Now that you’ve had your last pumpkin latte, made your final turkey sandwich and put the finishing touches on Santa’s arrival, it’s time to plan your self-storage facility’s annual budget for 2019. If you’ve never created a financial plan, there’s no better time than the present to start.
The budget process is necessary for several reasons:
- It creates a fiscal “road map” for the year. What do you expect from your operation each month, quarter, etc.?
- It allows you to review the performance of the previous year in detail. What challenges, unexpected expenses or revenue surprises did you experience?
- It gives you the opportunity think about your capital projects and investment goals. Will you need to refinance your property, or do you need to expand your square footage?
- It will give you and your team a score card to help grade your operational strategy.
The five areas on which you need to focus when building your 2019 self-storage budget are facility revenue, marketing expenses, payroll, site-maintenance costs and property taxes. Let’s look at each.
What factors do you consider when projecting facility income? Do you expect revenue to be higher, lower or about the same? You’ll need to reflect on the following:
- What are your expected street rates?
- What’s the average stay for a new customer?
- What kinds of discounts and specials do you offer?
- Will you charge admin, late or lien fees?
- What ancillary items will you offer, such as truck rentals, retail merchandise or tenant insurance?
- Have you implemented any revenue-management systems? If so, what kind of income should be created?
Finally, do you have any new competitors that have opened or plan to open in your area that could derail your expectations? Markets experiencing heavy self-storage development are feeling downward pressure on street rates. Even if you’re confident that some of these factors won’t affect your projections, now’s the time to stress-test them to ensure your facility can handle any sudden changes in your market.
Next, it’s time to consider expenses. Over the last few years, many self-storage operators have cut costs from critical areas such as marketing and sales training without any negative impact to facility occupancy or revenue. In most markets, exceptionally strong demand has offset these cuts. However, as additional competition creeps in, funds for these items won’t only have to be more substantial than in previous years, it’s possible they’ll have to be significantly increased.
When building your marketing budget, consider the following:
- In which kinds of online marketing will you invest? Pay-per-click, social media, aggregator or search engine optimization services?
- What kind of website will showcase your property to customers?
- What programs will you offer to promote online reviews and testimonials?
- Will you offer a referral program? If so, what kind of expenses will be associated with it?
- What programs will you implement to market to local businesses such as apartment complexes, realtors and movers? Have you considered the costs involved to design and print materials?
- What kind and in what condition is your property signage? Does it need to be upgraded or replaced?
- What tools will you use to track the effectiveness of your marketing programs and sales efforts?
If you’re thinking about adding new marketing methods, consider the effect they’ll have on your cost-per-tenant acquisition. It’s also important to note that many standard marketing costs will likely be higher in 2019.
Payroll is another area to review for 2019. It’s been reported that retailers such as Walmart and Target are starting new associates at $11 and $12 per hour. That means the pay variance between entry-level retail associates and self-storage employees is most likely diminishing. How will that affect your pay rates?
Payroll will continue to go up as the overall cost of labor increases, and experienced self-storage managers will become more valuable as additional facilities are brought online. If you have a successful management team, make sure you’re ready to pay them competitively. If you need to hire staff, be financially prepared for that, too.
You also need to think about your site’s overall curb appeal and maintenance needs. To compete with new self-storage supply, existing properties must have great aesthetics and be in good working order. Items such as landscaping, driveways and parking lots, building exteriors, gates, hallways, unit doors, security components, HVAC, and the rental office all need to be reviewed for the new year. What will you need to spend to whip them into shape?
Finally, an expense that seems to increase without end is property taxes. The word is out, and cities have caught on to the success of self-storage. Due to the robust economy, property valuations continue to increase, and municipalities are adjusting millage rates. Any benefits our industry received regarding property valuations during the Great Recession are over. Facility operators need to plan for annual increases.
If you believe your facility has received an aggressive property valuation, you have the option to challenge the municipality. The overall increase in taxes is something all owners in our industry will have to address annually.
A Head Start
These five areas will likely be the most variable budget line items as operators compete with new self-storage supply. Other expenses such as office supplies, utilities and insurance will likely increase as usual, but not as dramatically.
As you build your budget for next year, remember that you’ll possibly be competing with new facilities in your market. There’ll be more street-rate fluctuations, higher interest rates and an economy that may begin to slow. Preparing now will give your business a head start on a successful 2019.
Matthew Van Horn is a co-founder of 3 Mile Domination Self Storage Services, a full-service management company specializing in self-storage management, feasibility studies, marketing and consulting within the self-storage industry. He’s also the co-author of “Self Storage Domination.” To schedule a free 60-minute self-storage strategy session, visit www.3miledomination.com.