The Guide to Selling a Self-Storage Business
Self-storage businesses are in high demand due to the ‘recession-proof’ nature of the industry.
It’s not often that you hear about ‘recession-proof’ businesses, but the self-storage industry is one of those special markets that remains unfazed during hard economic times. The storage industry does not come without its challenges, but when times are tough, this is a great sector to own a business in. Trends are showing that many business owners within the self-storage industry are using M&A as a growth strategy to expand, giving owners of self-storage firms a rare advantage to sell their business.
Companies in the self-storage industry rent or lease storage units where clients can store and retrieve personal items in a secure location. Around 9% of Americans rent a storage unit and if you combined all of the storage space available in America, it would come out to over 2.3 billion square feet of storage. The industry is expecting to consistently grow 5% through 2020 and successful facilities see profits as high as 36%. The self-storage sector has been classified as one of the fastest growing industries over the past 40 years. All of these factors combined with a stable economy and robust buyer pool make it a great time to consider selling a self-storage business. If you have been thinking about planning your exit strategy, the first step is getting a professional business valuation. Business valuations not only tell you the value of your business, but also how you can increase that value to get the best possible price for your business. To get an idea of how the number is calculated, we have included some general formulas often used by business brokers but keep in mind that only a professional intermediary can tell you the true value of your business.
- 50% of annual sales
- 1-2x EBITDA
Now that you have an idea of what is important in valuing a self-storage business, you probably want to take the time to make sure your business comes in on the higher end of these multiples. We have helped over 500 business owners sell their business and our intermediaries have the knowledge and experience to help you boost the value of your self-storage firm. You can find these value-boosting tips below.
M&A as a Growth Strategy
The self-storage industry is one of the best sectors to utilize M&A as a growth strategy. The industry itself is a bit fragmented, motivating larger storage companies to acquire smaller, independently owned facilities to expand their reach. Sellers can also benefit from this trend as they are able to take advantage of a healthy and determined buyer pool. If you think you might still be 5-10 years away from selling, this can actually be a viable growth method for your business and could help you double the sales price when you are ready to sell. If you are ready to sell now, other self-storage businesses may be the best buyer option for you and some of the key things buyers will look at are land costs, zoning laws, necessary capital, and market saturation. Market saturation is key when buying a self-storage unit; buyers will not want to invest in a storage facility that will only drive their costs down because of too many options for consumers. One of the most important ways to prepare your business for sale is to identify potential buyers, then enhance the appeal of your business specifically to them.
Competition is fierce in the self-storage industry, so business owners looking to sell will need to find ways to increase cash flow and customer base. One way to do this while setting yourself apart from your competition is to tap into niche markets and expand your service offerings. Self-storage no longer means storing all of your junk in one storage unit; many facilities now offer a variety of specialty units that appeal to clients with high-value or unusual items they wish to store. For a higher monthly cost, clients can rent temperature and humidity controlled units, wine and cigar cellars, maximum security plans, and services such as moving supplies and equipment. Adding even one of these additional services to your repertoire of offerings may come with a hefty upfront cost, but you will get that back very quickly through customer billing and your business will have an edge that surrounding storage facilities do not have. Adding a niche service will also attract buyers as they will view your business as having a multitude of stable incomes and thus, more stability.
Over 6% of all storage units in America are rented to military personnel. Military personnel make up one of the largest customer bases within the self-storage industry, sometimes accounting for anywhere between 20% and 95% of a business’s revenue. While we usually advise against high concentrations of one type of customer, in this instance, it would be a major benefit to your business. Military personnel often rent units for months or years on end, generating a stable, reliable income for your business. To build this group within your customer base, we recommend offering military discounts and designing a marketing campaign to get the word out. You could ensure repeat business from the said client by offering a client loyalty program in combination with the military discount. There are a plethora of ways you could grow your customer base by connecting with military personnel, and the increased revenues and larger customer pool will grab the attention of buyers.
Much like the tip on niche markets, diversifying your services will also build revenues and attract new clients. If you are strictly a self-service facility, consider adding moving services to your company offerings. Subcontract with a few employees to assist people in moving or start selling boxes and packing tape up front when people come in to complete paperwork. You could also partner with a company like U-Haul and offer moving trucks. Most people need help with moving or at least need a vehicle to transport their stuff in – be the one-stop-shop and watch your revenues increase over time. New services also give you new marketing material, which will help you reach new audiences through different keywords, SEO, and ads. Buyers also feel more secure when a business has multiple forms of consistent, stable revenue, which service diversification would help you with.
Much like the show Storage Wars, storage auctions could actually help you generate a few extra bucks here and there, but mostly, they will bring a ton of publicity to your business. Storage units can go for tens of thousands of dollars at an auction and while you may only get this opportunity once or twice a year, that’s a large sum of cash straight to your bottom line! But more valuable than the money is the marketing you will get our auctioning off units. TV shows like Storage Wars have given way to new age treasure hunters, always on the lookout for a hidden find. Advertising an upcoming auction will bring people to your facility and keep them interested in your business, anticipating the new opportunity to bid on a unit.
It’s a great time to own a small business. Our economy is bustling, SBA loans are being granted more frequently and interest rates are low, and many industries are headed for extreme growth and expansion over the next few years. While things may be great right now, it would be foolish to ignore predictions of an upcoming recession and as a business owner, you need to take the necessary steps to safeguard your greatest asset – your business. The first step to safeguarding a self-storage facility is having a solid exit strategy in place and that all starts with a valuation. At Viking Mergers & Acquisitions, we offer no-cost, no-obligation valuations to business owners and can assist you in planning a customized exit strategy. Every business owner needs to have a plan for their future and the future of your business. Even if you are not quite ready to sell, having an exit strategy in place will allow you to cash in on all of the years of hard work and sweat equity you have invested. Don’t you deserve that?