A colleague was helping a
business owner look for funding for his business. He
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”.
that?” asked my colleague. The investor explained that
during the conversation at lunch he found out that this
person was funding a $2200 Porsche lease through the
business. He appeared interested in having the business pay
for his personal lifestyle. The investor explained to my
colleague 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.
It struck me that a lot of company owners do this too. I
know some. You probably know some. These are the owners who
don’t understand that cash does not mean profits and that
having cash does not mean that you have to spend it. These
are the owners who use the business cash to buy boats, have
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. You have to save cash for
the downturns. You have to save “for a rainy day”
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So how do you avoid the
Mercedes Benz syndrome? You make sure that you are earning
enough on your jobs and service work to generate reasonable
profits and you save some of the money you generate from
collections. You can actually save relatively painlessly.
First, save all of your maintenance agreement money. When
customers pay you in advance, that technically isn’t your
money until you perform the services. It should go into a
savings account until the maintenance is performed. Then you
can transfer it, if you need it, into your operating
account. This money forms the basis of your “rainy day
Second, save 1% of every check that comes in the door. That
means if your deposits for the week total $1,000 you write a
check into a savings account for $10. You’ll never miss the
$10. And, that $10 will start earning interest.
This savings plan is not difficult to do. However, it takes
discipline to do it. Whenever a customer pays an invoice you
have to have the discipline to write a check to a savings
account for the portion of the payment that needs to go to
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
company owners 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 long term which probably will
earn more interest.
Hopefully you don’t have the “Mercedes Benz syndrome”. Good
profits and savings will prevent you from a financial
hardship in years to come.
Ruth King is CEO of
HVACChannel.tv and the author of the best selling book,
The Courage to be Profitable: Get and Stay Profitable in
Less than 30 Minutes a Month. Email Ruth at