Taking Control of Your Self-Storage Financial Performance With a Smart Operations Budget

An annual operating budget is an essential tool for all self-storage operators. Why? By creating a plan and tracking revenue and expenses, you can take control of your financial performance and make better decisions for your business. Learn more about the process here.

Michael Baillargeon, Chief Operating Officer

September 28, 2023

4 Min Read
Taking Control of Your Self-Storage Financial Performance

An operating budget is a financial plan that outlines the expected revenue and expenses for a self-storage business over a specific period of time, typically one year. One that is well-crafted can help you track performance and make informed decisions about the future of the operation. By comparing your actual numbers to your budgeted amounts, you can identify where revenue is falling short and costs can be reduced. By tracking the money coming in and going out, you can get a better idea of your financial needs and make plans to meet them, improving the business over time.

Breaking It Down

Your self-storage operating budget should include all of the revenue and expenses that are expected to occur during the designated period. Try to be as accurate as possible. This can be achieved by reviewing historical financial statements, conducting market studies, researching upcoming projects, and understanding how your budget may change if your site is transitioning from lease-up to stabilized. It’s also important to get input from all levels of your organization. This will help you create a more realistic plan.

The revenue section should include all expected income from the business including:

  • Rent, which can be subcategorized to better track the performance of drive-up vs. climate-controlled units, or upper floor vs. ground floor

  • Administrative fees

  • Late and lien fees

  • Tenant insurance or protection programs

  • Sales of retail merchandise (boxes, locks, etc.)

  • Other profit centers such as truck rentals, cell towers or wine storage

The expense section will contain all the expected costs associated with operating your self-storage facility such as:

  • Repairs and maintenance, with all non-capital expenditure repairs and needed supplies

  • Utilities such as electric, water, trash, internet and phone

  • Payroll

  • Property taxes

  • Business insurance

  • Marketing

  • General and administrative costs, including office supplies, professional fees, travel, etc.

Ultimately, a budget can help you identify where costs may be trimmed without sacrificing the quality of service. For example, you may be able to negotiate lower rates with your vendors or reduce your energy consumption by making changes to your lighting and HVAC systems.

What’s Missing?

What’s most often overlooked in the budgeting process is perspective. Crazy as it sounds, I’ve worked with many highly intelligent people who, when the time came to approve budgets, confused a financial projection with actual results. Budgets are road maps. They aren’t wish lists or performance drivers. If your self-storage team only works hard because there’s an impossibly challenging budget, you have a serious problem.

Assuming your perspective is well-grounded, another common budgeting mistake is to underestimate the cost of maintenance and repairs. Materials and labor expenses have increased drastically, so make sure your numbers reflect true costs.

Another common blunder is to underestimate the cost and need for marketing. Churn is a real, monthly force in self-storage. If you study the vacate history for your facility, you’ll get a sense of how many customers are moving out each month on average. If you know this, you can determine how many rentals you’ll need to maintain or grow occupancy.

Imagine your facility is 90% occupied, but your monthly churn average is 7%. That’s the amount of rental business your marketing needs to replace, at a minimum, or you’ll be losing ground. If you aren’t spending wisely, 90% becomes 83% and then 76% in the blink of an eye.

So, it’s important to factor in the cost of advertising, direct mail, digital marketing and other initiatives into your financial plan. When used effectively, marketing is the best investment you can make in your operation and should have significant presence in your budget. The industry’s real estate investment trusts typically allocate around 10% of their total expense dollars. For a smaller operation, expect marketing to make up 15% to 20% of all controllable expenses, with property taxes around 40%, property management (utilities, office supplies, etc.) between 30% and 35%, and insurance at 5% to 10%.

Tracking Your Efforts

Once you’ve created an annual operating budget, it’s important to compare your actual revenue and expenses against your projected amounts. This can be done on a monthly or quarterly basis. Identify where you’re ahead or behind and adjust as needed.

To properly discover where performance is deficient, compare it to prior years and in the context of current events. Have rentals been negatively impacted by a large road-construction project that prevents people from getting to your property? Do have a new competitor in your market? Is it a seasonal issue? What else is happening that could affect your numbers?

The self-storage market is constantly changing, so it’s important to review your budget on a regular basis and modify your plan as needed. By doing so, you can ensure that it’s always up-to-date and accurate. If you make alterations, communicate them to your team.

A budget can be a valuable tool for making informed decisions about the future of your self-storage business. By following these tips, you can create one that’ll help you achieve your financial goals.

Michael Baillargeon is chief operating officer for Hearthfire Holdings, a private-equity firm specializing in acquiring and operating self-storage. He has more than two decades of industry leadership experience, with wide-ranging responsibilities that have included operational management as well as third-party and asset management. For more information, call 267.225.4373 or email [email protected].

About the Author(s)

Michael Baillargeon

Chief Operating Officer, Hearthfire Holdings

Michael Baillargeon is chief operating officer for Hearthfire Holdings, a private-equity firm specializing in acquiring and operating self-storage. He has more than two decades of industry leadership experience, with wide-ranging responsibilities that have included operational management as well as third-party and asset management. 

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