I have consulted with two companies that owed a mound of debt to outside investors and taxing authorities and survived to tell about it. Here are stories of two companies who got into serious trouble and how they managed to pull themselves out.

Example: Simple Turnaround

My client was a thirty-year-old charismatic visionary who was a former world-class athlete. He ran a small mall made up of 200 mom-and-pop stores that sold everything from quilts made in the Pennsylvania Dutch Amish country to leather jackets for motorcyclists, as well as antiques.

When my client had taken over the mall, it was 60 percent unoccupied and the landlord was sure he was going to have to close it down and possibly sell the land to commercial developers. There were two resort hotels within walking distance of this mall that catered to people from New York, Northern New Jersey, and the New England area who wanted to visit historic sites like Valley Forge and the Brandywine Battlefield. These out-of-town guests also liked to shop and buy unusual or hard-to-find items like homemade doll lampshades, shoofly pie, and old music records.

John, who came from New York, thought if he could populate the mall with a variety of unusual stores and colorful shop owners, his fellow New Yorkers would open up their wallets and spend money. No one could sell the dream better or spend money quicker than John. He refurbished the mall, bought himself a company car —a Jaguar—charged handmade suits to the company, and took cash out of the safe to go to the casinos.

Although the mall was filled to capacity and practically all of the tenants were paying their rent, the company was losing money and not paying its vendors. John hated the day-to-day details of running the business. He liked being the free-spending entrepreneur, so he hired someone, Mary, to manage the business.

The first day on the job, Mary was handed a stack of bills and told no vendors will deliver anything because the company owed them all money. John wasn’t available for Mary to speak with because he decided to take a two-week vacation with his girlfriend in Europe. Mary asked the bookkeeper if John had spoken to these people. The bookkeeper explained that when they called John didn’t return their calls, and for those who came in person he turned on the charm and told them they would receive a check by the end of the week.

The mall needed light bulbs and other maintenance products, so Mary thought she would try to develop relationships with other vendors until John got back. Apparently, John’s reputation for not paying people got around town and no one would do business with the mall. People were hanging up on Mary as soon as she said where she was from.

Mary’s grandfather, who owned many businesses during his lifetime, had once told her that he ran into a similar problem during the Depression. He described to Mary how he contacted all of his vendors and told them he wanted to go on a payment plan. She looked at her cash flow and realized that with a few adjustments she could pay the vendors off within three months. It just required a little belt tightening.

Mary sent a letter to all of the vendors inviting them to lunch to tell them about the changes that were taking place and how they were going to be paid back. All of the vendors called and said they would attend. At the meeting, Mary acknowledged their right to be angry and that she understood why they were unwilling to give the company any additional credit. She showed them simple financial projections of where the company was that day and where it would be by the end of the quarter.

Mary was lucky in the sense that her problem was occurring just as the Christmas season was beginning, so all of the empty space would be leased and merchants would be paying additional fees because the mall would have extended hours. Before the vendors left, Mary gave each of them a one-third deposit on the balance of their bill and made sure the company paid the rest on time. Not one of the vendors elected not to continue providing the mall with supplies and service after receiving their first payment and hearing about the mall’s plans.

The next hurdle was to convince the bank that the company was a good risk. In the past, if Mary couldn’t afford to pay the bank the entire monthly sum she owed, she didn’t send them anything. Banks will work with companies to a point because they don’t want to write off a loan or take over the business. They want to see a plan for repayment and are more concerned about the company paying the interest on the loan than paying the principal because that is how they make their money. Banks will even consider recapitalizing the loan by stretching out payments to decrease the monthly payment the company has to pay. Mary worked with her bankers to recapitalize her loans, which they were glad to do rather than having to takeover Mary’s business.

Finally, after having made sound payment arrangements with suppliers and creditors, the new manager was able to convince her boss to go on a financial diet and the mall continued to be a success.