Performing a Self-Storage Facility Audit: How to Properly Inspect Your Site and Uncover Potential Problems

There are many reasons why a self-storage owner might choose to perform a facility audit. It isn’t always because they suspect employee theft. Most of the time, it’s to examine the condition of the property, assess reports and records, and find ways to operate more efficiently. Learn why you should complete an audit of your property on a regular basis, either yourself or through a qualified third party, plus what it should cover and how to use the results.

Check Your Management Reports

The first step in a self-storage facility audit is to generate several reports from your management software. These might go by different names or formats depending on the vendor, but most are pretty similar.

Pull every report available to you and look at it. If you don’t have a comprehensive understanding of your report options or the data they contain, call your software provider and get some help. Many programs have reports designed specifically for auditing, so ask your vendor what it recommends. Print these out, get familiar with them prior to your inspection, and bring them with you on audit day.

Once you know the best reports available to you and how to really use them, you can choose which ones to access on a daily, weekly or monthly basis. These might include:

Occupancy overview. You can learn a lot about your business from this report, such as which months tend to be slower and could benefit from some specials and the months that typically generate higher income.

Management summary. This report shows you overall facility income, occupancy (move-ins and move-outs) and delinquency. These things can change from day to day, so it makes sense to pull it on a monthly basis. Many owners do so at the close of each month. Just bear in mind that if you charge rent on each tenant’s anniversary date rather than on the first of each month, the numbers won’t be as easy to track.

Changes in unit rate. This report tells you which tenants are getting rate increases and when. It also shows how much income is being lost due to vacancies or delinquencies.

Raising rates is part of your managers’ job. They need to be doing this regularly, based on what the market will bear, and know how to overcome customer objections. Personally, I don’t believe in across-the-board increases. I know it takes more effort and time to apply rate changes on a case-by-case basis, looking at each tenant’s length of stay, payment history, etc.; but manual adjustments allow you to control who gets a hike, by how much and how often.

Substandard rates or discounts. By looking at this report, you can see who’s paying less than the standard rate and for how long. Then you can begin the process of raising those rates. I never like to reduce a rate for the long-term. It’s better to offer a promotion such as “pay one month, get one month free” or “pay 50% for the first three months.”

Concessions. This report tells you how much a manager is giving away each month, whether in free rent, locks and merchandise, or waived fees. You then need to investigate how these concessions were given. For instance, was it at the time of move-in or to a current tenant? How did the tenant pay? Was it by credit card, check or cash?

If you see a manager giving away a lot of rent or merchandise that was paid in cash, this should raise a red flag. You can always phone the tenant under the guise of a customer-service call and ask how they like storing with you and about their discount. If they say they didn’t receive a concession when they paid their rent, or they paid a fee in cash, then you know you have a problem behind the counter.

Do a Physical Inspection

With your reports and a notebook in hand, conduct a physical inspection of the property. In particular, grab the report that shows the current rent roll, including vacant and unrentable or in-maintenance units. I always print this report by unit number and highlight available and company units, plus those that should be overlocked.

Next, open every unit that should be empty and verify that it is. Also, make sure the unit size is listed correctly in the report.

Check each unit number and make sure one have been deleted from the software. The exception would be unit conversions. For example if you combined two 5-by-10s into one 10-by-10, you will obviously have lost a unit number. Over time, the number of units at your facility may change, but the total square footage will not (unless you physically expand). Therefore, if you discover missing unit numbers and your square footage has dropped, you need to investigate. It’s possible your manager is rending units off-book for cash.

During your inspection, check the units that are in delinquency status and ensure they’re overlocked. Also, check to see that every unit on the property is locked. Actually pull on each lock to make sure it’s securely closed! If you find delinquent units that aren’t overlocked, overlocks on paid units, or units that aren’t properly locked, your manager isn’t doing his lock checks.

Finally, record any maintenance issues that need to be addressed such as broken latches, burned-out lightbulbs, or dirty hallways or stairwells. When I find these things, I wonder if the manager is regularly waking the property. Also, inspect the office and tenant restrooms. If they’re dirty, it’s likely the facility is going to be in the same condition!

Confirm Retail Inventory

An often-overlooked component of a self-storage audit is the retail inventory. Generate a report to track the number of locks, boxes, and other packing and moving supplies that should be available. Count every item, and don't forget what’s on display in the office. I’ve seen some properties where the count is so far off I know the manager has been ordering supplies and not adding the new items into the software. If there’s too much product, consider asking the manager to send inventory requests to you or your corporate office before ordering.

Review Tenant Files

Next up are the tenant files. Are they orderly? Are all leases signed and initialed? Is there a signed insurance addendum in each file?

Also, inspect all files related to lien sales. Auctions are a self-storage owner's No. 1 legal liability and, sadly, up to 60% of related files have some sort of error that could cause you to lose a case if sued. You’d be surprised at how many contain misspellings, transposed numbers, etc. If you have questions or doubts about a particular unit, pull it from the sale, resend all notices and restart the process. It's only a few hundred dollars in lost rent, but it could save your thousands in payout to a tenant who’ll claim to have tens of thousands of dollars’ worth of goods in that 5-by-5 unit.

Observe Customer Service

While in the office, see how your manager answers the phone. Could they do better? Perhaps it's time for a refresher on sales. Even a seasoned employee can get lax and forget to hone their skills.

I also recommend hiring a mystery-shopping company to test your managers on a regular basis. At the facilities I oversee, I give managers who score 90% and above a $250 bonus. They really focus on turning those calls into rentals with that kind of incentive!

Use the Findings

After your audit is complete, sit down with your self-storage staff and go over your findings. Discuss maintenance issues, marketing campaigns, rate increases, problem tenants, collections and lien sales. Make sure they’re adhering to company policies and procedures, and ask if they need more training in certain areas. It's your responsibility as the owner to provide the necessary tools your employees need to do their job effectively.

Sometimes owners get busy with life and find that squeezing in facility inspections isn’t always easy. If you don't have the time or you still don’t feel comfortable doing this on your own, hire someone to do audits for you. Just keep in mind that most auditors aren’t accountants—they aren’t there to balance your checkbook. Similarly, your accountant isn’t a facility auditor. Sure, they can and should alert you to any financial red flags, such as income that’s off from month to month, so you can investigate those discrepancies; but for a full site inspection, it’s a good idea to hire a company that specializes in the storage industry.

Whether you do them yourself or outsource, facility audits should always be unannounced. If you make it known to all your managers from the first day that surprise inspections are part of company policy, they won’t be taken aback or feel you mistrust them when you or someone else shows up. They’ll understand it's just part of the operation.

Also, vary when you conduct your audits. Don't always perform them at the same time of year. In addition, always inspect the property when there’s a change of management or when you suspect something isn’t right.

If any warnings do pop up, investigate. Dig into tenant histories and see how customers paid, what kind of discounts they received, etc. If you suspect manager theft, take immediate action by releasing that person and replace them. Do not allow a potentially dishonest employee to remain in your facility to do further damage.

A facility audit provides a clear view of how your self-storage operation and staff are performing. It also helps you uncover any problems that could be derailing your business. Regularly conducting these inspections can help you improve your operation and, hopefully, your revenue.

Pamela Alton is owner of Mini-Management Services, which has been placing self-storage managers in positions all over the United States since 1991. She also offers staff training, operational consulting, and facility audits and inspections. For more information, call 321.890.2245; email [email protected].