From the August 2000 issue of Entrepreneur

When Marc Kramer was first asked to revive a small, troubled Internet company, he couldn't find any book to guide him. Three other saved companies later, he decided to write a handbook about what he learned in the process: Streetwise Small Business Turnaround: Revitalize Your Struggling or Stagnant Enterprise (Adams Media). Now president of Kramer Communications in Downingtown, Pennsylvania, he offers these hard-won lessons:

What's the hardest part of reviving a business?

Letting good people go and keeping up the morale of the other people.

How do you keep morale up?

First, the leader has to look and act confident. Second, he has to develop a business plan and involve employees in the plan's development. Third, he has to remind employees what they've done right and continue to point out star players. Fourth, he has to be honest with them about the situation and let them know he needs their help to fix the problems. Everyone likes to know they're needed and won't leave if they trust the leadership.

What do you do when you owe vendors money?

Businesspeople in trouble have to remember that everyone-from former President Harry S. Truman [once a business owner] to Donald Trump-has run into trouble. Running a business and maintaining profitability isn't easy. Things go wrong. What you don't want to do is destroy your reputation for honesty and integrity.

The best thing to do is to write a letter to each vendor explaining the situation and how you plan to fix your problems. Encourage them to call or visit if they have any questions. Offer to show them your financial records.

I've never encountered vendors who wouldn't work with a company in trouble if the company was honest, upfront and accessible.

When should an entrepreneur file for bankruptcy?

I've avoided it. The only people who make money on that deal are the lawyers. I tell all the vendors I'd rather pay them than the attorneys, and they go along with [my plan].

What if you owe the IRS?

I was brought into a company that owed the IRS a large sum of money. I brought our business plan [to the local IRS office] and walked them through what we planned to do. They were completely supportive. They were thrilled they didn't have to chase us. We built instant credibility.