do it more efficiently," says Steve Hyman, president of Florida-based DHS Associates. "The cost of hiring professional records managers is not 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 of the smaller and mid-size corporations that have not yet been stung by the threat of large and costly litigation just want their records to go away. They pick up the phone, call the first number they come to, barcode the boxes and out they go. As long as they have a list of what the record center has and it is out of their offices, their problem has been solved. 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 a company storing boxes in two or three units. "At some point, that's not a cost-effective way to store large quantities of records," says Larry Borses, president of Lawrence Borses and Associates, a records-management consulting firm in California. Because storing boxes in a handful of units is not efficient--and doesn't provide someone who can catalog or retrieve files regularly--the company will eventually be forced to look elsewhere to fill its needs.
"Rather than lose them, it makes sense to cater to them by creating a records center where you can give the service they want and be more cost-effective, rather than just renting them units and units," Borses says. Adding records management doesn't mean a total overhaul of your existing facility, either. Borses says self-storage operators 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 and pickups; 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--and plenty of capital. "The first thing you need is a big bank or an excellent relationship with a bank because the business is a cash consumer in the initial stages," says Lee Miller, president of Andrews Records Management and Andrews Software Inc. in Ohio. "Somewhere between 100,000 to 150,000 cubic feet of paper is where you begin to make some money, and it takes a little while to get that quantity within your business confines. After that, you're seemingly always confronted with the purchase of more racks and more building space so the need for cash goes on. At some point, it becomes a positive cash environment as opposed to a negative cash environment."
Whether you're thinking about converting all or merely part of your facility, you will need the right tools. One of the most important factors will be the height of your facility's ceiling. Although the industry standard is 40 feet high, many records-management centers run successfully with lower ceilings. You will also need durable cell boxes, mezzanine racks with catwalks or order pickers to retrieve boxes, and a 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 up in 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 pretty much know how it ought to run or which way it runs the best."
Records-management software has one primary purpose--follow the paper trail. "Our software is the foundation of the records center," O'Neil says. "It provides everything 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. "It allows you to automate your process so you can move items around the warehouse and the system knows where they are at all times. There's less room for human error," Hyman says. "It cuts down on labor. It cuts down on what are called 'no finds,' where they are 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 it back in the wrong box, the system will even know that. And it will actually report a warning," 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 company don't know how to find it or don't know how to index it, then it's a liability, not an asset," Miller says. "It's something they're spending money for, but they're receiving little to no benefit. The real challenge is providing tools to the customer that allow him to index the information on the front end and search, query and retrieve from those indexes."
One way to ensure employees have easy access is through the Internet. Most records-management centers now offer some kind of online service that allows customers to order, if not view, selected documents. "They can go to the website where the index is, find what they want and click on 'retrieve.' It automatically sends an order for service to our facility," Miller says. "The order is processed automatically and no one in our facility has to key the name, rank and serial numbers, or any of the box or file 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 an emergency."
"The records-management business is extremely profitable," Hyman says. "Typically, once you reach an economy of scale, it's not unusual to see the profit equal 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 to the 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 the commercial records companies offer what they call inspection rooms in their building where the client can actually have boxes pulled and they can come in and examine them. They charge for all of those services. For many of the rooms, they charge by the hour," he says. "They charge for indexing. It wouldn't be unusual to charge 25 cents for indexing every file in that box. So if you had 50 files in a box, it's 50 times 25. It's a very profitable business with really good margins."
Records management is also an annuity business. "It has the aspect of recurring revenue, which is something you certainly see in self-storage. In the moving business, you do 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 the records-management business, once you've got an account, you keep it and it typically grows about 5 percent per year." For example, a client with 1,000 boxes will add about 50 boxes a year.
Although the majority of contracts run three to five years, most clients will stick with a records-management company longer simply because it's costly to pull files permanently. "There's financial incentive because they will have to pay $3 to $5 per box to take them out of storage," Hyman says. "Unless there's a compelling reason, most companies don't pull their files."
Do Your Homework
While there's no doubt there is a market for records-management entrepreneurs, there's more to the business than just buying boxes and barcodes. "You need an understanding of the records-management business," Hyman says. "You need to educate yourself on what are the issues in the records-management business so when you go in and talk to people, 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 as the Professional Records and Information Services Management (PRISM), or the Association for Information Management Professionals. Both organizations offer members information about the industry, education and networking opportunities. PRISM hosts a semiannual seminar for people interested in launching a records-management business. "We're very involved with educational programming directed at people who operate commercial records centers, media vaults and imaging service bureaus," says Jim Booth, executive director 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 the things that's different about the records-management business than, say, the self-storage business, is you put a sign out front and people drive by and you get clients," Hyman says. "Well, the records-management business isn't like that. You have to dedicate staff to marketing. Certainly, the Yellow Pages can be a source of leads, but it's a fatal flaw to think you're going to open up a records-management business and just put an ad in the Yellow Pages."
However, in the end, the hard work will definitely pay off. "You have all of the aspects that make a good business," Hyman says. "It's very profitable while you own it. It has an annuity benefit and it also has this payday at the end of the day because there's a ready market for selling records centers."
For more information on records-management operations, startups and marketing, see this magazine's monthly column, "Records Management," by Cary F. McGovern. Past columns can be accessed on the article archive at www.insideselfstorage.com. Other sites to visit include www.prism.org and www.arma.org.