A ponzi scheme takes place when the schemer uses cash from later investors to pay returns to early investors. 

My friend Peter makes the case that when an entrepreneur borrows from their business’s future to pay off present and past obligations, they are operating it like a ponzi scheme. Peter’s framing of the situation resonated with me a lot. 

Here are some questions to ask yourself:

• Do you spend your cash, or profit? (Can you distinguish between the two?)
• How great is your margin of safety? 
• Do you need to pray for divine intervention—a “Hail Mary”—in order to meet your financial obligations?
• How optimistic do you have to be in order to feel good about your financial situation? (How transparent do you feel comfortable being with your friends and peers?)
• How close to perfect must you execute in order to get what you want?

Peter’s story is about a fictional professional services company, and he offers eight solutions to invest in your business’s future. Many of these solutions are applicable beyond professional services—into freelancers and creators, as well as companies that do ecommerce, software, trades, etc. My favorites: 

• Hope is not a business model
• Keep at least a few months of operating expenses in cash
• Always build your pipeline, aim for 3x your revenue goal in pipeline

With enough discipline, you can manage these things. When you need to do the more difficult things—like layoffs, which Peter has written about—you should do them earlier than you wish. Don’t wait until it becomes an existential threat. (Hope is not a business model!)