Is my best friend/biggest client putting me in a dangerous financial situation?
July 31, 2010 1:22 AM Subscribe
My best friend is the largest client of my business. He would like me to purchase a car for his use through my company. Is this a terrible situation for me and how should I handle it?
posted by anonymous to Work & Money (40 answers total) 23 users marked this as a favorite
Background: My best friend of 18 years is an eminently trustworthy and loyal good guy. He comes from a well-off background but is currently in a tight financial spot. One part of his plan to help his situation involves moving in with his parents and buying a car since NYC transit will no longer be enough to get him to work while living there. A previous home foreclosure of his has made a good car loan rate a major issue.
I'm the sole proprietor of an S-corp in New York state. This BF of mine works for a pretty big company (call them X-corp) as a VP, and has been able to use me as a vendor for a few years now, he's basically made X-corp my angel client. I've provided them with great work on-time and on-budget that makes BF look good, and he keeps the business flowing for me, even though more prestigious companies are vying for the work he sends my way.
Over the last year or so he's been asking me to have my company buy certain things he'd like, and having me over-bill X-corp to pay for his new toys. I know this situation is not very ethical on his end of the deal, but as far as my company goes, I consider the purchases client gifts and have never tried to file them as tax deductions or do anything besides buy them with my company money and give them to friend. My basic reasoning is, if he's willing to take a risk on his end, that's his deal, but I'm trying to keep my company books clean. Although I've charged X-Corp more than I might have charged someone else for the same work, I've always charged them the price agreed upon in advance by BF and I.
He's always encouraged me to file these purchases as "business expenses" and "write them off" since they have mostly been gadgets that my company could reasonably be expected to need, but I never wanted to further muddy the waters of my company financials and so I haven't done this.
So now the current situation: the "gifts" he's wanted in the past have mostly been in the $1000 and under range, one was about $3000.
Now he'd like to use our financial arrangement to cover the cost of the new car that he needs. He'd like me to have my company purchase a car for his sole use, and use our over-billing arrangement to cover as much as possible of the car payments. He's promised that if in a particular month we don't do enough business to cover the payment, he'll pay me personally in cash for the balance. He intends to carry full collision/liability insurance that he will pay for.
I want to help him as he's been my closest friend for a long time and also my current biggest client. A car is a much bigger commitment than a one-time gadget purchase, and it's making me uneasy. He wants to have all the benefits of having a paid-for car and also wants me to be able to use it as a business expense and write it off with depreciation and so on.
I've agreed in principle to helping him out with this scenario, but...here I am up at 4AM nervousing about it.
I guess my big questions are:
1: How bad is this situation for me? What are the pitfalls of having my company buy a car for his use?
2: Assuming he's got full insurance coverage on the car, would I or my company be liable in any way in a worst case scenario accident?
3: Would I be better off just offering to personally co-sign for his car-loan so he can get a decent rate and leaving all the business stuff out of it?
That would negate his plan to have me overbill X-corp so I can make his car payments, but if this is something that I REALLY shouldn't do through my company, at least it would be a way for me to help him get a decent car loan.
4: Is there something else I'm missing here that I should be wary of (aside from the ethical issues between my BF and his employer, X-corp)?
Sorry for the length and multiple questions. I really feel like I'm in a weird situation here. He's my dearest friend, I trust him to make it right to the best of his ability once an arrangement is reached, but I know there can be some ramifications here that I'm missing and I fear I'm out of my depth.