By Andrew Kelly
Are audits of your self-storage business necessary? Of course they are! Still, the process is one of the most lacking across the industry. The reasons many owners give for not auditing include but aren’t limited to:
- Why audit? My manager is a great person and would never steal.
- I don’t have the time to deal with the report findings.
- It’s too expensive.
If any of these words have crossed your lips, it’s time for an assessment. How often should you review your operation? The minimum is one major audit per year and then again any time you have concerns or a gut feeling that things aren’t going correctly. In general, audits are intended to do one of three things:
- Check the efficient operation of the site
- Examine a concern about falling occupancy or revenue, or increasing delinquencies
- Investigate tenant complaints about managers
Unfortunately, many audits don’t take place until after the damage has been done, even if warning signs were present. Instead, facility owners should take a proactive approach to this often-dreaded process. View it as a check-in to make sure everything is on track. Additionally, clean assessments will reward an outstanding manager who’s doing his job correctly.
Let’s take at each audit type as well as any red flags that could signal your business is in trouble.
Operating a successful self-storage facility requires scrutinizing numerous facets of the business, including occupancy levels, rental rates, maintenance, retail inventory and more. Here are some things to consider when examining your property’s overall efficiency:
- Are the daily reports and bank deposits being made per your policy?
- Is staff following your company’s phone script?
- Is the curb appeal up to your standards?
- Is the manager completing a weekly walk-through and verifying it against the computer’s unit inventory?
- Are tool and office inventories up to date?
- Are the petty cash and cash drawers balanced at all times?
If you’re lucky enough to have a results-oriented, take-charge manager, these areas are always in order. Proactive employees will typically welcome audits to show the owner they’re reliable and properly handling their multi-million-dollar business. These managers aren’t sweating when you announce an audit is taking place. A review can also show staff areas that require improvement.
This category is the one that’s most ignored until the ship is sinking or close to it. Why? Self-storage is a secondary business for some owners, and they treat it as such. However, it’s a full-time operation with unique challenges. Would you let your primary business get to this point before taking action? Probably not. Self-storage is a special business that, left in the wrong hands, can quickly fail.
Falling occupancy is one of the first signs of decline and needs to be reviewed promptly. Why is it occurring and is the manager aware? Some natural causes for a dip might include a new competitor or a shift in population. If the manager is clueless about why occupancy levels are down, it might be time for a new one.
You and your manager must watch the numbers daily and analyze why things are occurring at the site. Here are some things to consider:
- Are deposits (particularly cash) being deposited daily or floated around payroll?
- Is revenue dropping for no apparent reason, but delinquency is increasing?
- Has the manager stopped making collection calls?
- Are collection notes being reviewed?
- Is the manager working to eliminate bad debt through the legal statutes? If he isn’t professional and aggressive in collecting rent, it can cause the revenue base to drop quickly.
- Do you allow the manager to make up his own specials without approval and then fail to direct how those specials are to be used and when?
Managers often need guidance. If you leave them to fend for themselves, you may start to notice issues around many of the areas above. Leaving managers to their own devices can create a revenue “Nightmare on Storage Street.”
The last area of concern is the dreaded “silent partner,” a person who pays the manager directly with the revenue never going on the books. If the site is starting to experience an inexplicable drop in income, it’s time to investigate. Many owners never open all the vacant units to see if they’re occupied by silent partners. Regular unit checks are vital to ensure your manager isn’t dipping into your profit margin.
All self-storage operators get complaints from tenants from time to time. Most deal with specific policies or rent increases. Don’t be too concerned about one or two manager complaints per year, unless there’s a complete breakdown of the customer-experience mission. Repeated or horrible complaints should be investigated quickly to ensure the manager hasn’t given up on company policy. There could be valid causes, such as the manager is suffering from job burnout, or experiencing personal or financial issues and bringing those troubles to the office.
In any case, these types of complaints need to be given top priority before they turn into a complete breakdown of the storage operation. If left unaddressed, they could be the beginning of a downturn in facility productivity and revenue.
The above is just a sample of what a quality audit should include. An examination should be done at least once per year to confirm policies and procedures are being followed, and more often if warning signs appear. Reward managers who have clean audits, and eliminate those who have given up and refuse to follow directives. If you don’t have the time or desire to keep tabs on your property, hire an experienced industry consultant who can help keep your business running smoothly.
Audits give owners peace of mind that their investment is operating at its greatest efficiency and profitability. Don’t stick your head in the sand and hope that what’s concerning you about your site will just go away on its own. Be proactive by conducting regular audits.
Andrew Kelly is principal of Self Storage Consulting LLC, which was founded in 2004 to help new and existing facility operators enhance their return on investment. The company offers facility brokerage, consulting for new development and due diligence, facility audits, owner and staff training, and property management. For more information, call 520.323.6169; visit www.sierraselfstorageconsulting.com.