It's a new year, and well past time to start thinking about your 2018 budget. If you’re not in the habit of creating a monthly budget for your self-storage business, now’s the time to start. Consider these 10 reasons why you need to set solid financial goals for your operation.
Keep Your Eye on the Prize
We’re all motivated by different things. Recognition, money and paid time off are some that come to mind. Sometimes something as simple as crossing a task off a to-do list creates a sense of accomplishment. Setting goals that can be measured, achieved and even surpassed can create extra excitement and drive to get a job done.
A budget creates a measuring stick. If you compare your self-storage occupancy, revenue and expenses to a budget each month, it’ll be much easier to understand your results and opportunities for improvement. A budget is also a good tool to use in incentivizing your team.
Care for an Aging Facility
Door springs break, HVAC units need preventive maintenance, landscaping needs to be refreshed and elevators need to be inspected. An annual review of your physical asset will help you keep it in good condition. Being able to plan projects throughout the year via your budget will allow you to better control your cash flow.
Set Your Priorities
A clearly written and communicated budget helps the whole team understand your priorities. What do you want to focus on this year? Occupancy growth? Rate growth? Fixing up the buildings? Or maybe you really need to save money and reduce expenses. Use your budget to clarify goals and keep everyone on the same page.
Predict Cash Flow
I don’t know anyone who has a bottomless bit of money. That means we all need to understand our cash flow. For storage sites in lease-up, this is critical. Even owners of mature sites will benefit from cash-flow planning. For example, if I’m using every dollar I make at the end of each month, how am I going to pay my property-tax bill next fall? If the roof needs to be replaced, will I have money set aside for that project? When considering your cash flow, you need to think about future expenses.
Understand Your Profit Margin
After you know what your cash flow is going to look like, you can decide what to do with the profit margin. This is the fun part! Maybe you’ve been dreaming of a vacation on a tropical island. A budget can help you plan it with the comfort of knowing that you’ll have the money to enjoy it. On the other hand, you may want to save your profit and use it as a deposit on your next storage acquisition. The budget will help you know how long it’s going to take to reach your goal.
In the words of motivational speaker, Zig Zigler, “If you aim at nothing, you will hit it every time.” Making financial decisions on the fly, without a plan, is never a good idea. It’s possible to achieve success based on luck, but that strategies brings with it added stress and anxiety. It can also damage your relationships with lenders, employees, vendors and many others.
Gain Negotiating Power With Vendors
As you work on the projects you have planned, having a budget you need to stick to can absolutely help you negotiate with vendors. Let them know what you’d like to accomplish, and if their quote comes back much higher than you expected, have a discussion with them. They can often come down in price or present other options of which you may not be aware.
Spend Marketing Dollars Wisely
If you make marketing decisions based on a positive return on investment (ROI), you can spend hundreds of thousands on marketing alone. There are so many options—and all will be presented to you as profitable. If you’ve a set budget for the amount you can spend on advertising in print, online or anywhere else, you’ll be forced to choose the avenues that drive the best results. You’ll also be more likely to track results and measure your ROI, which will help you make better decisions for years to come.
Meet Lender Requirements
Your lender will certainly require a projection initially, and some will ask you to submit an annual budget every year so they can track your actual results compared to the budget. They’re looking out for themselves; they want to make sure you’ll hit your debt-service coverage ratio requirements. They know that a business is more likely to fail without a financial plan.
After you’ve set your budget, compare your actual results to it monthly. This practice helps you see the changes you need to make ahead of time. You’ll notice if you start missing your rent budget and can create a plan to catch up. If you’ve spent 50 percent of your marketing budget by February, you’ll make more cautious decisions for the rest of the year. If your water bills are much higher than predicted, you’ll look for a leak somewhere on the property. Without the benchmark to compare, it could take you much longer to notice trends heading in the wrong direction.
If at least one of the reasons above applies to you, then it will be worth your time to create a budget and use it. Gather your thoughts, print out a facility-summary report from your operating software, look at your profit-and-loss statements for the past 12 months, and put some numbers into a plan for next year. You’ll thank yourself for it later!
Alyssa Quill is an owner of Storage Asset Management, a third-party management and consulting company that manages 90 self-storage facilities in 21 states. She’s a board member of the national Self Storage Association and president of the Pennsylvania Self Storage Association. She’s been working in the storage industry for more than 16 years, and previously worked for Storage USA, Extra Space Storage Inc. and Investment Real Estate LLC. For more information, call 717.779.0044; visit www.storageassetmanagement.com.