Numbers don’t lie. The reason 20% of new businesses fail in the first two years and 50% go under within the first five is poor financial management. A lack of realistic planning and analysis has led to the premature death of many companies.

A lot of self-storage operations are small businesses, but it’s still imperative to manage cash flow, diligently track expenses and budget for future costs. You must understand all the money that’s coming in and going out and keep it in proper balance. The following advice will help, with a focus on the cost side of the equation.

Understanding Your Financial Statement

Your self-storage income should be tracked monthly to include revenue from unit rentals, tenant insurance, retail merchandise and anything else you sell. It should also include any other charges you collect, such as administrative and late fees. All of this information should be recorded on your financial statement (also referred to as a profit-and-loss statement, or P&L).

Next, the “Cost of Goods Sold” (COGS) section of your statement is used to record the price of all the items you sold. It’s smart to review the COGS monthly and ensure these numbers are less than the income. For example, if you offer tenant insurance and you notice that the cost of offering the program is exceeding the monthly revenue being generated, that’s a red flag you need to investigate. It may just be a reporting issue. Don’t ever take for granted that the numbers on your P&L are correct. If something seems amiss, question the person who prepared it.

After the income and COGS sections of your financial statement, you’ll have a section for expenses. Quick tip: When it comes to setting up these line items, less is more. You don’t need a different general-ledger account number for every type of expense incurred. Frankly, having too many line items can lead to confusion, so simple is better.

I prefer to group expenses into a few basic categories such as marketing, payroll, utilities, maintenance, office supplies, taxes and insurance. For most self-storage operators, one to three subcategories under each main heading will suffice.

Having fewer expense-code options also decreases the time it takes to review costs in each category and allows you to quickly notice duplicate charges. If you find one, you can immediately investigate and request a refund.

Another organizing tactic that works well is to add notes in your accounting system to describe each of the services for which you paid. For example, document the billing period on your electric bill and what you specifically purchased the last time you bought office supplies.

Reviewing and Tracking Costs

Some monthly self-storage expenses will be fixed, such as property taxes, insurance, payroll and loan payments. Others will be variable, such as maintenance costs, business licenses and permits, and utilities, to name a few.

Costs can get out of hand quickly if you aren’t reviewing them regularly. At a minimum, you should reconcile all bank accounts and credit cards monthly and record all expenses to ensure you know the reason for each. Remember to also review automatic payments quarterly, if not monthly, to ensure you aren’t paying for services or products you no longer use.

If you have employees who make purchases on behalf of the business, set them up with a company credit card that can be tracked monthly. This helps ensure all expenses are reported in a timely manner. Also, make sure they submit receipts for all purchases. Periodically auditing these receipts for compliance with your corporate expense policy is also wise.

Property Taxes

Research in advance the property-tax due dates in your area. It can be different in every county, and late fees can be high. To ensure you don’t miss a payment, visit the county website. It should to tell you not only your due date but whether the payment is due all at once or in installments.

Property-tax rates have been increasing significantly due to the increased value of real estate nationwide. You can avoid an unexpected bill by doing your due diligence. Reach out for the newest assessment, and appeal it if you believe it’s incorrect.

Vendor Payments

Without proper tracking, it’s easy to pay a vendor twice by mistake. An easy way to avoid this is to always use a unique invoice number for every bill you put into your system. All accounting software programs will alert you if you’ve already entered a specific invoice number.

If a vendor doesn’t issue an invoice number, assign one to the bill yourself. For example, you might just use date the invoice was received plus the first three letters of the vendor’s name. So, if you get a bill from ABC Landscaping sends on May 1, 2023, the invoice number would be 050123ABC.

Planning Ahead

Creating a budget and plan are key to operating a successful self-storage business, particularly if you’re just getting started or acquiring an existing facility. A lot of expenses can be anticipated before you even purchase a property, such as payroll, utilities, property taxes and insurance—all big-ticket items. Once you’ve nailed down your estimated monthly costs, you can determine how much income the facility will need to ensure positive cash flow.

Add the projected monthly expenses to your estimated monthly income and use those numbers as a reference as the business progresses. A budget will help you see the big picture and recognize quickly when you’re overspending or the operation is failing to generate enough revenue. With proper recording of income and expenses as well as good planning and attention to detail, you can avoid becoming part of a sad statistic and ensure a profitable self-storage facility for years to come.

Shannon Walter is a former account manager for Spartan Investment Group LLC, which operates the FreeUp Self Storage brand. Founded in 2014 and based in Golden, Colorado, Spartan syndicates investor capital to develop real estate. Its network of more than 5,000 investors has raised more than $140 million to amass its self-storage portfolio across 10 states. For more information, call 866.375.4438; email [email protected].