Controlling expenses should be a top priority for any self-storage operation. In truth, an emphasis on saving should be part of the company culture. But before you can look for ways to cut costs, you must know the items on which your business spends money and understand the difference between the two types of facility expenditures.
Typically, businesses have fixed (controllable) and variable (uncontrollable) expenses. By identifying them all, you can create budget against which to measure financial performance. You do this by regularly reviewing a monthly profit-and-loss statement, known as a P&L. With a budget, you have a benchmark for expenses and know the numbers to which site staff should be held accountable. Knowing the company’s financial goals will help managers understand the importance of controlling costs and achieving optimal profit.
A self-storage facility has many expenses. Again, some are fixed, while others fluctuate. Staff payroll is an example of a fixed cost. It’s generally the same month-over-month, unless there’s a dramatic change to work regimen or a lot of overtime. This is why it’s important to adhere to schedule and eliminate unproductive hours.
Janitorial supplies and snow-plowing are examples of variable costs. These can change over time based on a number of factors. To anticipate these expenses, look at the amounts paid for these line items in previous years and make an educated guess as to how they might vary in the year ahead. While you can’t predict the future, it’s important to get your budget as close as possible, so you don’t overspend.
Here are some other common self-storage expenses:
- Loan payments
- Property taxes
- Third-party management services
- Business insurance
- Credit card processing
- Building repair and maintenance
- Office supplies
- Retail product
- Pest control
While there are surely more than those listed above, these are good examples of the costs many self-storage facilities incur. You should be regularly reviewing all expenses.
When it comes to managing your variable costs, it’s important to consider the vendors you employ and regularly assess their pricing and services. Even if you’re totally satisfied with the work the company provides, shop around for the best rates and make sure the provider is aware you’re doing this. Chances are, it’ll want to keep your business and may even offer a lower price to do so.
Furthermore, has anything changed within your business? Has it grown into multiple facilities, thus offering you scope of scale, a better negotiating position and stronger buying power? These are considerations to be made when deciding which vender best suits your needs from an operational and financial standpoint.
Look to Reduce
Typically, cost reduction can be managed by comparing actual dollars spent vs. budgeted numbers. Even if you’re under budget on an item, you may still be able to trim. For example, let’s assume you’re well-established within your market, with a high-ranking online presence for self-storage searches in your city. You buy Google ads to stay at the top. Chances are you can decrease that spend and still retain your high ranking, then use the extra money in other ways or let it drop to the bottom line.
In particular, look at your utilities. Once you’ve confirmed you’re receiving the best possible rates, look at how you’re heating and cooling your buildings. Set standards for temperature highs and lows and ensure staff follow them. This will develop consistency and further enhance a culture of fiscal responsibility.
A preventive-maintenance program is also vital when it comes to reducing expenses. Some items, such as sprinklers and elevators, require specific, time-sensitive inspections by state or local ordinance. Other items like your HVAC system may not have these requirements, but you should still pay attention to them. By performing biannual cleaning and maintenance, the useful life of equipment can be extended, and it’ll perform more efficiently at a lower cost.
Even with a proactive maintenance program, though, things can go wrong, so it’s wise to keep a fund for emergencies or when you need to replace something. Purchasing new vs. temporary patching is usually the best course of action. Keep an eye on things like your access gate, electric or sliding glass doors, and emergency lighting and exit signage.
Create an Action Plan
You need an operational budget, as it’s critical to managing and reducing expenses. But just looking at the numbers on a P&L statement isn’t enough. That’s just the beginning. Once you know an expense needs to be controlled or even cut, you must develop and implement a plan to accomplish the goal, with a timeline to ensure the process is followed and can be adjusted if necessary.
Consistency is key. Establish policies and procedures that make each employee responsible for using and saving company money. Staff need to understand when, how and with whom they are allowed to spend.
Consider the Impact of COVID-19
After all the planning, reviewing and careful management, an unexpected event could still cause unforeseen expenses. As we work through the coronavirus crisis, most self-storage operators are dealing with costs they never considered when heading into 2020. I’m talking about things like:
- Face masks and gloves
- Hand sanitizer
- Disinfectant wipes
- Additional cleaning materials
- Plexiglass dividers or sneeze guards for the management office
- Social-distancing decals for the office floor
- New signage regarding facility protocols
- Technology to allow for contact-free rentals
All of these items are necessary to keep employees and customers safe, though we never saw the need for them when we created our operational budgets at the end of last year. Some might be one-time purchases, while others will be ongoing as we endure the pandemic. It’s the continuing costs that you should be monitoring and seeking to control.
Shop different vendors to see who has the best price and if there are discounts offered for buying in bulk. Are there shipping costs? Can they be lowered? Of course, all this is predicated on whether the items you need are available and you have a choice of where to buy. Savings may also be realized after you’ve purchased the materials by using them in an efficient, effective manner.
Expense reduction doesn’t necessarily mean cost elimination, unless this is the optimal solution and wouldn’t negatively affect the bottom line. Rather, it’s is used to manage outlays that can be controlled to effectively maintain the business in a profitable manner.
Jeff Fickes joined Storage Asset Management (SAM) as a store manager seven years ago. He was later promoted to district manager and currently serves as regional director for the company’s managed properties in the Northeast. Based in York, Pa., SAM is a property-management and consulting firm that oversees 220-plus facilities in 31 states. For more information, e-mail [email protected]; visit www.storageassetmanagement.com.