With statistics such as the Small Business Administration's oft-cited prediction that nearly 95% of all businesses will close or fail within five years of their opening, it's a wonder that anyone starts his own company. But such is the nature of the entrepreneur. And when a business owner finds her- or himself at the brink of disaster — 5, 10, 20, or more years down the line — it's those innate entrepreneurial skills that help them take charge and turn the business back around.

GETTING THERE For Mike Bruno in New Jersey it was a bad partnership. For Washington's Len McAdams and Colorado's Bob Peterson it was a sour economy. For another Colorado company it was embezzlement. Many different forces — within and beyond a company owner's control — can push a business toward collapse, but the steps to solvency are similar regardless of those forces: decrease overhead, consolidate debt and work out payment plans with those to whom you owe money, and take only profitable jobs (see “Solvency Checklist” on page 93).

Back in 2000 Bruno worked as a trade partner with a general contractor. Without paying much attention to partnership agreements, establishing roles, or discussing how finances were to be handled, the two men merged their companies. In hindsight, Bruno should have known there would be trouble. But he was young, and he had been feeling pushed around as a subcontractor. He had a false sense of security with a partner he mistakenly thought was more experienced.

Bob Peterson, owner of Associates in Building and Design, had to lay off seven  people in one week when the Colorado company lost 60% of its business during  Fort Collins' high-tech bust. Peterson focused on the existing client  base to revive ABD
Bob Peterson, owner of Associates in Building and Design, had to lay off seven people in one week when the Colorado company lost 60% of its business during Fort Collins' high-tech bust. Peterson focused on the existing client base to revive ABD

Eventually, things unraveled; the partner walked away and secretly started another company on his own. Bruno was left with a shell of a business and a bad reputation. “I sat down and asked myself: ‘Why am I in remodeling?'” he says. The answer: “I'm a carpenter by trade, passionate about what I do. I love helping people.” He needed to get back to basics, and didn't want to declare bankruptcy.

“Declaring bankruptcy and starting over isn't the answer,” says Leslie Shiner, owner and principal of the Shiner Group, which provides management and financial consulting. “What will your subs do [about their payment]? Who will ever work with you? You must have a plan and attack it each month,” Shiner says.

Bruno did just that. He finished the old company's outstanding jobs by putting on the toolbelt and getting out in the field. He cut overhead by renting a small office, and he pulled his parents out of retirement to help — his mom managing the office and his dad in the field putting systems in place. He rebuilt tarnished relationships with architects and with subs to whom he owed money. He changed the name of the business and focused only on residential work. Most importantly, Bruno made commitments to himself and his community and to creating a company culture and brand. Now, three years later, he estimates Stone Creek Builders will close out 2007 at $3.8 million.

How did he know what to do? “I subscribed to Business Week and all the trade publications,” he says. “I tried to understand what a real company should be about.” He also joined a peer review group, the Better Business Bureau, and the National Kitchen & Bath Association to help him get ideas for turning things around.

Asking for help is difficult. Many people feel humility and shame in making mistakes. Joining a peer group and getting outside consultation was a good first step for Bruno. For others — and depending on what's dragging the business down — an accountant may be their first call.

But every owner in this position will have to contact suppliers, vendors, designers, architects, and any other trade partners to ask for their understanding — and a payment plan. If you've fallen behind on your IRS payments, the agency can work out an “offer-in-compromise” to gradually pay off debt, or even do debt forgiveness. “And if you've used a credit card to bail yourself out, it's a cycle that's almost impossible to get out of. You can negotiate a new interest rate with your credit card company,” Shiner says.

In one case, Shiner had a client who owed a trade partner $10,000. They worked out a deal in which the remodeler would pay the subcontractor $2,000 for the old job and pay right away for the current job in order to continue working. “You can also have the homeowner write a ‘secondary payee' check — to you and the subcontractor. The client may learn the cost of an item, but the subcontractor will get his or her money,” Shiner says. “The overarching idea is to pay the bare minimum amount of debt so you can continue to start and run new jobs.”