By March Chase
The most important thing to remember about expense control for your self-storage business is no cost is too small to cut. With every dollar you slice, you gain in net operating income (NOI). Why is this important? Because NOI is a leading indicator of facility value. You want to add every dollar possible. Here are some simple ways to control expenses, cut costs and boost your bottom line.
Fixed expenses are set by factors outside of your control. These external forces might include your local assessor’s office, insurance vendors, banks, etc. Though we use the term “fixed,” there’s often a little wiggle room for reducing some of these costs. For example:
- You have the right to appeal your property-tax assessment. The process can be arduous and expensive, however, so before doing so, research your chances of success with a property-tax attorney.
- When your property insurance comes up for renewal, it never hurts to shop rates. You might find a better policy and premium by consulting with an agent who specializes in the self-storage industry.
For the most part, we operators have resigned ourselves to the fact that fixed expenses are just a cost of doing business and can usually be offset by reducing outlays in other categories. It’s important to understand, however, that you can’t just “trim” your way to profitability. Costs are only part of the equation. Revenue growth will always be the driving force behind financial success. It’s when income is maximized and syncs with expense control that a facility reaches optimal performance.
Controllable Expenses and the Annual Budget
Controllable expenses are your everyday operational costs, which are easily managed by diligent oversight from facility management. Common examples include office supplies, facility maintenance, printing, postage and marketing.
The first step in limiting these expenses is to create a well-planned annual budget. If you don’t have a budget, you undoubtedly have a significant opportunity to not only cut costs in the upcoming year but to push revenue performance. Without a budget, you deprive yourself the ability to measure your success and identify your weaknesses.
That said, no one has a crystal ball when it comes to creating a budget. While we draw on historical data to assist with forecasting, we can’t predict everything. Unforeseen circumstances can and will arise. Depending on the situation, the cost to replace or repair an item might come from a reserve fund; but more often, it’ll run through the monthly operational expenses. These unexpected costs will cause a setback, but that’s the nature of our business. A commitment to keeping all other expense categories in line and out performing revenue projections will help you get a handle on the budgeted annual costs and, more important, meet or exceed your projected NOI.
Once you’ve created your annual budget, stick to it. Adapt and apply the “need vs. want” philosophy. Too often, owners think they must purchase X for the benefit of the facility when they should be asking themselves, “Do we really need this?” Exercising discipline is critical for a successful operation.