Animal sheltering is a field with a ton of uncertainty and risk. Between limited budgets, unpredictable cash flow, and overwhelming need, it can feel impossible to get your footing. To the overwhelmed shelter director, it might feel challenging to imagine how things will look in a month’s time, much less in a three, four, or even five years.

When done correctly, financial forecasting can help you to achieve the seemingly impossible. In previous blogs, we’ve talked about how to build a budget in the unique animal sheltering market. Today, let’s talk about another important part of the process. Building a financial forecast can help you to approach your budgeting with confidence, mitigate periods of financial instability, and intentionally plan shelter initiatives.

What is a Financial Forecast?

Financial forecasting is a technique used to project your business’s finances into the future. By analyzing your past financial data–or conducting market research, if you’re starting a new shelter–you’ll be able to project your future profits. Financial forecasts are usually utilized to project long-term financial viability by looking 3 to 5 years into the future, but they can also be utilized for short-term projections in unexpected periods of financial instability. Financial forecasting can be used to:

Steer business development: By knowing your projected future cash flow, you can make informed decisions about the direction of your business.
Budget with confidence: Financial forecasting is an important part of building your budget. You’ll be able to expand your business with confidence, knowing the excess cash flow you’ll have available for spending, growth, and hiring.
Weather periods of economic instability: By keeping an eye on financial trends, you’ll be able to make adjustments in advance of potential financial declines and weather the storm.
Access financing: Banks and investors are more likely to lend to organizations who have records of their financial figures and a clear plan for the future. Financial forecasting is an essential part of building trust with lenders.

A tan-colored pitbull sits on yellow-colored and black, blue, pink, and purple multicolored beds with an upside down box beside them. — When creating your financial forecast, you’ll need to find out the cost of expenses, like enrichment equipment.

Creating a Financial Forecast

To build a financial forecast, you’ll need to rely on a combination of your past financial data, market research, and a healthy dose of assumption. If you’re a new animal shelter, you’ll likely need to rely heavily on market research to build your forecast until you have enough of your own financial data.

Step 1: Do Your Research

First, you’ll need to do a bit of research on market factors that will affect your income, expenses, and funding. Some things to research include:

Seasonal effects on demand: Demand for adoptions is rarely consistent in animal sheltering. Holidays, weather conditions, and school schedules will all affect the quantity and price of adoptions, thereby affecting the number of animals you have in shelter and resulting expenses. Adoptions might spike in the holiday seasons, or they might drop during cold seasons where people aren’t leaving the house a lot, so these are all trends to keep in mind as you create your forecast.
Economic conditions: The state of the economy is another important thing to keep in mind as you build your forecast, and you may need to adjust your predictions periodically in accordance with changes in the market. Consumer confidence will impact the price and volume of adoptions, so keep an eye on unemployment rates, monitor inflation, and prepare for less adoptions during periods of economic struggle.
Competition with other shelters: Make note of the shelters in your area, as they may be a source of economic competition. The proximity and volume of nearby shelters will affect the price and number of adoptions as you compete for resources, whereas you’ll more or less control the market if you’re the only shelter nearby.

A tan-and-white dog sits in the shade under a picnic table. — It’s helpful to estimate your shelter’s average yearly animal intake, keeping in mind how seasonal changes might affect intake rate.

Step 2: Create Your Sales Forecast

Once you’ve got the foundation of thorough research, you’ll want to create a sales forecast, which will be documented on a profit & loss (P&L) forecast sheet. Similar to the P&L statement we discussed in our budgeting blog, this will be used to compare your profits with your expenses to project your net profits. Ideally, your P&L forecast will show your sales growing above your expenses and inflation, with a steady expansion of profit margins. However, newer shelters may find that they’re loss-making for 2 to 3 years.

Estimating Income

First, you’ll estimate your income by assessing the expected price and volume of adoptions, sources of financing, and projected fundraising income. We’ll talk more in depth about forecasting fundraising and financing in future blogs.

Estimating Expenses

Next, you’ll need to estimate the cost of operating your shelter to ensure that your estimated income meets or exceeds this amount, and by what margin. Costs will vary widely based on your location, the size of your business, and many of the factors you’ll have already researched. This Q&A with Dr. Nicole Widmar of Maddie’s Fund offers an extensive breakdown of the expenses you might expect when running an animal shelter, but here’s an abbreviated list of things to consider:

Staff costs: You’ll need to assess how much, on average, you expect to spend on your staff for things like hiring, training, education, and wages.
Animal care costs: The cumulative cost of food, bedding, training equipment, enrichment tools, medical expenses, etc.
Property costs: How much you spend yearly on rent, mortgage, utilities, insurance, etc. for your facilities.
Marketing and advertising: The cost of hiring marketing specialists, maintaining your website, running ads, creating campaigns, etc.
Transportation costs: The expense of transporting animals to and from the shelter.
Investments: This is particularly relevant for newer shelters, but you should also factor in the costs involved in starting and/or maintaining your shelter. This can include things like purchasing facilities, building animal housing, purchasing essential equipment, and obtaining vehicles.

The team at SPCA of Brevard poses, arm-in-arm, outside of their shelter facilities. — Facilities, transportation, and equipment are all up-front costs that need to be factored into the financial forecast for new shelters.

Step 3: Formatting Your Forecast

You’ll want to organize your forecast in a clear, easy-to-follow format. In addition to your P&L forecast, we recommend organizing your financial forecast into these distinct excel sheets.

Projected Balance Sheet

Unlike a standard balance sheet, which evaluates past performance, this is used to project your expected financial activities. Also known as a pro forma balance sheet, this sheet will be used to estimate your:

Assets: This is what your business owns and uses to produce profits, including items like cash, equipment, and money owed by clients (AKA accounts receivable).
Liabilities: This includes money owed to lenders, suppliers, and taxes.
Equity: This is a combination of investments by the business owners and all of your business’s profits and losses to date.

Projected Cash Flow

This is the most important section of your financial forecast, and it’s where you should focus most of your attention. A projection of the amount of money your shelter will likely generate over the next 3 to 5 years, this should include:

Operating cash flow: Utilizing your P&L projection, you should be able to calculate how much cash will likely be generated by your shelter’s operations over the next 3 to 5 years.
Investing cash flow: A calculation of how much the business will likely invest to expand or maintain equipment.
Financing cash flow: A measure of the projected net amount of cash your shelter will likely generate or use for financing activities, like fundraising, acquiring grants, and repaying financers.

Laurie Lawless stands with two shelter staff members in a fenced playgroup area. Laurie wears a purple SBI shirt, and the staff all wear red shirts. — Running a shelter takes blood, sweat, tears… and a whole lot of teamwork. Don’t be afraid to ask for help.

When All Else Fails, Ask for Help

The ugly truth is that financial planning is hard. The uglier truth is that financial planning is extra hard when you’ve got an animal shelter to run. That’s why it’s important to know when to ask for help. Consult financial specialists to guide you through the forecasting process, and utilize resources and community wherever possible.

If you’re still feeling in over your head, it could be helpful to consult with an animal shelter consultant. Laurie Lawless, founder of Shelter Behavior Integrations (SBI) has first-hand experience with the effects of the overwhelmed and underfunded animal sheltering industry. Laurie founded SBI after years of working in the animal sheltering space, and she’s made it her mission to help shelters center animal behavior in their everyday practices. Sometimes that means hands-on work to set up a playgroup program, and sometimes that means lending a hand with administrative work through remote support. Check out the SBI website to learn more about Laurie, access educational resources, and get the support you need today.

Planning for the Future: A Guide to Animal Shelter Financial Forecasting