Self-Storage Budgeting in 2012: Take the Time to Get it Right
By Matthew Van Horn
It’s that time of year again—time to get your 2012 budget finalized. Now’s the perfect opportunity to review your facility’s financial position as we move into 2012. For some, this will be used only as a metric to gauge your facility’s financial progression or regression. For others, budget planning is imperative for your facility’s financial well-being in regards to a potential sale or refinance.
The only way to improve on something is to track everything. How much did you spend on office supplies in 2011? How about in 2010? What were your utility bills last year? How much did they increase or decrease from 2010? What percentage of your facility’s total expenses is paid out in utility costs? Do you still need that Yellow Pages advertisement this year? How many calls did you receive from it last year?
It’s imperative to project your income, expenses and net operating income for the upcoming year. Here are some line items you should take into consideration when preparing a budget.
- Rental income. Revenue from rental operations. Take into account move-outs and rate increases.
- Late fees. If you charge late fees, count them.
- Administration fees. Likewise, if you charge administration fees, add them up. If you don’t, you should be.
- Sales and use tax if your state requires this.
- Merchandise sales. Roughly 1 percent to 3 percent of revenue is good; more than that is even better.
- Insurance commissions. You do sell this, right?
- Rental trucks and other ancillary services. This could be cell-phone towers, billboards, e-Bay, packing and shipping services, etc.
- Marketing. Budget your entire marketing plan, not just advertising.
- Payroll and burden. Be careful when it comes to cutting payroll; manager morale is important.
- Utilities. These typically increase annually, especially power.
- Office expenses. You don’t need 18 packs of multi-colored Post-It Notes. Only buy what you really need.
- Maintenance and repairs. Be proactive on maintenance and the cost of this line item will decrease.
- Professional services. This varies by location.
- Fees. Banks and municipalities will notoriously fee you into oblivion.
- Lien sales. Unfortunately, we have to prepare for these.
- Rental truck expenses.
- Property taxes. Unless your facility is owned by the state Of Idaho, you’ll have to pay your property taxes.
- Property insurance. Hurricane season is only six months away.
Increasing Revenue in 2012
Most self-storage facility managers and owners have already taken the steps to cut back on unnecessary items that weigh on expenses. As a manager or owner you may make one less trip to the office supply store, maybe you’re taking your employees out to lunch less, or perhaps you’re cutting your facility’s lawn yourself. Once you’ve trimmed most of the items you deem to be an excess, what’s left?
The self-storage industry is very good at cutting expenses. Where the industry has had a lackluster effort is increasing revenue. I can’t tell you how many times I’ve personally heard, “I’m 100 percent occupied.” Attaining 100 percent occupancy is great. It takes a lot of effort to get there, but after the campaign is gone and the music stops, you’re now losing money. If your facility is in a market in which you can attain 100 percent physical occupancy then your rates are too low. It’s time to raise rates.
Most self-storage management software will allow you to raise your customer’s rates automatically. Simply input how often you’d like to increase your customers’ rates, along with the percentage of increase. Consider giving your first increase when a customer reaches an occupancy of six months, and then once per year after the initial increase. The typical increase is 5 percent to 7 percent depending on your market.
Automatic rate increases solve multiple problems. First, you don’t have to remember to do the increases manually. The increase letter will go out automatically and your self-storage facility will immediately reap the financial benefit. Second, you don’t have to review each increase on a case-by-case basis. This will allow a rate increase to be completed across the board without any emotional attachment to individual situations. Last, it just saves time.
In addition to implementing automatic rate increase, consistently review the competing rates in your facility’s market and make adjustments accordingly. As an industry we must grow revenue to remain competitive and profitable.
Matthew Van Horn is vice president of Cutting Edge Self-Storage Management, a full-service management company specializing in management, feasibility studies, consulting and joint ventures within the self-storage industry. For more information, visit www.cuttingedgeselfstorage.com .
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