In 1999, Stephen L. Nash of Upscale Remodeling in Freeville, N.Y., began taking his eight-year-old company to the next level. He moved from his home office into a rented space and hired two salespeople and an office manager. He gave himself a raise and, since the company was well, began building a new house. Within one year, he decided to lay off one salesperson. The other salesperson was training to become a general manager. After Sept 11, 2001, two clients canceled large contracts. Even then, Nash remained confident. “I thought: No big deal, we have lots of work coming in,” he says.

Soon after, his remaining salesperson and his office manager decided to leave. “I did not see either of these things coming,” Nash says. His production manager was nervous, but decided to stay on to manage the eight-person crew. However, the downward spiral began and sales began to drop off. “It was the result of me not reacting quickly enough and working on my home. I did not have systems in place to notice it,” he says.

Nash was playing the typical balancing game where he would sell a job, get a deposit, and float the money to other projects. “That floating came to an end because there was no new money coming in,” Nash says.

In December 2002, he finally asked his new office manager to tally up all the bills the company owed. The total was $192,000 for 33 vendors — due immediately. The list included $40,000 in past-due payroll taxes and $40,000 to a lumberyard.

Nash decided not to declare bankruptcy, both for his own self-esteem and for financial reasons. Instead, he negotiated payments with each vendor. He figured out that he had to make $4,000 per month with his existing staff above and beyond expenses. With that $4,000, he could pay off these debts one month at a time. He paid out higher amounts to the larger debtors and paid the smaller vendors as little as $25 a month.

Nash moved his office back to his house and let go the office manager and salesperson. He pursued every lead and set weekly and monthly sales goals. He went to past customers and asked for work, and when he got the job, he asked for the money up front. Nash's lawyer was his first customer, paying him $17,000 up front for a bathroom and interior remodel. Within 1½ years, Nash had paid off his debts. “What appeared at the time as the worst point in my life turned out to be a blessing in disguise. I've never been more profitable or run my company as tight.”