The CFO Playbook for Storage Pros

Scott Meyers takes us on a no-nonsense deep dive into the critical role of financial oversight in self-storage businesses.

Whether you're a one-facility operator or managing a growing portfolio, Scott makes it clear: if you don't have a CFO, you are the CFO. 

Using Warren Buffett’s wisdom as a launching point, he breaks down the essential monthly, quarterly, and annual financial cadences every owner must adopt. 

From budgeting realistically (no pie in the sky numbers!) to analyzing rolling 13-month cash flows, and from understanding why trends matter more than isolated data points to the perils of missing tax deadlines—Scott outlines how strategic financial management can make or break your business. 

LISTEN FOR

5:52 Why Two Sets of Books (Cash vs Accrual) Matter

7:25 Monthly Cadence: How to Review Your Financial Health

9:05 Rolling 13-Month Cash Flow: Your Financial Crystal Ball

10:43 Don’t Trust REIT Benchmarks: Your KPIs Should Be Yours

16:04 Mastermind P&L Showdown: What Real Operators Are Doing

19:17 Three Essential Questions for Every Financial Meeting

Watch For

7:45 How a Missed K-1 Can Cost You Investor Trust

11:00 Rolling 13-Month Cash Flow: See the Trends, Avoid the Traps

14:50 What the Balance Sheet Really Tells You

19:20 Financial Forecasting: 90 Days Forward

22:00 The 3 Key Questions for Every C-Suite Meeting

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Chapters

• 5:52 Why Two Sets of Books (Cash vs Accrual) Matter
• 7:25 Monthly Cadence: How to Review Your Financial Health
• 9:05 Rolling 13-Month Cash Flow: Your Financial Crystal Ball
• 10:43 Don’t Trust REIT Benchmarks: Your KPIs Should Be Yours
• 16:04 Mastermind P&L Showdown: What Real Operators Are Doing
• 19:17 Three Essential Questions for Every Financial Meeting

Transcript

Scott Meyers (00:00):

If you don't know how to read the scoreboard, you don't know what the score is. And if you don't know what the score is, you don't know whether you're winning or losing.

Big Announcer (00:09):

This is the Self Storage Podcast with the original Self Storage expert, Scott Meyers.

Scott Meyers (00:16):

Hello everyone and welcome back to the Self Storage Podcast. I am your hostess, Scott Meyers, and in today's episode, now don't leave. We're going to be talking about the CFO spot. And if you do not have a CFO, if you're not large enough, well guess who is the CFO. That is you, the chief financial officer. So if you're not responsible for the numbers and nobody else is, then guess what? You're responsible for the numbers, whether you recognize it or not. And the reason why this is so important, I'm going to quote Warren Buffett who said, if you don't know how to read the scoreboard, you don't know what the score is, and if you don't know what the score is, you don't know whether you're winning or losing. And I'll let that sink in for a moment. And so today what we're going to do is we're going to face head on perhaps for some of you the reasons why you need to dig into the financials and why you need to understand them forwards and backwards.

(01:02):

And if you don't, then you need to get some assistance, and that could be by way of a controller at first, and then as you grow and scale and you build a portfolio of self storage facilities, you're going to have to have a CFO because here's the difference between accounting, bookkeeping, and then looking at your financials and making decisions from a strategic standpoint based upon the numbers. The difference is that when you buy one facility, you may understand that the fundamentals, you may understand a p and l and a balance sheet for that facility, but then when you buy another one, you can still operate that way, maybe the third, but after about the fourth, depending upon the size of your facilities, well now what you have is a business and you have a portfolio and the portfolio management and the financials behind managing a business now that has an operating entity on top of it that is overseeing this portfolio of facilities.

(01:56):

Well, that's a whole different set of financials, a whole different skill set, and what got you out of Egypt is not going to get you to the promised land if you only understand financials at a facility level. So we're going to put our big boy and girl pants on today and we're going to talk about the CFO spot and the things that you need to be doing on a monthly, quarterly, and annual basis to make sure that you keep your portfolio of self storage facilities and that you don't have to give them back to the bank or that you don't have to answer to any angry investors, limited partners that come into your projects when they begin asking you for the financials they want to see and read the scoreboard and you can't provide it. That is the last place that I want any of you to be in.

(02:33):

So we are going to avoid that at all costs and it starts right here. So what I'm going to do is I'm going to go through the cadence, if you will, on the monthly, quarterly and annual basis of the financials and the sets of financials that you need to look at on the monthly, quarterly, and annual basis because many times there's trending and some of these numbers change over the course of a quarter and from month to month, and so it really doesn't make sense to track them on a monthly basis. We've got quarterly payments for property insurance every six months, bi-annually we have a different set of expenses that have to be paid and maybe some of the ones that I just mentioned or others. And so we want to see the trending. Yes, from a budgeting standpoint, we will break this up into monthly chunks so that we can compare what it looks like to the actuals, but we know that there is some trending that occurs within our portfolio and our facilities that we are going to look at on a quarterly basis or on an annual basis.

(03:23):

So let's start with the annual process and we're going to move backwards. So budgeting is, this is the first piece. If you are planning for the following year, the next year, the upcoming year, that begins in November and December. That doesn't start in January, that doesn't start at the end of December. It's tweaked in the middle of December so that you have the opportunity to be able to hit the ground running January one and you've got a budget to work from so that you understand from the beginning how to keep score and what you're going to be measuring against. Couple of things to keep in mind is you're setting this up budget That is to first of all be realistic. And when I say realistic, I mean not wishes, not hopes not pie in the sky. And what I've seen so many times is when people are underwriting, there is a tendency to look at best case scenario to put a square peg in a brown hole because we feel like, well, if everything aligns, if all the stars align, this is what the facility is, how well it's going to perform, and this is what the balance of this year is going to look like.

(04:21):

If we hit all our marks and everybody is blowing out their KPIs, well that's not realistic, so we're going to set a realistic budget and that doesn't mean too low so that we look like heroes for anybody that's watching. And it doesn't mean that it's too high because we want our investors to invest with us or people to think that, wow, look what he plans to do. Wow, I can't wait to see and watch how this is going to unfold. That's the last thing you want. We want realistic numbers. It's either too high or nor too low. Outside of the operating income and expenses, you're going to add in the capital expenditures or CapEx below the line as well as debt service. And so we want to get a true operating budget of p and l is the profit and loss, which means the income that comes in and the expenses of the project.

(05:04):

Again, CapEx and debt service are not included in the budget. They are below the line because this is your map. You don't drive across the country without a map. Of course, nobody drives across the country with a map anymore per se. They're using GPS, they're using their phone, but you get it. You don't enter a new year without a budget. So the year end close, as we approach the end of the year, that's going to occur in January because now we're preparing for taxes, and that's at the time when you're going to add in the depreciation and amortization and then as most accounting firms and your bookkeepers will have been doing all along, typically they're going to suggest, and I recommend having two sets of entries, cash versus accrual enters. So the cash entries are the actual, and the accrual is how you budget and where you run from.

(05:52):

And so that's where you set your KPIs and the true forecast in your budget from is from an accrual. And then at year end, you're going to have the final cleanup and close the accounts out, close the books out and send them across to the CPA then to begin the tax prep. And when does that occur? Typically February through March, which means that you're getting your numbers in for corporate taxes in February so that your tax prepares have a good solid set of books to be able to prepare for the corporate returns in March. And obviously everything else that is going from a personal level to yourself, but also to any limited partners. You may have investors that have come along in your projects by April the 15th, and if you miss these dates, either one of them, for those of you that are raising capital out there and have or been aware of or been involved in a syndication of which the promoter or the syndicator did not send out the K ones on time, that causes all kinds of problems and that will cause problems for you.

(06:46):

Not only we have unhappy investors, but unhappy investors that do not invest with you. Again, if you can't do the basics of getting a budget out, hitting it, meeting it, sending out distributions and getting a K one out on time, you've lost credibility and there is no second chance they will take their investible dollars this coming year for any projects that are coming down the pipe in your portfolio and they're going to send their dollars somewhere else because they know that I had to delay my taxes because this organization couldn't get their act together and get my K ones out on time. And sometimes that's all it takes. Many times that's all it takes is to miss getting your K ones out once and now you've lost credibility with those investors and they're going to take their dollars somewhere else. Okay, let's look at the monthly financials now.

(07:25):

So monthly is hindsight. We're going to do a hindsight review. And the minimum, the minimum you should be looking at is the balance sheet versus the prior month comparison. So just to see how we're looking one month into the next, how does that compare to the budget, the profit and loss plus the year to date profit and loss. So I want to see what it looks like month, month to month plus the year to date profit and loss, and again, matching that up with the budget that you have set forth. Are we off, if we're off in any category, how far are we off in terms of income and or expenses? And if it's off by a lot, was this projected? Is this one of those quarterly trend numbers that just cropped up so we know what that looks like even though what we are reporting it on a monthly basis or is there something seriously wrong here and the alarms should be going off and we need to dig in and find out what is going on and how to rectify it?

(08:16):

Then we're going to look at the profit and loss versus of the budget year to date. And I recommend rolling 13 months. We're going to talk about that in a minute for cashflow, but I want to see a rolling 13 months so I can see how we compare to last month, but then also the same month last year, not the prior month from last year, but the same month from last year as well, because we all know this is a storage is a seasonal business, and I want to match up the numbers from the exact same month last year compared to this month. So we can see if there's any trends and what we can draw on from last year that may help us this year. And then of course, the year to date cashflow because cash is the gasoline that runs the engine, the corporation itself, and if you have set a KPI or a minimum in terms of the amount of cash that you have to have into the bank account, that is real.

(09:05):

That's why we're looking at cash accounting versus accrual. We need to understand where we're at and how much cash we're going to need for the balance of the year, and are there any issues? Do we have any issues this month that would cause us to miss our mark and not make it to the end of the year? My recommendation, which is also the recommendation of our outsourced CFO is the monthly performance report is done either internally or there's a number of other overlays or dashboards that work in conjunction with QuickBooks where you export into these dashboards with some manual tweaking and touchup. One of them is Fathom hq. We've used Fathom HQ for a number of years and it just gives a lot of good data and insights into the numbers. The KPIs just like you would have, and everybody knows what a dashboard is, just like you would have in an automobile that says if you're running low on gas, which is the cash that we just talked about, are we about to overheat?

(09:58):

Are there some issues with the expenses that we just need to get control of? How do our KPIs match up with the actuals? How does the budget match up with the actuals? And if you don't have some type of a dashboard and KPIs that you're keeping track of, once again going back to my statement, which I'm sure resonated with some of you, and that if you don't know what the score is, how do you know if you're winning or losing? And I would caution you as well, this may scare you a little bit as we're talking about KPIs, key performance indicators. By the way, how do I set those? Scott, what does that look like? Well, you need to set it for your facility in your particular market and then your organization as a whole and some of the goals that you're looking to get to where you need to improve.

(10:43):

So if you're looking for a baseline, well for every facility, it's going to have its own little nuances in every single market. And so we need to get better than what we were before, either ourselves last year or the previous owner. If it's a new acquisition. I would caution you in setting these KPIs based upon industry norms because industry norms and data that we get from the public organizations to the REITs, the real estate investment trust, and I can guarantee if you look at the top trusts out there, public storage, if you're looking at life storage extra space and you're comparing your numbers to theirs because they're public and you thought you'd grab a set of numbers somewhere because Scott said to, you're going to find yourself reeling by midyear or even the first month to understand how you're going to be able to meet these numbers or see how they correlate or make any sense to your facility because guess what?

(11:29):

They won't. They just won't. So this is based upon working with, if you don't have one, again, a CFO, A fractional CFO and outsource it, somebody come in and take a look at your books, a strong controller to help you and or your business partners that tell you set this together not from industry norms or just some which is second only to just pulling a number out of the sky because you need to have a number in this place on the Excel sheet. And then as the year goes on, looking at the trend analysis in all categories, trends are what tell you exactly once again where you're going or if you're deviating off course. Going back to the roadmap analogy, what trends am I seeing now? Is it the same as last year? Is it the same as in the industry? Is it the same for this market or are we veering off course and we really don't know why we pay close attention to the trends because the trends are what tell the story.

(12:21):

So I believe we mentioned a rolling 13 month cashflow as well. So that kind of coincides with the profit and loss statement, but we want to see what our cash looks like at this same month last year as well as going forward. And hopefully it is increasing. And if not, once again, the alarm should be going off and pivoting and adjustments being made. I'm going to look at the balance sheet versus the prior month as well for the same reason. Is it improving? Is it getting better? How are we impacting the balance sheet with the operations and what we're doing within inside of not only the facilities themselves, but also the portfolio as a whole, and then the profit and loss plus the year to date profit and loss. So I want to see what the p and l looks like from last month versus this month, and then again, year to date and looking at the trends, how are we performing year to date as well as compared to last year at the same time?

(13:13):

And the most important piece is the profit loss versus the budget. We set this budget and we put a lot of thought into it, and if we're on, great, if we're exceeding, fantastic, if we're not, then once again, the alarm should be going off and we need to pivot and understand is this a trend or is this something that we need to dig into and how do we rectify so that this number isn't the same next month because you know what happens next month? We got a lot of catch up to do, and that's almost impossible to catch up once you get behind. And then any other special reporting that you need on a monthly basis for us. When I say special reporting, that is any other reports that we're going to produce for our investors. I think you'll see some syndicators and some sponsors that are raising private equity like ourselves.

(13:54):

They'll put out a monthly number to show the value, the increase in value of the facility or the facilities within a portfolio on a regular basis, so the investors can see that it's going up in value. Some of this is somewhat automatic depending upon the portal, the investor portal that you use and how you track and how you input the facilities. We've chosen not to do that because two things happen if you do one, if it dips a little bit and your investors have access to seeing what the true value is on a live basis, if you will, going forward a month to month, they're going to call and begin asking you a whole bunch of questions, especially if it goes down or they're wondering, what is the value of my facility right now? And maybe I need to sell some shares. Could I sell some shares right now?

(14:34):

And then they're custodian. If they have a self-directed IRAA, real estate 401k will ask at the end of the year, many of these, not all of them, what is the value of this person's investment? And so you have to go in and you have to calculate the value at that timeframe. And so we don't, as a matter of practice, we don't calculate those and we don't do a running tally because anything and everything could change in the market from interest rates to cap rates to an anomaly in the performance this year. We take the investors capital, if they invested $250,000 out with us and this portfolio where this facility, that's what it's worth until we sell it. And then here's the value because then we determine how much it was worth the facility, how much we sold it for, and what the returns were for that investment in that.

(15:19):

So we don't do any of these rolling on the rest of the way through. And this was very eyeopening for many of the members of our mastermind. This is what we do within the self storage app mastermind. We got a bunch of rock stars in our mastermind that are growing and scaling. There's about 60 at any given time, 60 to 80 members in our group. And this is what we do. We get together once a quarter for two and a half days. We do some really cool stuff, but the rest of the time we're in the room doing also cool stuff, which is this. We're discussing the numbers and we're comparing p and ls across the mastermind, which means across facilities, across portfolios, across markets, and across different organizations and organizational styles. But this is how we get better. Iron sharpens iron and everybody is very transparent and they throw their p and ls up on the screen for the rest of the folks out to look at.

(16:04):

And you know what? There's nothing new. There's nothing earth shattering, and there aren't anything that's a secret or a trade secret. Everybody's just looking at getting better and they're understanding how people can move the needle and what things that they're doing to increase income and decrease expenses on a regular basis. And then when we get together once a quarter and you can see that one organization or a handful of organizations are really doing some cool stuff, well then we have a sidebar conversation. Then we can talk about the things that move the needle. And so if you set your KPIs and your benchmarks in a silo, how do you know that what you're comparing to and comparing against is actually good or not so good? Once again, going back to the scoreboard analogy. And so our mastermind operates like a team and yeah, we're out there in the marketplace competing against each other, maybe call it a team.

(16:49):

A good analogy is a team that I don't know that scrimmages against each other. And yeah, we keep score and we're looking at things, but we're also learning from each other, and we're all on the same team helping the industry become better by helping each organization become better. And so that only comes from getting together with other folks in the industry and then comparing the numbers real time with folks that are doing the same things that you're doing. Again, going back to not comparing against the REITs or some other subset that has a completely different set of skewed KPIs and benchmarks that you can't relate to, nor should you relate to. So still talking about monthly, the financial review meeting is maybe a little bit different. There's what we call an insight review, which also includes some more financial forecasting. So we're going to look at the 90 days and make sure that what do the next 90 days look like compared upon this compared to the last quarter and where we on the mark, what did our forecast look like?

(17:41):

And is there anything else coming down the pike that has changed now? Oh, we're going to add a facility to the fund. We're going to add some additional resources. We're going to add staff. We're going to make a significant investment in some software or a platform, and what does that look like now compared to the budget? And do the facilities have to now, do they have to step up their game to support the motherships new purchases or acquisitions to help us grow either your funding from one of two places of your funding for growth or your funding to catch up because you're behind somewhere? And so either way, I mean, we could look at it different ways. And I know some of you say, well, that's not the only reason, Scott, but that's where we are. We're pretty fast moving organization, so we're usually looking at the finances from one place or another.

(18:25):

We're funding for growth, or we're funding to cover some shortfall because of all the activity that we had that last quarter. And then what you should walk away with from the monthly financial meeting is ways that we can improve, and this is from, call it the C-suites, so the COO, the CEO, the CFO, and the ccio O. And if that is only one person in your organization, you should be looking at this in terms of asking yourself three questions. Where can we improve? What actions are needed? And then who is responsible for those actions? And by the way, that's a good framework. That's a good cadence for any meaning at a high level, call it the C-suite or your executives, where can we improve what actions are needed and who's responsible for carrying this out before we meet again? So very important, and a lot of information here with regards to the financials, and certainly we could do a deep dive.

(19:17):

That's why our CFOs have been through six to seven years worth of schooling to get to the place where they are, to be able to understand what levers to pull and the impact of pulling those levers. And then being able to look out into the future and understand for the next 12 to 13, maybe 24 months, what this organization needs to be able to either maintain the level that we're at right now or grow at this pace, or to be able to catch up because we had a bad quarter because the economy threw us a curve ball that we weren't anticipating either way, whether it's you, whether it's a team of folks internally, or whether it's outsourcing the CFO role, position, and or expertise. These are things that you just absolutely cannot ignore. Otherwise, you will find yourself in the unwelcome position of handing the keys back to the bank someday, or in the position of reporting to your LPs.

(20:11):

The unfortunate and bad information that, I'm sorry, there's no distributions this month. I'm sorry that we don't have a budget put together for you, and I'm sorry that the K ones didn't go out on time, because that is going to dramatically affect your cashflow and your abilities to be able to grow and scale your business the following year. So it all rides on the numbers. All decisions should be made from the financials. And again, if this caused you a little bit of anxiety because you didn't have answers to a lot of these questions, you don't have a cadence that looks like this or that, some of the words that I used that you are unfamiliar with, well then it's time to pull your head out of the sand or at least just take a look up from where you're at right now, the day-to-day, your unique ability where you spend most of your time and understand that, oh, I got a little bit of a blind spot that I need to work on.

(20:55):

And there are many sources for doing that. There are many classes, courses that you can take. I would just make a suggestion only because it's been brought to my attention so many times from the folks on our mastermind that this is the greatest education they've ever received in the world of finances, let alone self storage finances, just by being a part of our mastermind, because this is what we do. We get into the p and l as we compare, and everybody is open to sharing. It's a community of friendly competitors that are all looking to get to better. And the education that certainly, and I can speak for myself, that I've gotten and received from some of these bigger players in the room that are operating at a level higher than I am. It's been eyeopening to see how everybody operates, but then also for all of us to make these tweaks and changes and report back and be able to just once again, get better because the fire burns hotter when the coals are closer together and we're all operating from the same place and not learning. So if you haven't checked out our self storage mastermind, another shameless plug, but it ain't, if you don't know the numbers, you need to be in the room. Alright, so with that, this is Scott Meyers signing off with the Self Storage Podcast. Looking forward to seeing you on the next one. Take care folks.

Big Announcer (22:03):

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