Lifeline from Employees

First start: Founder of financial consulting company
Catalyst: Debt of $200,000
Fresh start: Employee-financed restructuring

Margaret Johnsson never thought she'd have to ask her employees to bail her company out of debt. After all, what the Johnsson Group Inc. (#218) sells to its customers is financial consulting.

Johnsson founded her company in Chicago eight years ago. In the fall of 1994, she opened a second office, in Denver, and recruited a partner (who has since left the company) to run the Chicago office.

With business soaring (1995 revenues jumped 275%, to more than $1 million), Johnsson says, she concentrated on Denver. By the beginning of 1996, however, she was locking horns with her partner, and the company had accumulated $200,000 in debt, $60,000 of which was owed to the Internal Revenue Service for unpaid payroll taxes, according to Johnsson.

The founder needed cash — and fast. Unable to borrow more from her bank, she turned in desperation to her 15 Chicago employees. Her offer: for each $5,000 they invested, they'd receive a 1% share, and for money lent, they'd be repaid with interest eight percentage points higher than the prime rate.

All told, Johnsson raised $75,000 from 13 of her employees and a few outsiders, to whom she sold 3% of the Johnsson Group stock, while buying out her former partner's 10% stake. Now debt free, the company posted 1998 revenues of $3.6 million. Although Johnsson had to close the Denver office, she says that, like a broken bone that heals, her restructured company is stronger than ever: "My true partners were already in the business with me. They're the ones who turned it around."


This article was adapted from material that first appeared in the Inc. 500 1999.