Any company can run into cash flow problems. And when this happens, a business owner may have to come up with some creative ways to keep things afloat while working back toward solvency. But if you are in such a situation, you want to be sure that none of the accounting methods you employ will expose you to accusations of criminal wrongdoing.
While finding ways to cover your expenses is critical, you need to be sure that in doing so you don't create a set of circumstances that could be considered a Ponzi scheme. Essentially, a Ponzi scheme involves paying debts with money gleaned from sources other than profits. It is actually a "robbing Peter to pay Paul" scenario.
The following are signs that you may be unknowingly involved in a Ponzi scheme:
- Your company has a "quick ratio," which is your current assets divided by your current liabilities, that is less than one.
- You keep excess inventory for a prolonged period of time. Holding inventory costs money, which drains your other coffers and makes it difficult to pay debts.
- Your gross margins have shrunk to an unhealthy level.
- You use the current customer cash revenue to cover past bills.
If you are dealing with any of the above conditions, it is imperative that you take corrective measures as soon as possible. To do otherwise could lead to a point where you are unable to pay your creditors. If this happens and it's revealed that you were engaging in questionable practices, you could be accused of conducting a Ponzi scheme or some other type of fraud.
Even if you were only trying to save your business and had no intention of causing any financial harm to anyone, you still could get in trouble if your accounting methods are not legal. If you are facing criminal charges alleging that you committed business fraud, you might want to get in touch with a knowledgeable white collar crimes attorney.