If you own a self-storage facility, you need an operations budget. Why? Because controlling revenue and costs is how you make money.
Your net operating income (NOI), which is simply revenue minus operating costs, is used to determine your property value. You can improve this number by increasing income or decreasing expenses. If you don’t do these things, you’ll see some disappointing profit-and-loss statements, and you don’t want that. It’s better to build a plan to manage the money that comes in and goes out, to maximize overall profit and value.
Not sure where to start in building and managing your budget? This article will help.
What to Include
Your self-storage operating budget should include everything that isn’t a capital expenditure (CapEx), which is money used to purchase, maintain or improve fixed company assets like buildings, vehicles, equipment or land. In other words, a CapEx is a large project or investment in the business. For your purposes, set a value threshold for it. For example, you might say that any facility addition, repair or improvement of less than $5,000 isn’t a capital expense and is, therefore, part of the operating budget. There may be exceptions to this such as adding new portable-storage units or replacing unit doors.
Group your expenses in a way that makes sense to your accountant and tax professional using a list of general ledger (GL) items. Here are some things commonly seen in a self-storage operating budget:
- Property taxes
- Business insurance
- Phone services
- Credit card and bank fees
- Office supplies
Of course, personal expenses should never be included.
Next, create a detailed breakout within each category so you can better track costs. For example, “office supplies” should be broken down to specific line items such as paper, pens, tape, ink cartridges, etc., so you can get the full picture. Ultimately, you want a clean, well-organized budget so that you can manage it well and see where you really spend money.
The Impact of COVID-19
This year, next year and possibly beyond, your self-storage operating budget will be impacted by the coronavirus pandemic. For example, consider what you need to spend on cleaning and supplies to keep staff and tenants safe. You may need to spend more on marketing to bring in new tenants if the crisis hits your market hard. You may have to reconsider tenant delinquencies and how they’ll affect your bottom line. If you’ve stopped collecting late fees, that’s less income; on the other hand, if you’ve stopped holding lien sales, you don’t have any auction costs. Perhaps you’ve had to change some of your standard procedures to offer contactless rentals, which could both cost and save you money, depending on how you look at it.
If you haven’t already, you need to sketch out several possible budget scenarios based on how you think COVID-19 might impact your self-storage business. If your projections show that technology can help you make more money, plan for that. If they tell you income will shrink and expenses will go up, brace for that. The businesses that are the most prepared do the best in weird times. You can get ready by playing out potential situations in spreadsheets.
Tracking and Adjusting
Creating and following an operations budget for your self-storage business requires you to have a system that can easily track GL items and their details. Your bookkeeping program should have built-in tools to help you pay bills and carefully track expenses. You can even set a schedule for these things.
Ideally, you’ll check your budget once per week, matching actual costs and income against projected expenses and revenue. (At a minimum, check them mid-month and on the last day of the month.) Any item that doesn’t match your projection must be scrutinized. Is the discrepancy because you budgeted a cost as monthly and you pay for it quarterly, or because something cost less or more than expected? Did something occur (like a global health crisis) that impacted your rentals in some way?
If you do find a discrepancy, you’ll need to adjust your projections. This is an ongoing exercise, a habit you need to nurture and embrace. Why? Because inspecting your budget regularly gives you time to correct course. For example, if you had to spend more than anticipated on something, knowing this as early in the year as possible gives you more time to fine-tune spending in other areas and get back on track. If you can’t make up the loss, you can change your projections moving forward.
At the end of each month or quarter, compare your actual budget against your projected budget, looking for trends. You want to do whatever you can to flatten the cost curve and grow revenue. Sometimes there’s nothing you can do but wait. Other times, you’ll clearly see actions to take. Keep a record of your decisions and track their impact. This historical knowledge and perspective will help you avoid “winging it” and making poor decisions in the future.
Watch your revenue and expenses closely. You’ll not only put more money in your pocket this way, you’ll maximize the value of your self-storage property, which will certainly make you happy if you ever refinance or sell.
Finally, have fun tracking your budget. It’s more entertaining than a lot of things you could be doing right now!
Tron Jordheim is managing partner of Self Storage Strategies (SSS), a joint venture he formed with Store Here Management after serving as business development manager for the firm and its parent company, RHW Capital Management Partners. SSS provides market studies, feasibility reports and consulting services. Jordheim is a consultant in sales, marketing, call center practices, revenue enhancement and management. For more information, visit www.selfstoragestrategies.com,