According to a 2013 Forbes magazine article, while cash is intrinsic to a business’s livelihood, cash follows profits. That’s because the only cash that can be used without strings attached, meaning funds that needn’t be repaid (with or without interest) comes from profits.

Cash flow is nothing more than the migration of capital in and out of a company, according to a 2013 article in YFS magazine. Two types of cash flow exist: inflow and outflow.

Inflow cash are funds coming into a company as a result of a business transactions such as sales of goods and services, loans, lines of credit and asset sales. Outflow cash is defined as capital leaving the company for business expenditures and purchases and loan payments.

The ability to maintain these two variables so that inflow outpaces outflow is imperative to the lifeblood of a company. Therefore, developing a reliable cash flow system goes a long way towards managing unexpected surprises, such as economic downturns, that can otherwise bankrupt a company.

One way to project an entity’s cash flow needs is to compare income statements and profit and loss records. According to the YFS piece, cash flow statements can serve another purpose. Cash flow statements can be incorporated into calculations, non-cash items and expenses to adjust the company’s profit figures. Not only do cash flow statements detail fluctuations over time, they can also document total cash reserves.

Ted Jenkin, the co-CEO and founder of oXYGen Financial, a financial advisory firm focused on the X & Y generations, advises business owners whose companies are younger than five years old to build up at least one year of cash reserves. That can include a combination of business checking funds and personal savings cash.

While Jenkin recognizes the frustrations and inherent challenges associated with building up such a large safety net, he says having cash reserves is imperative to withstand unforeseeable circumstances. The funds can also be used to take advantage of a unique investment opportunity that would otherwise be lost without the business owner planning for a rainy day.

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Tami Kamin Meyer is an Ohio attorney and writer.