Financial Sustainability & Cash Flow Management Flashcards
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Read the first 7 Financial Sustainability & Cash Flow Management flashcards as text
What is the recommended minimum operating reserve for a nonprofit organization?
Answer: 3–6 months of operating expenses
Most nonprofit financial experts recommend maintaining 3–6 months of operating expenses as a reserve to weather unexpected revenue disruptions.
Which type of nonprofit revenue provides the greatest flexibility for long-term financial sustainability?
Answer: Unrestricted earned income
Unrestricted earned income can be used for any organizational purpose without donor-imposed conditions, making it the most flexible revenue type.
What does 'revenue diversification' mean in nonprofit financial management?
Answer: Spreading income across multiple funding sources and types
Revenue diversification means deliberately spreading income across multiple sources—grants, individual donations, earned income, events—to reduce dependence on any single funder.
A nonprofit's cash flow statement primarily shows:
Answer: The timing of cash inflows and outflows
A cash flow statement tracks the actual timing of when cash enters and leaves the organization, which can differ significantly from when revenue or expenses are formally recognized.
Which financial metric best indicates a nonprofit's ability to meet short-term obligations?
Answer: Current ratio
The current ratio (current assets divided by current liabilities) measures liquidity; a ratio above 1.0 indicates the organization can cover its near-term obligations.
What is 'bridge financing' in nonprofit financial management?
Answer: Short-term loans used to cover gaps before expected revenue arrives
Bridge financing refers to short-term borrowing that helps a nonprofit cover operational costs during the gap between when expenses occur and when anticipated revenue (such as grant reimbursements) is received.
Which approach best helps a nonprofit manage seasonal cash flow fluctuations?
Answer: Maintaining a line of credit for use during low-cash periods
A line of credit provides flexible, short-term borrowing capacity that a nonprofit can draw on during cash shortfalls and repay when revenues arrive, smoothing seasonal volatility.