There are several reasons why self-storage owners conduct facility audits. It isn’t always because they suspect a manager is stealing. Most of the time, it’s to examine the condition of the property, assess how well it’s being managed, and analyze reports to see if anything is being overlooked. Smart owners are always looking for ways to operate more efficiently. Whether you conduct your own site inspections or outsource to a professional, here are three key areas on which to focus.
1. Property Exterior: The General Walk-Through
The first thing to do is conduct a physical walk-through of the property. To do this, first print out a walk-around or rent-roll report. Highlight any units that are vacant, used by the company or under maintenance. Also flag units that are past-due and should be overlocked.
Open every unit you’ve highlighted to verify its status and size. Check each unit number to ensure spaces aren’t missing in the facility-management software. The exception would be if you combined units. For example, if you previously converted two 5-by-10s into a single 10-by-10, a unit number should be missing from inventory.
Keep in mind that while your total number of units may change, your square footage won’t unless you’ve specifically expanded the property. If you see unit numbers deleted in the software or discover your square footage has dropped, you need to investigate to ensure your manager hasn't created “mystery” units that tenants are renting for cash. Discovering inconsistencies with unit status and overlocking could also be an indication the manager isn’t conducting daily lock checks.
Finally, log any maintenance issues you see, such as broken latches, burned-out lightbulbs, and dirty hallways or stairwells. These issues could be another red flag that the manager isn’t regularly checking the property.
2. Office Form and Function
Once you’ve completed your physical walk-through of the facility, it's time to check how well things look and work in the office. I often check the restroom before anything else. If it’s dirty, there’s a good chance the rest of the facility is going to be in the same condition.
Next, pull a report of retail-product inventory such as locks, boxes, packing supplies, etc. Count every item on display in the office as well as anything stored for later use. I’ve audited some properties where the inventory was so far off I knew right away the manager had been ordering supplies but failing to log them into the software. This gave him free reign to sell items for cash and pocket the money. As a preventive measure, consider having the manager send his order requests through you or your corporate office. Remember, even Dollar General conducts inventory of its resale items at least once per year!
Next, look at the tenant files. Are they neat and orderly? Are all the leases signed and initialed? Is there an insurance addendum in each file, and is it signed? A lot of operators today rely heavily on their software without keeping hardcopy files. However, computers can crash, and with cyber-attacks on the rise, is the cloud really all that safe? I’m old-school. Though I don't keep every late letter, etc., I do like to have a tenant file containing a hard-copy lease and insurance addendum. I’ve conducted self-storage inspections in which we had no idea who was renting which unit because all the files were empty!
Now look at the auction records. As you probably know, lien sales are a facility owner’s No. 1 legal liability. You’d be surprised how many sale files I’ve seen with misspellings, transposed numbers in addresses, etc. These types of mistakes could cause you to lose a wrongful-sale lawsuit. If you have any doubts about a unit that’s scheduled for sale, stop the auction and start the lien process over again. There are many areas of operation that are at your discretion, but not this.
Finally, observe how your employees answer the phone and interact with customers. Could they have done better? If so, perhaps it's time for a refresher on sales and customer service. Even seasoned managers can get lax and forget to hone their skills.
3. Management Reports
Most self-storage software programs can produce similar reports, though their names can differ from one product to the next. It’s important to know what each report contains and how to read it. If you don’t, contact your software representative so you have a comprehensive understanding of the information at your fingertips. Once you know what the reports are for and how to use them, you can select which to access on a daily, weekly or monthly basis.
Many programs offer specific reports recommended for facility auditing. Examine these prior to your inspection and bring them with you when you visit the premises. Here are a few I recommend:
Occupancy overview. This will give you some idea of your rental trends, including which months have the highest occupancy (usually summer) and which have the most instances of delinquency (often around Christmas or the first couple months of the year, when holiday spending has an impact). Use this report to discuss with your manager when specials are and aren’t appropriate based on the data. You can also use it to go over collections techniques for months when delinquency is highest.
Management summary. This provides more detail on facility performance in any given month. If rent is due on the first day of the month, it may be easier to track your income, delinquency, move-ins and move-outs using this report. If rent is due on the tenant anniversary date, it's a little trickier to track these measures because of the unevenness of payment status.
Unit-rate scheduled changes. This report will tell you which tenants are about to receive a rate increase and when. It’ll also reveal if managers are favoring certain tenants with unending specials or static rent. You’ll be able to see how much income is being left on the table and when to expect more revenue. You can also use it to recommend which tenants should be increased. Even though it takes more time and effort to look at each customer individually—how long he’s rented, if he’s receiving a discount, when his last increase was—I don’t believe in across-the-board increases.
If you hire a third party to do your site inspection, he’ll probably want to access your software to pull the reports he needs. While most auditors aren’t accountants and won’t be balancing your accounts (your bookkeeper should be doing that), you want someone with industry expertise who can spot red flags and discrepancies.
Timing
Self-storage site inspections should be conducted regularly. In addition, you always want to audit when there’s a change of staff or you suspect something isn’t right.
Never give your staff notice on when an audit will occur. If they understand from their very first day on the job that property checks are part of company policy, they won’t be taken aback or feel distrusted when someone shows up to examine the business. It’s also important to vary when you conduct your audits so employees don’t anticipate your arrival.
Reviewing Results
After you’ve conducted your audit, sit down with your manager to review your notes and findings. Discuss maintenance issues, rate hikes, problem tenants, collections, lien sales, etc. Make sure your team is adhering to company policies and procedures, and gauge whether they need a refresher in any areas. Remember, it’s the owner’s responsibility to provide the necessary tools for employees to do their jobs competently.
Self-storage audits don’t have to be cantankerous affairs. Well-paid, well-trained, empowered facility managers should understand these inspections are about keeping the business running as efficiently and profitably as possible. That said, conducting audits isn’t easy. They’re time-consuming. If you don't have the time or knowledge to do a thorough job yourself, consider outsourcing to an experienced industry professional.
Pamela Alton is the owner of Mini-Management Services, a company that 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; e-mail pamela@mini-management.com; visit www.mini-management.com.
