Do you Have the Mercedes Benz Syndrome?

A colleague was helping someone looking for funding for his business. My colleague introduced him to a potential investor at lunch. The next day the investor called my colleague and told him that the person was nice but he would never invest in his business. My colleague asked why. The investor said that he had the “Mercedes Benz syndrome”.

“What’s that?” asked my colleague. The investor explained that during the conversation at lunch he discovered this person was funding a $2200 car lease through the business. He appeared interested in having the business pay for his personal lifestyle. The investor explained that his money was not going to pay for a car lease. His investments were supposed to help grow the business; not the owner’s personal “finer things of life”. He went on to explain that he called this the “Mercedes Benz syndrome” where the business pays for unnecessary personal assets, i.e. the owner’s “Mercedes Benz”. Investment that is supposed to go towards the business’ needs goes towards the owner’s personal needs.

Enjoy the rewards you’ve earned as the business owner but not at the expense of your business. Having cash does not mean that you have to spend it. I know owners who, as soon as the business builds up cash, they spend it on boats, having the company pay for expensive trucks and cars, write off vacations, build an expensive home, have a non-working relative on the payroll, etc. Instead of investing in the business, they invest in themselves.

Don’t get me wrong. There is absolutely nothing wrong with enjoying the fruits of your labor. However, you can’t do it at the expense of your business. Most companies have busier and slower times of the year which equates to times when cash comes in the door quickly and other times when cash come in the door slowly. You have to save cash for the downturns. You have to save “for a rainy day”.

Here are two true stories. A company had ten years of 15% or more net profits. During this time, the owners did not take a lot of money out of the business. They paid modest bonuses but invested back in the business. Work decreased dramatically and they had to lay off people. However, they survived this downturn and saw an upturn again…nine months later. They had the cash to survive. Ten years of savings gave them the cash they needed to fund operations when it was very slow.

Another company had 10 good years too. The owners of this company took everything out of it they could and spent it…on second homes, expensive vacations, and the finer things of life. The economy tanked in their geographic location too…and they scrambled. They are on COD everywhere and they barely scrape by to pay payroll each week. The attention that they should be paying to generating additional work was being spent on credit and collections issues. They readily admit that they didn’t invest back in the business and it is now hurting.

Spend the excess cash or save it…the choice is yours.

How much should you save? This is totally up to you. It depends on whether your company has a line of credit. If you have a line of credit and it isn’t used, that can be a form of emergency cash.

However, even with that safety net, many companies like to have at least two to three months overhead expenses saved. Others have the value of at least six weeks payroll and payroll taxes in the bank at any moment. Their reasoning is that if nothing came in the door in terms of work, then they could at least pay their people for a reasonable time.

You’ll need some savings that are fairly liquid, i.e. you can turn them into cash quickly. Other savings could be more invested for a longer term.

No one knows how long economic times will be slow. Just make sure you have enough cash saved to survive which you alter your business operations during slower economic time and that you don’t have the “Mercedes Benz Syndrome.

 

Ruth King is founder and CEO of hvacchannel.tv and businesstvchannel.com, the place time starved business owners and their employees keep up to date with the latest business trends and quickly find
answers to their burning business questions. Subscribe for $1 for the first month (regularly $19.95) at www.businesstvchannel.com. Visit Ruth King's blog at www.smallbizsense.blogs.com. Contact Ruth at 800-511-6844 or ruthking@hvacchannel.tv.