Capital expenditures is one of those uses of cash in your business that can surprise you unless you actively manage and control it every month. A capital expenditure (the purchase of a vehicle, equipment, buildings, etc.) is recorded on your balance sheet rather than as an expense in your income statement.
The cost of the asset you purchased (and capitalized) is then depreciated over the life of the asset.
As a result, you don't see the cost of that cash outlay show up immediately in your income statement. It's this accounting treatment for capital expenditures that makes it so important that you manage it closely – very closely.
A Real Life Example
I worked with a client once that learned this lesson the hard way. They did a good job during the year of keeping their expenses in line with the budget. The big surprise came at the end of the year when they realized that capital expenditures had more than doubled during the year. Capital expenditures totaled almost $200,000 for the year compared to less than $100,000 the previous year.
What happened? Management was so focused on the income statement and keeping expenses down that they let over $100,000 of cash leak out of the company through the "back door."
There was no capital expenditures budget. There was no accountability for how this cash was being used in the company.
Make sure you are shining the light on this very important component of your cash flow every month.