2012 Budgeting for Self Storage (0)

Well it’s that time of year again. It’s time to get your 2012 budget finalized.   The New Year will be here before you know it.  Now is the perfect time to review your facility’s financial position as we move into 2012.  For some, this will be used only as a metric to gauge your facility’s financial progression or financial regression.  For others, this is imperative for your facility’s financial well-being in regards to a potential sale or refinance. The only way to improve on something is to track everything.  How much did you spend on office supplies this year? How about in 2010?  What were your utility bills this year?  How much did they increase or decrease over 2010?  What percentage of your facility’s total expenses is paid out in utility costs?   Do you still need that yellow page advertisement for 2012?  How many calls did you receive on the yellow page advertisement this year?  It’s imperative that you project your income, expenses, and NOI for the coming year.   Here are some line times you should take into consideration when preparing a budget:

INCOME:

·         Rental Income (Revenue from rental operations, take into account move outs and rate increases)

·         Late Fees (If you charge late fees)

·         Administration Fees (If you charge administration fees…if not, you should be)

·         Sales & Use Tax (if your state requires this)

·         Merchandise Sales (1% to 3% of revenue is good, more than that…even better)

·         Insurance Commissions (if you sell insurance)

·         Rental Trucks (U-Haul, Penske, Budget, etc.)

·         Phone Towers, Billboards, Ebay, Shipping, etc.

EXPENSES:

·         Marketing (Budget your entire marketing plan, not just advertising)

·         Payroll & Burden (Be careful cutting payroll, manager morale is important.)

·         Utilities  (Utilities typically increase annually, especially power)

·         Office Expenses (You don’t need 18 packs of multi-colored Post It Notes, only buy what you really need)

·         Maintenance & Repairs (Be proactive on maintenance and the cost of this line item will decrease)

·         Professional Services  (Varies by location)

·         Fees  (Banks & Municipalities will notoriously fee you into oblivion)

·         Lien Sales (Unfortunately we have to prepare for Lien Sales)

·         Rental Truck expenses

·         Property Taxes (Unless your facility is owned by the State Of Idaho, you will have to pay your property taxes)

·         Property Insurance (Hurricane Season is only 6 months away)

Most self-storage facility managers and owners have already taken the steps to cut back on unnecessary items that weigh on expenses.  As a manager or owner you may make one less trip to the office supply store, maybe you are taking your employees out to lunch less, and maybe you are even cutting your facility’s lawn yourself.  Once you have trimmed down most of the items you deem to be an excess, what’s left?   The self-storage industry is very good at cutting expenses.   Where the industry has had a lackluster effort is increasing revenues.  I can’t tell you how many times I have personally heard the following statement: “I’m 100% occupied”.  Attaining 100% occupancy is great, it takes a lot of effort to get there, but after the champaign is gone and the music stops, you are now losing money.  If your facility is in a market in which you can attain 100% physical occupancy then your rates are too low.  It’s time to raise rates.

Most self-storage management software will allow you to raise your customer’s rates automatically.  Simply, input how often you would like to increase your customer’s rates, along with the percentage of increase.   In my experience, consider giving your first increase when a customer reaches an occupancy of 6 months and then once per year after the initial increase.    The typical increase is 5% to 7% depending on your market.  Automatic rate increases solve multiple problems.  First, you don’t have to remember to do the increases manually.  The increase letter will go out automatically and your self-storage facility will immediately reap the financial benefit.  Second, you do not have to review each increase on a case by case basis.   This will allow a rate increase to be completed across the board without any emotional attachment to individual situations.  Last, it just saves time. In addition to implementing automatic rate increase, consistently review the competing rates in your facility’s market and make adjustments accordingly.  As an industry we must grow revenues to remain competitive and profitable.