Marcus Lemonis knows a troubled business when he sees one, so when he walked into bar-themed denim store "The Blues Jean Bar," the concept raised a few red flags.

On Tuesday's episode of CNBC's The Profit, Lemonis learned that the retail chain was modeled off a New Orleans-style saloon, with a large bar in the middle of the store and jeans on the wall instead of drinks. Founder Lady Fuller started the San Francisco-based company in 2004 using the money her mother left her following her suicide. After losing $400,000 on $8 million in annual revenue, Fuller had to close 10 of the chain's 13 locations. Even worse, because the business had more than $1 million in debt, the bank seized her inheritance of blue-chip stocks. 

Sensing the specialty boutique could benefit from a makeover, Lemonis invested $900,000 for 50 percent of the company. Here are three issues with the business he addressed immediately to prevent Fuller from losing her inheritance.

1. Confusing concept.

Naming a denim store "The Blues Jean Bar" was an original idea, but a flawed marketing strategy. Having a large bar in a clothing store also took up valuable  display space. "From a presentation standpoint, they'd get an F," Lemonis said during the episode. To fix both problems, Lemonis rebranded the store as "Denim & Soul" and took out the bar, allowing the company to stock $75,000 in denim, up from $30,000 previously.

2. Horrible margins. 

Prior to Lemonis investing in the company, The Blues Jean Bar's inventory was dominated by denim products that had only 50 percent margin. What's more, nearly all of the company's non-denim clothing wasn't selling. 

"This is the most irresponsible use of cash I've ever seen," Lemonis said. To increase the company's margins without compromising brand identity, Lemonis added such new clothing items as t-shirts and hoodies that complemented the jeans and drove average margins to more than 60 percent. 

3. Staffing problems. 

When The Blues Jean Bar's number of stores shrank from 13 to 3, the company's management structure didn't shrink with it. This left a head of sales with far fewer direct reports who wasn't putting her crucial sales experience to good use. Lemonis fixed this by moving the sales director position to store manager.

With the debt being paid down and the stores having the right merchandise, the ability for Lady to pay off all of the debt is significantly greater, Lemonis said.  More importantly, the bank finally released Fuller's inheritance.