Creating a budget for your self-storage business is a complex process that weaves together many factors. Not only will your plan be dependent on where your company is in its life cycle, it can be influenced by outside influences such as a pandemic, new competition and even the weather. In addition, you must consider not just the plan for the next 12 months, but also three, five and even 10 years down the road. Consider the following to create a strategy that’ll provide you with long-term financial security.
The Big Picture
The best budget has several components, but first you need a master plan that covers all aspects of your self-storage operation. This means expenses and revenue, which provide insight to how the company is doing.
Reviewing your monthly profit-and-loss statement is an important part of understanding how your business is performing compared to this year’s projections and last year’s reality. A good accountant can provide the general expense and income categories that’ll help you keep track; however, you’ll need to help that person create the right subcategories. Being detailed as possible will help you create a better picture of your business. For example, instead of using a simple category called “income,” break it down into:
- Rental income
- Retail sales
- Tenant insurance
- Administration fees
- Anything else that generates revenue
You can follow this practice for expenses, too. For example, a “human resources” category might include things like payroll and employee uniforms. When it comes to repairs and maintenance, subcategories might be things like landscaping, snow removal, pest control, etc. The more detailed the plan, the easier it’ll be to track and spot places for improvement.
All new self-storage owners prepare a budget for the first year because the facility income must often be augmented with their own cash or financing from the bank to pay the bills. This is rather simple, as you can use industry standards to determine expenses and income in this early phase, and then adjust as you add in property specifics. Generally speaking, expenses for a premier, 60,000-square-foot facility might run $5.75 to $6.75 per net rentable square foot per year, excluding debt service.
But as their properties mature, many owners stop preparing an annual or longer-term budget because they don’t want to invest the time it requires. They assume last year’s numbers are close enough and simply accept that they may have to reduce their monthly, mid-year or end-of-year profit dividend if an unforeseen expense comes up. The problem with this no-budget approach is it makes it difficult to be a premium brand with growing profit.
Without a budget, it’s impossible to know how your facility is truly performing. Often, things that need to be done to achieve higher income will be missed, and the business will slowly lose its market advantage. Expected costs such as utilities, bank fees, internet, phone, pest control, etc., are easy because they’re often the same year over year, plus a percentage increase due to inflation. It’s the unexpected items that’ll sink your profit and asset. Without a budget, you’re cruising through dangerous waters.
Focus on Maintenance
I start my annual budget process by asking myself: What needs to be done at my self-storage facility this year and next to continue being a price leader and bring in the greatest profit? Given that a good percentage of prospects rent at the first facility they visit—assuming it meets the basic standards—I start with the “look at me” or curb-appeal budget, which includes:
- Flags and pennants
- Building exteriors
For example, consider landscaping. I like to include an additional $500 annually for something special like planting daffodils in early spring or trimming trees or bushes that are starting to block the street view. Perhaps it’s installing ornamental grass around the main sign or side border. These extras make a big statement, but if they aren’t included in the budget, you won’t have the money for them.
If the office floor is starting to look old, it’ll likely go another year or two before needing replacement; but there are usually several items in any given year—perhaps a dozen or more—that need maintenance or repairs. Think about things such as air-filter replacements, HVAC tune-ups or door adjustments. What else have you been putting off because you haven’t budgeted for it? These items need to be done as soon as possible, not down the line when your facility has already lost its competitive advantage. To get critical tasks in the pipeline and complete, it takes a written, itemized budget. This is your game plan.
Your self-storage maintenance budget should include general yearly maintenance, special one-time projects that need to be done this year, and large projects that may need to be addressed over multiple years. For example, if you need to repaint your buildings or replace your roofs, it can be helpful to spread out the work and tackle it in phases—if it hasn’t reached the point that it must be done now due to poor planning. Without a future-maintenance line item, it’s too easy to put things off until the neglect severely affects your profit.
Of course, a long-term budget that looks head five to 10 years will help you prepare for major expenses. Often, it’s wise to set aside money annually or even monthly for these multi-year repairs rather than take a huge hit to your margin in a single year.
Marketing Matters, Too
My favorite area of the self-storage budget, and an important one, is marketing. This is where so many operators fail. When handled correctly, it allows a facility to grab more than its fair share of rentals.
For a property of 40,000 square feet or more, the marketing budget should start at $1,000 per month, excluding website fees and maintenance and pay-per-click advertising. It can mean the difference between being a commodity competing on lower prices or a market leader. In self-storage, it has been proven over and over that the company that does the most marketing—in good times and bad—earns the highest profit.
But before you can create a marketing budget, you need a plan. Like maintenance, if you don’t strategize, it won’t get done. Some owners might say, “I’m 90% or 100% full and doing OK, so I don’t need to spend money on marketing.” This is absolutely wrong! When your facility is performing well, you should be increasing that budget. At this point, new rental income is 100% profit! So, it’s well worth more promotion to get these rentals.
While reducing expenses is good, saving isn’t a path to wealth and the lifestyle you deserve. It’s all about premium prices, and that requires a self-storage operating budget. Now’s the time to make it happen!
Marc Goodin is president of Storage Authority LLC, a self-storage franchise, and the owner of three self-storage facilities that he designed, built and manages. He’s been helping others in the industry for more than 25 years. To reach him, call 860.830.6764, email [email protected] You can also purchase his books on facility development and marketing in the Inside Self-Storage Store.