Financial Sustainability & Cash Flow Management Flashcards
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Read the first 7 Financial Sustainability & Cash Flow Management flashcards as text
An endowment fund differs from an operating reserve in that:
Answer: Endowments are permanent funds where only investment returns are typically distributed
A true endowment preserves the principal permanently; only a sustainable portion of investment returns (typically 4–5%) is distributed annually for operations or designated purposes.
What is the typical annual payout rate applied to most nonprofit endowments?
Answer: 4–5%
A 4–5% payout rate is widely recognized as sustainable because it generally preserves the endowment's purchasing power while providing consistent annual distributions.
When is a 'deficit budget' an acceptable planning tool for a nonprofit?
Answer: When the organization intentionally draws down reserves for strategic purposes
A deficit budget can be a deliberate strategic decision to deploy previously accumulated reserves for important organizational investments or to bridge a planned transition period.
Which document do nonprofit boards primarily use to monitor monthly financial performance?
Answer: Statement of financial activity compared to budget
Monthly budget-to-actual financial statements allow boards to identify revenue and expense variances quickly and make timely corrective decisions throughout the year.
What is 'functional expense allocation' in nonprofit accounting?
Answer: Dividing costs among program services, management/general, and fundraising
Functional expense allocation categorizes and distributes organizational costs across program services, management and general, and fundraising functions as required by nonprofit GAAP (ASC 958).
A nonprofit consulting engagement reveals the client relies on one grant for 70% of its budget. The PRIMARY risks this represents are:
Answer: Both mission drift and financial fragility
Heavy dependence on a single funder simultaneously creates mission drift risk (shaping programs to funder priorities) and financial fragility risk (potential collapse if that funder withdraws).
What does a 'cost-per-outcome' analysis help a nonprofit determine?
Answer: The efficiency and cost-effectiveness of its programs
Cost-per-outcome analysis calculates how much the organization spends to achieve each unit of measurable program impact, helping assess efficiency and communicate value to funders.