By Rick Beal
My professional motto is, “Storage is a business of inches not miles.” As with any mantra, the deeper you think about it, the more it makes sense. Self-storage is an industry with more opportunities to make small changes than large ones. Take, for example, facility expenses. Many are predictable, but it’s important to ensure sure they don’t spiral out of control. Costs can add up. Small increases and decreases can have significant impact.
To better understand expenses, we first need to separate them into two categories:
- Non-controlled expenses are those that are set and beyond your reach. These include bank loans, business insurance, property taxes, etc. These items can change but, for the most part, they stay the same.
- Controlled expenses are those of the “inch.” These include advertising, credit card processing, Internet and phone services, payroll, utilities and rental discounts. (Yes, I count complimentary units and discounts as an expense). All of these can be easily numbered and tracked. If you aren’t doing so, you’re setting yourself up to lose money.
Following are some ways to track your expenses and save money. Add up enough “inches” on the savings side, and you can go miles toward greater overall profitability.
I’m by no means an accountant. Numbers aren’t my first language. However, I understand their importance to the operation and how being unable to decipher the language will adversely affect the business.
Before the beginning of each year, create a budget that includes all of your controlled and non-controlled expenses. When it comes to money, the more detailed the budget, the better. If you have investors, it’s only fair to present them with the most accurate description of a yearly fiscal report as possible. If you’re having difficulty identifying all your expenses, e-mail me, and I’ll provide you with a list I use.
The budget should be broken into the 12 months of your company’s fiscal year (often January to December, but not always). If you want to get creative, add in your rental and other income budgets. That’s where it gets really fun! The only tool you need is Microsoft Excel, which will provide you with more than enough to create a budget that’s professional and useful.
Once you have a master list of money in and out, you can follow it year after year. You’ll be surprised at what stays the same and what you can change.
Now that you can track your expenses through a budget, you know what they are and can do something about them. Compare your budget to your actual expenses and see if items are on track or coming in too high. Are there some areas where you can improve?
For example, look at your phone service. The phone costs at my operation are $250 per month per location. This includes facilities with multiple elevators and security as well as switching to a multiple VOIP (voice over Internet protocol) system. Two years ago, that cost was $350, but then I did some investigating to see what other options were available.
I can almost guarantee that if I were to perform a quick audit on your facility, I could find several places to save you money. It’s not because I’m a storage whisperer, it’s because I took the time to track the expenses and discover opportunities to reduce them. You can do the same. Let me help start your journey. Here are some common controlled expenses from which you should be able to shave a few dollars:
1. Discounts. Again, I count discounting as an expense. I’ve mystery-shopped enough facilities to know some managers will tell prospects from the get-go that the first month or two is free before they even offer a property tour. You might as well be passing out $100 bills! Examine your need for discounting. Coinciding with that are “buddy units.” How many units have you given free or discounted for friends? Once again, you’re passing out cash.
2. Services. When reducing expenses, examine your recurring costs. For example, one of our managers recently increased trash service at his facility to twice per week because customers were using it so much. After looking into the issue, we decided the best course of action was to lock the dumpster and keep pickup at once per week. We even reduced the size of the dumpster, which added more savings.
The key is to make a list of services that can be changed or negotiated and assign a staff member to investigate options. The list might include:
- Boxes and other retail supplies
- Credit card processing
- Business insurance
- Internet and phone
- Property maintenance
- Office supplies
- Payroll services
- Pest control
- Snow removal
The list goes on and on. Revisit it annually to ensure you’re getting the best value possible.
3. Heating and cooling. For those of you who have temperature-controlled facilities, you likely dread the summer as much as I do. The power bill might as well come in a black envelope! However, pay close attention because I might be able to save you money.
Most power companies have what they call “peak times.” In Utah, it’s 1 p.m. to 8 p.m. During this period, you’re charged five times more for power than during non-peak hours. This is the hottest part of the day, so the most power is going to be pulled from the grid. I decided to cool down a four-story facility as much as possible starting at 7 a.m. when the power is the least expensive. At 1 p.m., all the HVAC systems shut off and the temperature rises. Occasionally, on a very hot day, the top floor needs cooling around 7 p.m., but other than that, no other A/C unit turns on. This change has saved thousands of dollars over the hot summer months.
One word of caution on watching expenses: I once had a manager who would get extremely upset at a coworker for using too much soap while washing dishes. He went so far as to put up an extremely passive-aggressive sign above the sink about the proper amount of dish soap to use. He wanted to ensure he was doing his part to cut expenses. This was the same employee who would waive late fees like they were going out of style. My point is, don’t be “penny wise and pound foolish.” In other words, don’t be so cheap that your facility or employees suffer.
If you haven’t guessed, I’m a fan of running a very transparent company. I feel strongly that staff should know the ins and outs of the business relative to their role. At anytime, any of our employees can open a Dropbox on a computer system and access the yearly budget. They can see the net operating income (NOI), investor distributions, expenses, bank fees, office supplies, and even see how much per month we spend on garbage removal.
How can you challenge and inspire employees to take charge of expenses if they don’t know what they are? If someone doesn’t know how pulling the “savings lever” will affect the “NOI cog,” you need to show him.
Controlling and recording expenses can seem like an overwhelming task. Nevertheless, it’s one that can be handled and gets easier over time. Once you have your basics, enlist the help of your staff to reduce expenses. You’ll be shocked by what they find. In the end, a few dollars saved here and there will really add up, and everyone will benefit.
Rick Beal is the district manager and part owner of Cubes Self Storage in Salt Lake City. He discovered his passion for the self-storage industry a number of years ago. Since then, his goal has been to help operators embrace new and innovative ideas. His approach to constant industry changes are based on a practical “rubber hits the road” application. His professional motto is “Storage is a business of inches not miles.” He can be reached at [email protected].