“Beware of little expenses. A small leak will sink a great ship.”
Many self-storage owners focus on revenue management, increasing occupancy or adding ancillary services to make more money in their business. However, it’s equally important to regularly review and control expenses. Consistent, predictable costs will make it easier to budget future profit and loss and make your property more attractive to a potential buyer, if and when you decide to sell.
The first step in controlling expenses is to have a clear and clean approach for recording them. Work with your accountant to create a chart of accounts that works for you. A good one will be sufficiently detailed but not overwhelming. Here are some areas to examine and ideas to help cut costs.
Every storage budget should have an advertising category. These expenses include website hosting and maintenance, search engine optimization, Google AdWords, social media advertising, billboards, sponsorships and any other activity you perform to promote your facilities. Talk to your existing vendors and see if any of these services can be combined. Use tracking numbers and reports to confirm you’re getting leads and customers from your marketing efforts.
Software as a service (SaaS) is the new business model. According to Wikipedia, it’s “a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. It is sometimes referred to as ‘on-demand software.’”
Tracking SaaS fees as a category on your income statement can help you realize what you’re paying each month. These small amounts add up to big numbers when you don’t pay attention. Examples of SaaS include software for marketing, property management and time-tracking. Talk to your manager and make sure all the services are used to their fullest capacity. Is there anything you can cancel or downgrade?
Re-evaluating your business insurance can yield huge benefits. One owner I worked with saved $20,000 a year by bidding out his policy. Working with an insurance provider that knows self-storage will ensure you have proper coverage around customer goods and disposal, wrongful sale, and other coverages that are unique to self-storage.
If you have a moving truck you allow customers to use, make sure you have proper insurance limits for it. Also, review the value of the truck on your policy. An adjustment could save you money on the premium.
If you’re in lease-up mode, paying for referrals can be a great return on your investment. Referrals can come from existing customers, third-party directories or community members such as realtors or moving companies. Once a property is full and stabilized and other marketing programs are in place, this expense can be reduced.
Repairs and Improvements
These expenses are commonly broken into “building” and “grounds.” Any repairs or improvements to the building should be coded accordingly. Always get three bids from contractors before you commit to any work. If you’ve used the same vendors for a while, make sure they’re still charging you a market rate.
Ground expenses might include lawn care, snow removal, pest control and anything else needed to maintain your facility. Bid out your monthly contracts at least once per year.
Also, review repair and maintenance items. Are you spending on a temporary fix for something that needs a larger investment? If you’re constantly having a gate issue, for example, you may need an overhaul. Decide if expenses in this category are too high or you need to allocate money to capital-improvement projects.
Utility contracts are famous for creeping up over the years. Do you need a land line for your phone or can you use VOIP (Voice over Internet protocol)? Can your Internet contract be renegotiated? Is there another dumpster company in your area that may give better value for a lower price?
Payroll is one of the biggest expenses for self-storage owners. If you pay too little, you won’t keep good employees and you’ll make your life much harder. If you pay too much, well, then you’re paying too much. Find out the market rate for jobs in your area and be careful not to pinch pennies. A great manager will make much more money than he costs you.
Your loan payment is also likely one of your largest expenses. Renegotiating the loan isn’t an easy task, but it can yield huge savings if you can get a lower monthly payment. Now’s a great time to seek refinancing, as lenders are hungry for this asset class. Find one that makes you feel comfortable and can help you through the process.
Managers can spend too much or too little money in this area if they aren’t given proper guidance. Some will purchase pretty covers for their keyboards, fancy hand soaps or silly, overpriced toilet-paper holders when they could purchase a cheaper item that fulfills the same function. Others are too frugal and try to “save money” by not restocking important items like resale locks or ink. This costs more in the end because they must then visit a local store for an emergency buy instead of getting the product from a regular vendor at a lower price.
Setting an office supply stock level and a level to restock will give managers direction on what’s expected. Regularly evaluating your costs for these items will ensure you get the best prices. This is a great area to give your manager some control.
Credit Card Fees
Credit card fees can add up quickly if you aren’t paying attention. Talk to your processor and understand the other ways you can save. Validating the address-verification system and staying compliant with credit card standards will often reduce your rate. You can also bid out the contract and find a processor that’ll charge you less; however, having the processor integrated with your facility-management software may be worth the extra cost.
We all want to save money, but we also want great service. Someone once said you can have it good, fast or cheap but not all at the same time. Pinching pennies in every area can end up costing more in the long run. Paying too little to your staff, contractors or service vendors may not be worth the savings. As Norman “Sailor Jerry” Collins said, “Good work ain’t cheap, cheap work ain’t good.”
Business owners often tell me they wish someone would give them advice on how to save money, but no one takes the initiative in this area. The financial professionals in your life don’t know you need help unless you ask for it. Regularly reviewing expenses should be in someone’s job description. Otherwise, it stays on a list and never gets done.
Magen Smith is a former self-storage manager turned certified public accountant (CPA). Her company, Magen Smith CPA LLC, helps storage operators understand the financial side of their business. Services include monthly financial management, billpay functions, revenue management and strategy. She also offers a curb-appeal checklist available for download and has created an online revenue-management course complete with checklists, cheat sheets and guides. For more information, e-mail [email protected]; visit www.selfstoragecpa.com.