Financial Sustainability & Diversification Flashcards
7 cards from real CNE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Sustainability & Diversification flashcards as text
A nonprofit relies on a single government grant for 70% of its revenue. Which risk does this concentration most directly create?
Answer: Revenue cliff risk if the grant is not renewed
Heavy reliance on one funding source creates a revenue cliff—if that source disappears, the organization faces an immediate financial crisis.
What is a 'bridge loan' in the context of nonprofit cash flow management?
Answer: Short-term borrowing used to cover a gap until expected revenue arrives
A bridge loan is short-term financing that covers operational expenses while an organization waits for confirmed revenue such as a grant payment.
Which revenue source is generally considered most 'unrestricted' and therefore most flexible for nonprofit operations?
Answer: Individual major gifts with no donor-imposed conditions
Individual major gifts given without conditions are unrestricted and can be used for any organizational purpose, offering maximum financial flexibility.
A nonprofit's operating reserve policy states it should maintain three months of operating expenses. If monthly expenses are $80,000, what is the target reserve balance?
Answer: $240,000
Three months of $80,000/month equals $240,000 in operating reserves.
Which of the following best describes 'program-related investments' (PRIs) that foundations may make to nonprofits?
Answer: Loans or equity investments that advance the foundation's charitable mission
PRIs are loans, loan guarantees, or equity investments made by foundations that further their charitable mission and can count toward their payout requirement.
A nonprofit charges below-market rent to a sister organization sharing its building. Under GAAP, how should the difference between fair market rent and the charged amount be recorded by the nonprofit receiving the benefit?
Answer: As in-kind contribution revenue and facility expense
Under GAAP, below-market rent received should be recorded as in-kind contribution revenue at fair value, with an offsetting facility expense.
Which metric best measures whether a nonprofit is generating enough surplus to sustain long-term financial health?
Answer: Operating surplus/deficit as a percentage of total expenses
The operating surplus or deficit as a percentage of total expenses reveals whether an organization consistently covers its costs and builds reserves over time.