For most nonprofits, the difference between restricted and unrestricted funds is clear on paper but blurry in daily decision-making. When budgets tighten, program demand changes, or grants shift mid-year, leaders quickly realize that not all dollars offer the same level of flexibility.
This guide shows how to build a restricted–unrestricted forecasting model that gives Executive Directors, Finance Directors, and Program Managers the clarity needed to make confident, compliant, and strategic decisions.
It builds naturally on resources like the Pebble budgeting series, including Nonprofit Budgeting: 7 Forecast Moves Most Orgs Miss and program insights shared in Performance by Program.
1. Why Restricted vs Unrestricted Funds Shape Better Forecasts
Restricted funds
Restricted dollars must be used for a specific program or purpose, as explained in this overview on restricted vs unrestricted funding. These funds support mission delivery but come with compliance requirements and reporting timelines.
Unrestricted funds
Unrestricted revenue—annual fund gifts, recurring donors, general operating support—offers flexibility to pay for staffing, rent, fundraising operations, and system improvements. Smith + Howard highlights this in their guidance on restricted and unrestricted liquidity.
Why the distinction matters
Forecasts fail when nonprofits treat restricted and unrestricted funds as interchangeable. Common risks include:
- Strong cash balance but poor operational runway
- Underestimation of unfunded admin or staffing needs
- Inability to react quickly when grants shift
- Misalignment between program delivery and compliance terms
A strong forecast gives visibility into real flexibility—not just total revenue.
2. How to Build a Restricted–Unrestricted Forecasting Model
This model is a direct extension of the forecasting practices many nonprofits already use, just with sharper structure.
Step 1: Split revenue into two streams
Build separate projections for:
- Restricted revenue – Grants, contracts, funded deliverables
- Unrestricted revenue – Donors, corporate giving, earned income
Pebble’s budgeting engine (see Grant Budgeting) mirrors this structure by default.
Step 2: Allocate costs intentionally
Map which expenses:
- Must be funded by restricted dollars
- Must be covered through unrestricted funds
- Can flex between the two depending on timing
This prevents structural deficits from hiding under program budgets.
Step 3: Run a funding gap & dependency analysis
Ask:
- How much of our core operations rely on unrestricted dollars?
- Are we depending on one or two restricted grants disproportionately?
- If a major restricted grant ends, what is our fallback runway?
This analysis connects directly to insights you track in Pebble’s analytics (see Operating Analytics).
Step 4: Build rolling scenarios
Use three cases:
Base Case – Expected grant renewals + donor projections
Downside Case – A restricted grant pauses OR unrestricted revenue dips
Upside Case – Extra unrestricted gift, new earned-income stream, or early renewal
Pebble’s Forecasting module supports rolling, scenario-based planning that updates in real time.
Step 5: Move from static to rolling forecasts
A rolling model refreshes monthly or quarterly and adapts to:
- Updated spend-down on restricted grants
- Shifts in donor behavior
- Changes in staffing/FTE allocations
- New or ending funding cycles
Most nonprofits find that the moment they implement rolling forecasts, unrestricted risk becomes far clearer.
3. Metrics Every Nonprofit Should Track
- Unrestricted Revenue Ratio – % of total revenue that is flexible
- Unrestricted Cost Coverage – % of operating cost funded by unrestricted dollars
- Restricted Spend-Down Progress – Whether actual spending aligns with grant timelines
- Unrestricted Reserve Runway (Months) – How long core ops can run without restricted funds
- Restricted Grant Dependency – Share of revenue concentrated in top restricted grants
- Program-to-Admin Balance – Whether unrestricted support services are adequately funded
- Grant Term Alignment – Funding periods mapped against service periods
- Indirect Cost Recovery Gap – Difference between allowed indirects and real overhead
These metrics combine into a clear picture of financial flexibility vs financial risk—a recurring theme in Pebble’s reporting tools (see Reporting Studio).
4. Strategic Actions to Strengthen Your Funding Mix
Reinforce unrestricted revenue
Many nonprofits unintentionally under-invest in general operating revenue. A simple forecast makes the need obvious.
Tactics:
- Build recurring donor programs
- Strengthen corporate partnerships
- Present unrestricted needs transparently in funder conversations
For inspiration, see Pebble’s donor-facing resource: Build a Recurring Donor Base.
Negotiate flexibility in restricted grants
When possible, ask funders for:
- Indirect cost allowance
- Timeline flexibility
- Broader category definitions
The Chronicle of Philanthropy highlights the importance of these conversations in their coverage of nonprofit funding dynamics.
Use unrestricted funds for infrastructure and resilience
Reserved unrestricted funds should support:
- Staff capacity
- Compliance systems
- Technology platforms
- Data and reporting infrastructure
This is also where Pebble’s integrated approach—combining Grant Management, analytics, and reporting—adds leverage.
Forecast both streams together
A strong model shows:
- How restricted revenue shapes program delivery capacity
- How unrestricted revenue shapes operational decision-making
- How both streams intersect over the fiscal year
This becomes the foundation of board conversations, budget planning, and funder stewardship.
5. Embedding This Model Into Board, Program, and Finance Workflows
For Executive Directors
Use the restricted–unrestricted forecast to:
- Drive budget decisions
- Identify risk hotspots
- Communicate strategic needs to funders and the board
For Program Directors
Help program teams understand:
- Which costs depend on unrestricted funds
- How grant timelines affect hiring and service delivery
- How their decisions impact organizational runway
For Finance Teams
Enable finance staff to:
- Tag revenue and expenses by fund type
- Update rolling forecasts monthly
- Surface variances early
- Prepare grant-ready, board-ready reports using structured insights
Pebble’s AI-powered Reporting Studio makes these workflows significantly easier, especially when monthly reporting volume increases.
Conclusion
Restricted and unrestricted funds are more than two accounting lines—they’re two different strategic realities.
Leaders who forecast them separately gain clarity that shapes everything: hiring, program design, compliance, cash flow, and long-term organizational health.
A well-built restricted–unrestricted model helps you:
- Reveal true operational flexibility
- Protect your organisation against grant volatility
- Strengthen funder communication and reporting
- Build sustainable reserves
- Make decisions grounded in forward-looking data
For more insights on forecasting, budgeting, and grant performance, explore the Pebble Nonprofit Blog or learn how Pebble supports this work at Pebble Impact.
