Most people’s relationship to language and the spoken word is very week.
We haven’t really been trained on the true power the spoken word has to shape our experiences and our lives.
This becomes very evident this time of year as we begin creating our annual self storage facility budgets for the upcoming year.
Most Owners and Managers relate to a budget like a prediction, hopefully, of what is going to happen in the future. Most people relate to language in the same way – a hopeful prediction of what will happen. I am going to ___________ next year.
I am not saying that it’s wrong; it’s just very, very weak.
A more powerful way to relate to budgets, as well as what we speak, is as a Creation. We are creating the upcoming year and putting into reality now, what will be.
Both are called a budget, but they are two radically different things.
I’m not going to tell anyone how to run their facility or company, but I will share some suggestions. I’ve learned a lot from what we’ve done right and from what we’ve done wrong over the years.
Your first priority is to get everyone who is held accountable for any part of it involved in the budget creation process. That could be just the Owner and Manager of the facility. In our case, the Operations and Financial Officers are involved as well.
Most people’s starting point is the previous year’s Profit and Loss Statement. What we do differently is to start with our ten-year cash flow statement that we created prior to closing on the facility. In our business strategy, that’s what I said the financial future of that facility would be, so that’s our starting point.
We may switch up some line item numbers, but we win our games year by year by beating the net operating income line created and spoken into existence when we closed on the property. For us, that NOI number comes from a Storage World Analyzer report or a spreadsheet we created when going through the due diligence period.
So what’s the process for creating the financial future for your self storage facility?
Step One: Understand What Is So
Always start with exactly where you are, no matter what you’re creating – a company, a self storage business, or a self storage budget. Start in reality by looking at the last year and acknowledging what happened.
For example, we were over budget in our personnel expenses by $9,549.33. We were also under in supplies by $1,200.63. Make sure you know your exact income and expense numbers.
Acknowledge where you were strong and where you were weak in the financial running of your facility. Know exactly needs to happen next year to improve the financial performance or, like in our case, get back to where we said we would be in that year of ownership of the facility. The good news is if you did your due diligence well, you’re usually ahead of your target each year.
The process of creating a future in language always starts with what is so, in reality. Sometimes that’s easier said than done.
Step Two: Create Your Income
In our company, it’s the Managers who are accountable for the income of a facility. So it only makes sense that we work with them to create the income number for the upcoming year.
We usually guide them based on what we know the numbers have to be. But in my experience, they almost always create more than we must have to fulfill our business strategy. In other words, our ProFormas usually have a 3% increase in the income year by year and the Managers say they can outperform that.
We start with the storage income – how much is it going to increase this year? What do you (the Manager) need to do to increase it that much? What resources do you need to do that? Where do you need to improve your performance to get there? When should we have the price increases to best support you in achieving that number?
Next look at you retail, insurance, and other Key Performance Indicators ( KPI’s) and how much they should increase this year? What will they be on Dec. 31 next year?
Again, don’t let the Manager, or you, try to guess. Create it!
Relate to what goes in a budget as your promise, your word. You keep your word, don’t you?
OK, you may not always be able keep your word, life happens to us sometimes. But if you are intentional with your word you’ll recognize when you’re not going to be able to live up to it because your word lives for you and is not forgotten. You can acknowledge that you will not be keeping your word as soon as you know it. That way you may not have kept your promise, but you still have the integrity in your relationship to your say and speak out loud. Others will see that and know they can count on you. But most importantly, you will get that, and know you can count on yourself.
Break down what you and the Manager create into monthly numbers, and make it very easy to see if you or your Manager won or lost the monthly game. Support your Manager and celebrate when they hit or exceed what was created. Acknowledge and hold them accountable when they miss.
If a Manager goes a quarter or more not hitting what was created, it’s time to up the training or replace them. So make sure they are involved in creating the income goals they are accountable for so they have a powerful relationship to it.
Step Three: Create Your Expense Numbers
Our profit and loss statements mirror the line items in our initial ProFormas we created before putting the facility in service. This makes it easy for me, our partners, and our lenders to see how the project is doing.
We go through the expense line items and have the Manager involved in some, but not all, of them. For example, we will create with the Manager our office supply expense number. Any expense that they have a stake in and are involved in the decision-making process, they are accountable for.
We don’t involve them in other numbers like property taxes, property insurance, and personnel. The partners will go through those line items and create the upcoming year’s expenditures. We are usually asking questions like:
• How can we reduce that expense and still provide the level of service we need to have a 5.5% increase this year?
• What type of pay increase does the Manager deserve based on performance and what type of bonus structure should we create?
• What was our cost per lease last year and how can we reduce it (advertising, referrals, online adds, and website expense divided by the number of move-ins)?
You can’t answer these type of questions in an hour. They require real thought, research, and collaborative work. Really dig into it and have a well crafted and thought out budget that motivates you.
In my business, the operating partners and I get measured by ourselves, our investment partners, and our lenders by the NOI line item (net operating income). We create prior to owning the property what the NOI (income less operating expenses) will be for the first ten years. How much we produce over the NOI number year by year is a reflection of our performance. The income and expense numbers that generate the NOI we need to hit or exceed is what the budget process is all about for us.
But that’s just our business strategy. You create your own. If you like ours, steal it. If you want to create your annual budget using the previous year’s numbers as the measurement and as a starting place, do that. It’s your business and your creation.
My coaching is not to set aside just one hour to create a budget. Relate to the budget process as the financial future you are Creating.
How would you relate to a budget if you knew what you created would actually come into being as long as it was well thought out, based on reality, and enough of a stretch that everyone has to play at the top of their game? What if it would always happen?
Well, it can and does if one follows this Creation Process and has a powerful relationship with language.
You can actually create the financial outcome for next year this month as you create your budget. So Create True Wealth and a Fulfilling Career.
Let me know how you are doing.
