Self Storage Cash Flow: Practical Strategies for Your Business
Cash is the lifeblood of your business, especially for small to mid-sized self storage facilities where budgets are often tight. But how can you successfully manage your cash flow when you have so much to manage already? This post offers you some practical tips to help answer that question and explores why it’s important.
60% of Business Owners Struggle with Cash Flow
A 2021 QuickBooks survey revealed that 60% of small business owners say cash flow is a problem for their business. For a self storage facility owner, those problems can be significant on multiple levels.
QuickBooks surveyed small business owners to understand the issues and causes of cash flow
At the very least, paying your bills, staff, and vendors on time (or even at all) could be seriously impacted by the lack of cash flow.
But even worse, it could ruin your credit and prevent you from qualifying for loans when your self storage business needs them the most.
Implementing the following actions is an excellent start to creating a strategy that can put you on the fast track to gaining control of your cash and your business.
1. Raise rents to full market value
Stephen Clark II from Clark Investment Group in Wichita, Kansas, said in a New York Times article:
“Rental statistics that show high occupancy can be misleading because they include a number of long-term renters whose rates trail the market.” - Stephen Clark II, Clark Investment Group
Getting your rental price right is a critical factor for self storage. Your rates must be in line with the local market, and in some cases, that could mean raising them.
However, a sudden price increase will only boost profits when it doesn't negatively impact sales. It would be best first to understand what your local competitors are charging.
Owners should look at comparable facilities at least once a year to ensure a fair market value. It’s the best way to determine local unit rental expectations. Of course, you’ll need to adjust pricing to include factors like climate control, size, electricity availability, etc.
Maintain Predictable, Documented Rent Increases
Instead of a dramatic rent increase, raising your prices regularly makes it easier for your renters to adjust. And though a slight jump in rent may not seem significant, it adds up and will directly affect your profit margins and cash flow.
A regular, well-established unit rent increase provides many benefits:
- Maintains or even increases the ROI on your facility
- Ensures the necessary funds for any needed maintenance and repairs
- Promises a fair playing field for all renters (new vs. established renters)
Instead of a dramatic rent increase, raising your prices regularly is easier for your renters to adjust to and means they’re less likely to move to your competition
Some owners think “locking in” renters with a yearly lease is the way to go when it comes to the length of the lease. But it’s usually not a good idea because it limits when you can change prices. In today’s world, the ability to raise or lower your rent is flexibility you must have.
Instead, self storage facilities that allow renters to pay month-to-month find it’s an arrangement that makes rent increases easier, reduces renter pushback, and helps keep a consistent cash flow even with some turnover.
2. Offer Electronic Payments
One of the most significant ways to ensure ongoing cash flow is reliable rent collection from renters who pay in full and on time every month. On the other hand, delinquent payments are a problem for the business’s cash flow, and it’s also a huge time-suck.
According to that same QuickBooks survey mentioned above, customers’ failure to pay according to the agreed terms is the second most common reason small business owners struggle to maintain their cash flow.
By making it easier for renters to pay on time or, better yet, automatically, you create a great way to eliminate those excuses and stop the runaround.
Self storage management software like Unit Trac is cloud-based and has a customer portal that allows renters to pay online or set up recurring payments anytime and anywhere
Some facility management software enables credit card processing and auto-pay. With automatic payments, rent will be sent to you instantly on the expected date.
It’s also easier on your renters because they can set it up to send payment on time even if they don’t remember. Keeping tabs on upcoming expiring cards that are set up for Auto Payment can help with this as well.
3. Charge Convenience and Late Fees
For those renters not on auto-pay, enforcing a late fee is often the best incentive to keep them up to date with their payments. It's also a low-hanging fruit for additional income that can help boost cash flow and cushion the impact of chasing rent.
Keep in mind you will need to check with state laws on how much to charge for a late fee. According to the Self Storage Association, most states permit up to 20% of the monthly rental amount.
Charge Late Fees Consistently
If a renter pays rent late, it's essential that you charge the late fee they agreed upon in the unit rental lease. Charging without fail shows you're serious and avoids the appearance of any favoritism.
Unit Trac can show a renter's status at a glance and trigger a late fee if needed
Alternatively, by waiving a late fee, you may be inadvertently sending the message that it's okay to pay late. It's something that could quickly become a habit for many of your renters, which in turn creates an unpredictable cash flow and breaks down your relationship with your renter.
Consider Your Bottom Line
Podcast host and author of "Creating Wealth Through Self-Storage," Mark Helm, estimates most self storage owners get 3 to 5% of their gross rental income from late fees.
It’s income that could add significantly to your bottom line and one of the reasons late fees are an essential part of the lease agreement.
4. Accurately Track Cash Flow
QuickBooks also pointed out that 72% of the small business owners surveyed reported disruptions in operations due to cash flow issues. It’s a statistic that speaks directly to the importance of accurately tracking and managing your facility’s cash on hand.
Underestimating or overestimating cash flow may leave your self storage business vulnerable. Recording it and acting on the data is key to preventing any problems.
Many accounting platforms include reports that track business expenses and spending. You can also look into a dedicated business expense tracking program. It should be able to organize your business’s expenses and guide you in better understanding where your money is going.
Regularly tracking cash flow with accounting software will allow you to better understand how to plan for the future and ensure you have the resources you need to grow
No matter what system you use, a regular check on your daily cash flow is the best way to make informed spending decisions and the only way to stay on top of your finances.
Positive Cash Flow = Long-term Success
Knowing what money goes out of your business is just as important as what comes in. It’s information that’ll be key to understanding when to take action before it’s too late.
Use the best resources you can find to track cash flow and manage your self storage business. After all, a positive cash flow is critical to your short- and long-term financial success.
Get the most out of each tip mentioned above, using Unit Trac to record payments, customize deposits, charge late fees, and invoice renters — all from an online resource you can access anytime and anywhere.