CNC Financial Sustainability & Cash Flow Management 1

Question 1

What is the recommended minimum operating reserve for a nonprofit organization?

Accepted Answer

3–6 months of operating expenses

Answer

Most nonprofit financial experts recommend maintaining 3–6 months of operating expenses as a reserve to weather unexpected revenue disruptions.

Question 2

Which type of nonprofit revenue provides the greatest flexibility for long-term financial sustainability?

Accepted Answer

Unrestricted earned income

Answer

Unrestricted earned income can be used for any organizational purpose without donor-imposed conditions, making it the most flexible revenue type.

Question 3

What does 'revenue diversification' mean in nonprofit financial management?

Accepted Answer

Spreading income across multiple funding sources and types

Answer

Revenue diversification means deliberately spreading income across multiple sources—grants, individual donations, earned income, events—to reduce dependence on any single funder.

Question 4

A nonprofit's cash flow statement primarily shows:

Accepted Answer

The timing of cash inflows and outflows

Answer

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.

Question 5

Which financial metric best indicates a nonprofit's ability to meet short-term obligations?

Accepted Answer

Current ratio

Answer

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.

(CNC) Certified Nonprofit Consultant Practice Test

(CNC) Certified Nonprofit Consultant Practice Test

CNC Financial Sustainability & Cash Flow Management 1