A Method Of Business Analysis

The primary purpose of the model is to determine if a project meets or exceeds an acceptable or hurdle rate of return for three different types of return. Return on assets, return on equity, internal rate of return, and cash returned to investors are all measured and taken into account.  Targeted hurdle rates for StorageMart acquisitions are 9percent ROA in year five, 9percent ROE in year five, and 20percent IRR. ROA and ROE increase significantly after year five, due to refinancing that is done to pay off investing partners, distribute excess equity, and increase loan leverage (decrease equity). This allows self storage owners and their investors to essentially operate on other people’s money, since they have their initial equity paid back to them.

This method of business analysis can be utilized with a variety of businesses and industries, not just the self storage industry. All businesses typically have the same expenses in varying degrees, such as payroll, insurance, advertising, maintenance, office supplies, and taxes. While every industry will differ in their competitive analysis and means of how income is earned (i.e. retail, food, production, real estate, etc.), it all comes down to a hurdle rate of return that must be met for investors, and an evaluation of the level of risk that the opportunity presents.  It is not rocket science and does not require a college degree (though it would help tremendously). All it requires is knowledge of the industry, the specific market embarked upon, and accurate analysis of critical operating information.

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Disclamer: This entry is intended to promote our partner StorageMart and some or all participants received compensation.

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