Recently a client sent me an old article which targets the builder/remodeler trade. The article was written by a Ruth King and had to do with how we use the money we earn in our businesses.
However, in my opinion this “Mercedes Benz Syndrome” applies to all businesses, no matter what product or service they offer, and no matter how big or small. I thought this concept was especially pertinent at this time of year, since you might be looking for ways to shrink your tax liabilities before the end of the year.
The heart of the article goes like this: “A colleague had an acquaintance who was 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’.
The investor explained that at lunch he found out during casual conversation that this person was funding a $2,200 per month Porsche lease through the business. The business owner appeared interested in having the business pay for his personal lifestyle. So therefore investment that is supposed to go toward the business needs goes towards the owner’s personal needs.”
The article went on to say, “These are the contractors who don’t understand that cash does not mean profits and that having cash does not mean that you have to spend it.”
Can I get an “Amen!” here?
Maybe you’re not looking for investors in your business, or even a line of credit from your bank. But, if you expand the definition of “investor” to include all the people who have a vested interest in your company (such as your employees, suppliers and customers), then a lot of eyes are watching where your company’s money goes.
You can check whether your purchases are being influenced by the “Mercedes Benz syndrome” by using a principle from aviation. An airfoil on an airplane’s wing moving through the air creates “lift” causing the plane to climb. At the same time, a force called “gravity” is working against lift. This force holds the plane down and restricts how fast it climbs.
It’s the same way in a business, where cash is substituted for air. Investing your company’s money in needed equipment, employee training, and items that increase productivity and acts the same way as air passing over an airfoil—it causes your company to soar. Conversely, spending the company’s money on non-essential items is the gravity that holds down your company’s cash flow and restricts its growth.
Now, I’m certainly not suggesting that you run every purchase you make past your people for their approval. Or that you shouldn’t enjoy the fruits of your hard work. But if you run your business purchases past the scrutiny of this “Airfoil Principle” you might be able to avoid the “Mercedes Benz syndrome” and achieve your definition of success much sooner.