Inside Self-Storage

DEC 2018

Inside Self-Storage (ISS) is an information source for industry owners, managers, developers and investors covering news, trends, facility operation, finance, real estate, construction, development, marketing, technology, insurance and legality.

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Page 15 of 55

N ow that you've had your last pumpkin latte, made your final turkey sandwich and put the finishing touches on Santa's arrival, it's time to plan your self-storage facility's annual budget for 2019. If you've never created a financial plan, there's no better time than the present to start. The budget process is necessary for several reasons: • It creates a f scal "road map" for the year. What do you expect from your operation each month, quarter, etc.? • It allows you to review the performance of the previous year in detail. What challenges, unexpected expenses or revenue surprises did you experience? • It gives you the opportunity think about your capital projects and investment goals. Will you need to ref nance your property, or do you need to expand your square footage? • It will give you and your team a score card to help grade your operational strategy. The five areas on which you need to focus when building your 2019 self-storage budget are facility revenue, marketing expenses, payroll, site-maintenance costs and property taxes. Let's look at each. Facility Revenue What factors do you consider when projecting facility income? Do you expect revenue to be higher, lower or about the same? You'll need to reflect on the following: • What are your expected street rates? • What's the average stay for a new customer? • What kinds of discounts and specials do you offer? • Will you charge admin, late or lien fees? • What ancillary items will you offer, such as truck rentals, retail merchandise or tenant insurance? • Have you implemented any revenue- management systems? If so, what kind of income should be created? Finally, do you have any new competitors that have opened or plan to open in your area that could derail your expectations? Markets experiencing heavy self-storage development are feeling downward pressure on street rates. Even if you're confident that some of these factors won't affect your projections, now's the time to stress-test them to ensure your facility can handle any sudden changes in your market. Marketing Expenses Next, it's time to consider expenses. Over the last few years, many self-storage operators have cut costs from critical areas such as marketing and sales training without any negative impact to facility occupancy or revenue. In most markets, exceptionally strong demand has offset these cuts. However, as additional competition creeps in, funds for these items won't only have to be more substantial than in previous years, it's possible they'll have to be significantly increased. • When building your marketing budget, consider the following: • In which kinds of online marketing will you invest? Pay-per-click, social media, aggregator or search engine optimization services? • What kind of website will showcase your property to customers? • What programs will you offer to promote online reviews and testimonials? • Will you offer a referral program? If so, what kind of expenses will be associated with it? • What programs will you implement to market to local businesses such as apartment complexes, realtors and movers? Have you considered the costs involved to design and print materials? • What kind and in what condition is your property signage? Does it need to be upgraded or replaced? • What tools will you use to track the effectiveness of your marketing programs and sales efforts? If you're thinking about adding new marketing methods, consider the effect they'll have on your cost-per-tenant acquisition. It's also important to note that many standard marketing costs will likely be higher in 2019. Payroll Payroll is another area to review for 2019. It's been reported that retailers such as Walmart and Target are starting new associates at $11 and $12 per hour. That means the pay variance between entry-level retail associates and self-storage employees is most likely diminishing. How will that affect your pay rates? Payroll will continue to go up as the overall cost of labor increases, and experienced self-storage managers will become more valuable as additional facilities are brought online. If you have a successful management team, make sure you're ready to pay them competitively. If you need to hire staff, be financially prepared for that, too. Key considerations for this challenging but necessary task By Matt Van Horn Easing the Burden of Annual Budgeting 14 ISS I December 2018

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