This past spring, during a seminar I presented at the Inside Self-Storage World Expo in Las Vegas, I asked a large group of facility owners how many of them planned to do any gambling while they were there. A few hands went up, but the majority sat still. In fact, there were a few comments such as, “I don’t like to risk my money!” That’s understandable. Most people who gamble in Las Vegas will lose, and that’s kind of the point of the economy there. It’d be difficult to keep all that neon burning if people actually won.
I then asked the same owners how many of them regularly audit their self-storage facilities. A few hands went up, and there were a few comments such as, “I don’t need to” and “It’s a waste of time.” Some even mentioned that since their manager has been with them for years, there’s really no need. That’s not understandable and is just as much a gamble as playing one of the many games in Las Vegas.
Why would otherwise smart, self-made entrepreneurs be so foolish as to never or rarely audit one of the most valuable assets they own? Why would anyone put as much effort, time, money, sweat, anxiety, credit-worthiness and sleepless nights into such a huge endeavor as developing or buying one or more self-storage facilities, and then never bother to ensure everything is operating as well as it should or could? Why risk everything to chance?
I’ve come to the conclusion that most self-storage owners have a gambling addiction. They’re taking a gamble that:
- Nothing can ever go wrong
- Their manager would never steal from or mismanage the facility
- The facility’s income is as high as it can ever be
- There are no problems with the unit mix, waived fees or discounts
- They’re in no danger of ever getting sued for doing something painfully wrong
- Their ego and personality will be enough to keep it all together
- This is such an easy business that they can’t mess it up
These owners are also addicted to danger and that hands-off management style that’s so alluring in this business. But as with any addiction, things can go wrong—from bad to worse to terrible to disastrous. The question is not if something will go wrong but when. Your turn may be just one roll of the dice away.
The good news is many disasters can be avoided by conducting regular facility audits. Let’s take a look at some things that could go wrong and how an audit can reduce these risks.
While the majority of self-storage managers don’t steal and would never even consider doing so, there’ll always be a few bad apples. The discovery can be heartbreaking for an owner. I’ve never caught a manager stealing and then heard the owner say, “Yeah, I thought so.” It’s always a shock, and usually someone he never would have suspected.
Unfortunately, in many ways, the nature of the business lends itself to the occasional theft. Managers often work alone, customers sometimes pay in cash, fees are “waived” with no verification, move-in specials are widely used, and payments are deleted with no follow-up. In almost every of theft case I’ve seen, the guilty manager acknowledged that it was easy because no one was paying attention. Your manager is most likely not stealing, but do you know for sure?
Failure to Follow the Law
Many a self-storage unit is sold at auction without someone making sure every “I” gets dotted and every “T” is crossed. Maybe the address of record was incorrect, or the manager took a partial payment, or no one documented the collection efforts, or the locks were cut too soon. Maybe the problem is even in how you charge your tenants.
I recently audited a facility that’s charging more than one late-fee schedule across the tenant base, and some of the fees are higher than what’s stated in the rental agreement. Some additional fees are being charged that aren’t even mentioned in the lease. Neither the owner nor the district manager had any idea. It was a class-action lawsuit waiting to happen. How many lawsuits would it take to ruin you?
Do you know for sure that every rented unit is actually occupied and every vacant unit is truly empty? Do you know for certain that those unit conversions your manager completed were done correctly? During another recent audit, I found more than 2,000 square feet of storage that didn’t exist in the facility inventory due to errors in unit conversions.
Are you OK with the number of company spaces that are in use, and do you know for what purpose they’re being used? Most of the value of your self-storage asset is in the units—the inventory. It’s kind of big deal that it be right.
Neglected Policies and Procedures
Are your policies and procedures being followed as outlined in your self-storage operations manual? This is assuming, of course, that you have such a manual. Here are some questions to consider:
- Is your lease up-to-date with current lien laws and other legalities?
- Are the leases put together properly by the staff? Complete, signed and dated?
- Are bank deposits conducted in a timely manner?
- Does every charity or complimentary unit have a signed lease?
- Are the tenant-insurance forms completed properly, or are you waiting for something to happen to find out?
- When are units being overlocked?
- When are locks on lien units cut?
There’s a reason sophisticated operators have an operations manual. They’ve figured out what works best, and then they duplicate that over and over. They’re not willing to leave everything to chance and hope the manager does it right. Hope is not a plan.
Other Important Questions to Ask
You’re very likely leaving a great deal of profit and asset value on the table due to mismanagement; but without an audit, you may never realize it. You didn’t set up your self-storage business as a nonprofit organization, so quit running it like one! Ask yourself these questions:
- When was the last time you reviewed your nonstandard-rates report to look for tenants who are paying well below the standard rate?
- Are there any “friends and family” discounts going on?
- How comfortable are you that late fees are constantly waived, rent is credited, and no one is checking to make sure there’s a valid reason?
- Are rent increases being implemented, or ignored because the manager doesn’t want to be bothered?
- Are ancillary-income opportunities being maximized, or are they wasted?
- Are there any life-safety issues on your property that you won’t know about until someone falls, gets mugged or gets hurt? Are slanted ramps painted yellow? Are all the cameras and lights working? If you ignore these types of issues and they end up negatively affecting someone, you’re in trouble.
The When, Who and What of the Audit
Audits should be conducted at least annually, though twice per year is ideal. You should also conduct an audit whenever there’s manager turnover, to ensure the new manager doesn’t unfairly inherit operational or theft issues. When you conduct audits, do it at random with no advance notice to site staff.
Audits can be conducted internally by ownership or upper management or by outside vendors. Most sophisticated operators use both resources to ensure compliance and consistency. A full operational audit should take up to a full day, depending on facility size. It should include:
- Reconciliation of the cash and petty-cash drawers
- Complete space audit
- List of deferred maintenance issues
- Review of payment and deposit records
- Review of lease and vacate files
- Review of all discounts and rent credits
- Review of any deleted payments
- Review pf any waived fees
- Review of the nonstandard rates report
- Reconciliation of moving and packing supplies totals
- Inspection of onsite manager’s apartment
- Inspection of any rental trucks
- Review of the facility's curb appeal and property condition
Breaking the Addiction
So how do you break the addiction to risk? Unfortunately, many owners only do so after something bad happens. There’s a theft or an effort to refinance or a decision to sell, and then they experience the “Oh, crap!” moment when they realize it’s too late. It’s kind of sad—too many missed opportunities, too many broken hearts, too many unrealized dreams, all because these owners were addicted to the gamble.
It’s time to break that addiction and start auditing your self-storage facility. Either learn how to do it yourself—and really do it well—or hire someone else to do it; but do it now, before it’s too late.
Bob Copper is the partner in charge at Self Storage 101, an industry consulting firm that assists facility owner/operators and managers in developing more effective and profitable operational systems. The company also aids in conducting performance reviews and providing the necessary tools to perform at higher levels in a competitive industry. To reach him, call 866.269.1311; e-mail [email protected]; visit www.selfstorage101.com.