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
Which strategy best describes 'fee-for-service diversification' in the context of nonprofit financial sustainability?
Answer: Generating mission-aligned revenue by charging clients or government entities for services delivered
Fee-for-service diversification involves charging beneficiaries, government agencies, or other entities for services that align with the nonprofit's mission, creating an earned revenue stream.
A nonprofit board votes to designate $200,000 from unrestricted net assets as a board-designated endowment. How does this differ from a true donor-restricted endowment?
Answer: A board-designated endowment can be reversed by a board vote, while a donor endowment cannot
Board-designated endowments are created by internal board action and can be un-designated; donor-restricted endowments are legally binding and cannot be reversed without donor consent or court approval.
Which of the following is a key indicator that a nonprofit's revenue diversification strategy is working effectively?
Answer: No single revenue source exceeds 30% of total revenue
A healthy diversification target often cited is that no single source exceeds 30% of revenue, reducing vulnerability to any one source's fluctuation.
What is the primary purpose of a nonprofit's 'investment policy statement' (IPS)?
Answer: To establish investment objectives, risk tolerance, asset allocation, and governance for managed funds
An IPS provides the board and investment managers with clear guidelines on investment objectives, acceptable risk, asset allocation targets, and oversight responsibilities.
A nonprofit receives a conditional grant that requires it to raise $50,000 in matching funds before the grant is released. Under ASC 958, when should the grant be recognized as revenue?
Answer: When the matching condition is substantially met
Conditional contributions are not recognized as revenue until the barrier (the matching requirement) is substantially met and the right to receive the funds becomes unconditional.
Which of the following best defines 'social impact bonds' (SIBs) as an alternative financing tool for nonprofits?
Answer: Pay-for-success contracts where private investors fund programs and government repays if outcomes are achieved
Social impact bonds are pay-for-success financing instruments where investors fund service delivery and are repaid by government only if predefined social outcomes are achieved.
A nonprofit executive director notices that three major foundation grants are all expiring in the same fiscal year. Which financial risk does this represent, and what is the best immediate response?
Answer: Revenue concentration risk; begin diversifying by cultivating individual donors, earned income, and renewal conversations now
Simultaneous grant expirations create a revenue concentration and cliff risk; the best response is proactive diversification of revenue streams and early grant renewal outreach.