CNE Financial Sustainability & Diversification 2

Question 1

A nonprofit relies on a single government grant for 70% of its revenue. Which risk does this concentration most directly create?

Accepted Answer

Revenue cliff risk if the grant is not renewed

Answer

Heavy reliance on one funding source creates a revenue cliff—if that source disappears, the organization faces an immediate financial crisis.

Question 2

What is a 'bridge loan' in the context of nonprofit cash flow management?

Accepted Answer

Short-term borrowing used to cover a gap until expected revenue arrives

Answer

A bridge loan is short-term financing that covers operational expenses while an organization waits for confirmed revenue such as a grant payment.

Question 3

Which revenue source is generally considered most 'unrestricted' and therefore most flexible for nonprofit operations?

Accepted Answer

Individual major gifts with no donor-imposed conditions

Answer

Individual major gifts given without conditions are unrestricted and can be used for any organizational purpose, offering maximum financial flexibility.

Question 4

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?

Accepted Answer

$240,000

Answer

Three months of $80,000/month equals $240,000 in operating reserves.

Question 5

Which of the following best describes 'program-related investments' (PRIs) that foundations may make to nonprofits?

Accepted Answer

Loans or equity investments that advance the foundation's charitable mission

Answer

PRIs are loans, loan guarantees, or equity investments made by foundations that further their charitable mission and can count toward their payout requirement.

(CNE) Certified Nonprofit Executive Practice Test

(CNE) Certified Nonprofit Executive Practice Test

CNE Financial Sustainability & Diversification 2