In our December 2021 newsletter, we summarized a lot of our 2021 activities, and gave a preview of 2022’s goals in the following January newsletter. Our efforts in Research and Outreach were much greater than in prior years, and we achieved a lot of milestones, ranging from exciting developments in the 3D anatomy project and integument project, to the initiation of the tail project, to a research award to Prof. Hugh Herr’s lab, to interviews with Liz Parrish and Prof. Temple Grandin. It’s been a lot of fun to watch. Now, it’s time for some numbers. Like any good financial analyst, we’ve been sitting at an oak desk, wearing a green visor while working with numbers in a really small font size.
FYI – Much of the text below is copied from my quarterly report to the board, from our Q1 2022 meeting. If you’d like to see what else was in the report, please click here.
Overview of 2021 financial figures:
In 2021, we had $55,937.41 in revenues and $54,209.46 in expenses for a net comprehensive income of $1,727.95. Our revenues and expenses were substantially greater (slightly more than doubled) compared to 2020 – so let’s go through the numbers carefully and be sure we understand them. Going forward, I believe we now have enough history to more carefully budget and ensure we’re working efficiently, while still not shying away from investing in good opportunities.
As in previous years, Zennith’s donations constituted the majority of revenues (75%), so that we could pursue a variety of opportunities without worrying about underinvestment or possibly being perceived as wasting public donations. Patreon revenue was the next largest source (22%), with a Terasem grant award (2%), non-recurring donations (1%), and negligible interest and non-operating revenue (0%) accounting for the rest.*
Together, our spend on program services was $18,655.17, or 34% of total expenses. Of program services, the majority was spent on research, followed by outreach, and relatively small amounts were spent on education and community. Meanwhile, our spend on general and administrative functions was $35,554.29, or 66% of total expenses.*
Please note that the expense summary graphed above differs from how I have summarized previous years, by including employee time in the activity being supported by that work. This is, to the best of my understanding, a standard accounting practice, and emphasizes the motivation for that employee time to stakeholders.
We ended 2021 with the equivalent of $7,001.08 in cash.* Since we use cash accounting, we recognize no liabilities ending 2021.
*The figures above include presentation of some amounts of GBP in terms of United States dollars according to GAAP rules. Of expenses, the equivalent of $6,023.92 of total expenses was spent as GBP. Of current assets, the majority of cash ending 2021 (95%) was in United States dollars, with a small portion in GBP in the FFF UK’s Wise account. Of revenues, we earned the equivalent of $0.18 due to changes in the exchange rate between GBP and USD.
Additional detail for 2021 expenses:
It’s worth spending some more time on the expenses, and slicing them a few different ways to help discussion. A more detailed description of our expenses is given below, along with a more detailed graph than the one given above.
Each general group of activity (“Research”, “Outreach”, “Administration”, etc) is divided into purchases, employee/paid time and employer obligations, and other expenditures.
In Research, we spent $201.61 on purchases which were directly useful to research teams, $4,000 on an award to Hugh Herr’s lab, $5,605.16 in wages and reportable compensation, and $226.85 in employer obligations (e.g. our share of payroll taxes) associated with the employees’ work in the course of research.
For Outreach, Education, and Community, the overall division of expenses is similar, with much of the expenses for each activity going to paid time and employee obligations.
For Legal and Compliance, much of the cost was spent on Atha’s work for keeping fundraising registrations up to date, including compensation ($6,689.36) and associated employer obligations ($270.73). Of the remaining Legal and Compliance costs, $1,747.50 was spent on legal counsel to respond to a concern and to strengthen and update some of our privacy policies, and $832.50 was spent on Harbor Compliance for basic services such as Registered Agents.
For Administration, the largest single cost was in office supplies ($5,484.46)**. Next largest was payroll contracting ($4,440.55), of which US payroll took $3,997.00 and UK payroll took $443.55. Next was costs arising from our own employees ($4,401.20), taking $4,230.01 in compensation and incurring $171.19 in employer obligations. Smaller administrative costs included outside bookkeeping/accounting early in 2021 ($750), by a bookkeeper we retained only for a short time due to sloppy, expensive, and last-minute work; $966.99 for fees and taxes associated with state fundraising registrations and similar; $703.06 in banking and money transfer fees; and $676.99 in marketing expenses (Note that I include rewards due to Patrons in our marketing expenses).
In IT**, we spent a total of $8,590.95 ($8,256.79 in reportable compensation and $334.16 in corresponding employer obligations).
**Note that many/most office supplies could likely be considered IT expenses in 2021, but the boundary is imperfect, and all such expenses can be considered part of General & Administrative costs anyway, so the categorization does not substantially affect our conclusions. Additionally, note that many office supplies were purchased with the primary intent being towards program services. Therefore, the amount spent on office supplies is actually quite conservative and understates the program-oriented spending.
Use of employee time:
Since employee and paid time are such a large portion of our 2021 expenses, it is essential to look more carefully at the spending. So, let’s slice our expenses a different way, so that we can more carefully consider employee time.
Among the expenses of $54,209.46, we spent a total of $32,544.70 (60%) on compensation and employer obligations, of which $31,278.81 was compensation, and $1,265.89 was employer obligations.
Of that $31,278.81 of paid time, we spent 61% for Atha (“DD”), 38% for Keiro (“RR”), and 1% for Gear (“MS”). In terms of hours, that works out to 1,257 hours for Atha, 730 hours for Keiro, and 19 hours for Gear. More details are given in the figures below for Atha and Keiro (Gear exclusively worked on Research and their hours are not graphed to the same level of detail below).
In general, I would say that we have achieved a huge amount of value for the hours that our employees have put in. In total, our employees have put in 2,006 hours, equivalent to 251 8-hour workdays. Our expenses for all our employees, who have performed key functions in both keeping the lights on and in advancing our mission, are extremely low in business terms. The average cost per hour was $15.59. In the equivalent of 8-hour workdays, the average cost per workday was $124.72. Such a low expense was only possible due to the extremely high motivation of our employees to work at below-market rates, so please join me in enthusiastically thanking them for their willingness to help us in that way.
Comparison to previous years:
Here is how the revenues compare with previous years:
I want to point out that in 2021, our Patreon revenue had increased by 39% compared to 2020, which is a very healthy rate of growth. I believe that 2022 can be expected to present positive growth in Patreon revenue as well. On the other hand, Zennith’s donations have probably peaked for a while, and should not be expected to reach the same amount in 2022.
Comparisons to previous years for expenses are not that informative because of changes in how we accounted for employee time. Nevertheless, comparisons are possible at least using financial numbers that are required for the 990-EZ, which differ from the activity-based accounting presented in the other sections above. Importantly, please note that below, “Legal and professional services” includes some of Atha’s pay, due to them being considered a contractor for part of 2021, which is an important distinction for the IRS, even if it has no meaningful difference for the FFF’s activity-focused expenses. Most other expenses, such as banking fees, marketing, office supplies, etc, were roughly comparable to prior years.
Budget for 2022:
For 2022, I propose a draft budget of $44,980 in expenses, where 62% ($27,670) goes to program services and 38% (17,310) goes to general and administrative expenses. I would anticipate roughly $46,980 in revenues, with $16,000 in Patreon donations, $30,000 in major donor support, and $980 from other sources. Since Serathin is still taking over budget responsibilities, please expect the budget to change somewhat as we go through the year.
There are two main pressures in the budget I propose: first, my donations cannot equal my donations in 2021, because of tighter personal funds, and second, I see room for improvement in how efficiently we use funds, including public-provided funds. The most important expense reduction I propose is reducing paid hours from the 2,006 in 2021, to roughly 1,196 paid hours in 2022. Employee compensation/paid time would fall from $31,278.81 to roughly $17,940.00.
I propose a relatively large increase in the Research budget, from $10,033.62 in 2021 to $16,250.00 in 2022. Outreach might receive a slight increase to $8,010. I would also support targeted spending on Education ($2,390 in 2022, versus $512.21 in 2021) and Community ($1,020 in 2022, versus $985.41 in 2021). Note that employee/paid time is included in the Research, Outreach, Education, and Community budgets as appropriate.
I would also propose elimination of the currently nebulous item of “office supplies”. Again, our 2021 spending on office supplies likely understates program services spending, and therefore for 2022, I propose that we further improve our accounting to more tightly associate spending to the activities that purchases are being used for. For example, if a researcher will be using a new headset or webcam largely or exclusively or research team meetings, that expense should absolutely be treated as part of our Research activities.
All other budget proposals are relatively minor, and are mostly intended to be better organized and more predictable.
Notes on accounting, reporting, and bookkeeping:
Our financial results are prepared as carefully as possible. However, our results are neither reviewed nor audited by accountants.
Financial numbers that appear in filings and tax returns may differ from numbers reported here for a variety of reasons, including differences in accounting year (in some cases, numbers are required to be reported on accrual rather than cash basis), differences in terminology, and personal error. Nevertheless, we are extremely confident in the numbers we report, and errors, if any exist, are small in both relative and absolute terms.
When starting 2021, we had set out to greatly accelerate our research and outreach activities, to continue growing our revenues in a sustainable way, and to invest in the scalability of our organization. I am proud to say that we have made excellent progress towards all of those goals. We know there are several things we still need to improve, but we’re working on them. We are still a young and learning organization, but we’ve came a long way. Each year is better than the last, and we are excited to take on everything that awaits us in the rest of 2022.
On behalf of everyone here, I owe our volunteers, employees, community members, donors, and other stakeholders a very big Thank you! for everything in 2021 and a great launching pad for 2022.
We can’t wait to share more with you throughout the year.