As I said last week, if you keep you eyes on a few things in this business, you can create a lot of profitability.
One of them is “Accounts Receivable”.
This is what keeps the economic occupancy percentage and the physical occupancy percentage very close to each other.
This is what keeps the integrity of the cash flow intact.
This also requires a skill set many managers don’t have. However, our managers are way better at this than I am.
Let’s look at the why first, then the how.
I look almost every day at the “accounts receivable” on the daily close of the management reports for the facilities.
I don’t pay a lot of attention to the 0-10-day column because I know we’ll get most, if not all, of that money. In fact, I kind of like seeing money there because that’s what generates late fees. I don’t feel too bad about charging late fees because we offer a “Guaranteed No Late Fee Program” – all tenants have to do is let us charge their cards automatically on the date the rent is due.
There is a direct correlation between how well a facility performs and what percentage of the customers allow us to automatically charge their cards.
The facility we are going to be looking at today has about 42% of the customers that are set up for automatic rental payments.
You’ll notice on this report, which happens to be the last day of the year, that this facility had zero in the 0-10-day column. Very unusual. Don’t get too freaked out if there isn’t money here.
Through out the rest of the columns, we try to keep the percentage of the accounts receivable under 10% at any given time.
We do this by having auctions.
We schedule auctions about every quarter – that’s how often we need to empty the facility of the people who don’t pay and refill them with people who do.
It’s that simple.
There is a whole methodology around how we do auctions, and I will discuss that at another time. The main take away here is that our managers are monitoring these numbers daily and this informs them when an auction is needed.
Now I know it sounds weird that if you keep the percentage in this column to 10% (not including the 0-10 days) you can keep the difference between your economic occupancy and physical occupancy to 5% or less. I can’t give you a simple explanation of the mechanics of how it works, but it does. It has to do with late fees, when the money comes in, the amount of money collected at auctions, and the collection calls prior to an auction.
Strange math, but good math.
By the way, I just made those percentages up over the years through trial and error. Not sure exactly how I ever got there, but it really seems to work for us.
Now it really takes a special manager to keep a facility in line like this. Believe me, I would have a hard time doing it.
The skill set required to do this is what we look for when hiring, although I don’t think I’ve ever articulated it that way before. The same skill set I think it takes to achieve this has also played a big part in building our company culture.
There are two things I look for when hiring a manager.
First: are they self motivated?
- Will this person, on their own, every day, do what they know is required to run a successful facility without me or anyone else directing them?
- Will they do it when they are all by themselves simply because they know it is the right thing or the next thing to do.
- Will they run it like it’s their facility?
It’s actually amazing, but most of our managers’ refer to the facility as “their facility.” And in many ways it is. The customers relate to them as the face of the company, and they are!
Being a self-starter is essential because a good manager has to pick up the phone regularly and call customers to get the money in.
Collection calls are an almost daily part of a manager’s accountability. It really takes a self -motivated and confident individual to do that regularly to keep a facility’s finances in line like the one you see here.
I doubt if I could do it as well, believe me.
The second thing, and perhaps the twist here (I love unexpected twist), that I look for when hiring is caring. I look for a manager who really cares and can authentically get in the world of our customers.
In many ways our managers are like therapist, bartenders, ministers, and counselors all rolled into one.
We tend to get customers in transitions periods of their lives. That’s what causes the need for our product.
Not all transitions are pleasant.
Some are very challenging.
I have discovered that the best collection calls are made by people who genuinely care for, listen to, and support the challenges our customers are going through.
Don’t get me wrong, they’re tough and can tell a customer they are being auctioned and “no we are not going to waive the fees.”
But what I have witnessed are customers who will run to the phone to get the collection calls just so they can talk to the managers.
They’ll make sure our managers are the first to get the money when they have it.
They are as interested in seeing our managers win as the managers are interested in seeing them win.
We did an exercise last year when I was working with the managers to quantify the culture we have created and what kind of environment a new employee will be hired into.
Our managers, not me, almost to a person said it was a “caring culture”. They genuinely care about other people.
I can tell myself that I’m a people person, but they really are.
So my coaching is to look for a manager that is (1) very (I mean very) self motivated and a self starter, and (2) a very caring person.
That is the best way to keep the physically and economic occupancy close and to keep the “accounts receivable” low.
