So like the chief operating wizard he is, he found an innovative approach to his dilemma.
The stars aligned last July after Dreyer's accountant suggested he opt for a specialized form of asset-based finance in which money is lent against a company's purchase orders.

Since New York City – based Fantasma outsources its manufacturing to factories in China, this funding approach would work like a transactional line of credit, thereby giving foreign suppliers the letters of credit to secure 100% of the cash they need to produce the goods.

Wells Fargo operates in this specialty niche and eventually provided $3.5 million so that Fantasma could fulfill its orders. Today the company has profits of $950,000 on $10 million in sales. "It was the game changer I needed to grow my business," Dreyer says. "Without it, my company's sales may have been cut in half."

This tale demonstrates how during these challenging economic times, entrepreneurs like Dreyer have come up with inventive solutions to help their companies stay afloat and remain competitive. As Andrew Sherman, who works with emerging growth companies at Jones Day, a law firm in Washington, points out, "Now is the time business owners have to become bootstrappers and reinvent all their strategies — from how they finance their business to how they market and sell." While waiting for the economy to bounce back, here are some turnaround ideas that entrepreneurs are using.

1. Find a Customer in Uncle Sam

Ever since the Obama Administration passed the American Recovery and Reinvestment Act of 2009, which allocated $787 billion to stimulate the economy, the floodgates have opened, and companies have been scrambling to win government contracts in areas ranging from health care services to construction to cyber-security and IT infrastructure. The lure: a chance to win long-term deals with a steady stream of revenue from a customer with deep pockets.

You don't have to be an 800-lb. corporate gorilla to be a supplier. In fact, the government's goal is to award 23% of all federal agency contracts, worth more than $520 billion, to small firms each year. Just ask Shiv Krishnan. Over the past 16 years, he's built Indus Corp. — an IT company in Tysons Corner, Va., that develops software for data mining, warehousing and geospatial and network security — by selling solely to government agencies such as the EPA and NASA. Last year the company, which employs 500, earned $5 million on $87 million in revenue. "The key is not getting intimidated by the process," Krishnan stresses, noting that you often need six to 18 months to complete the documentation and do in-depth market research.

2. Look for New Ways to Harvest Your Intellectual Capital

Entrepreneurs with breakthrough technology don't have to rely on angel investors and venture capitalists to fund their R&D. There are options other than giving up equity: licensing patents and trade secrets is a great way to get a steady income stream in a cash crunch while keeping your ownership stake intact.

That is what Jacqueline Hines, an electrical engineer and head of Applied Sensor Research & Development Corp., is doing. She's in discussions with three companies interested in licensing her Arnold, Md., firm's wireless microelectronic sensors. These adaptable devices can be used to measure chemical-vapor concentrations in the air or to assist in the clinical diagnosis of infectious diseases. Her plan is to help fund product development with cash infusions of $50,000 to $200,000 from these partners every time her scientists hit a predetermined milestone in development. The ultimate goal: get 20% of revenue from royalty income by 2015. Right now, her five-year-old concern is not consistently profitable on its research income, which is slightly under $1 million annually.

3. Use Social Media to Build Your Brand

It pays to network and rub shoulders virtually with potential customers on the Web. Developing a database of strategic contacts on Facebook, LinkedIn and Twitter is a cost-effective way to generate buzz about your business and market your products and services. When the economy hit the skids in the fall of 2008, Lore Systems quickly felt the fallout as customers stopped investing in IT to shore up cash. The company, which provides high-end VoIP phone systems, enterprise-network engineering and Internet hosting, saw its nonrecurring revenue plummet 70% through the end of 2009. To turn the tide, CEO Tien Wong revamped the company's product line to focus on a hot-ticket item: cloud computing. He invested more in routers, servers and storage-area networks to build capacity.

At the same time, he aggressively marketed Lore through his large personal database of 6,000 contacts on Facebook and LinkedIn. A serial entrepreneur who sold a successful call-center business seven years ago, Wong has a universe of consultants, VCs, CEOs, CTOs and contractors with whom he communicates regularly. By using e-mail blasts to announce new product offerings, industry awards, and VIP tours of Lore's data centers, the CEO has been able to win about a dozen contracts valued at $500,000 a year for the company. That's led to a profit of $700,000 on $5.5 million of annual revenue. "This really is a powerful communications tool," notes Wong. "It's not a replacement for old-fashioned face-to-face meetings, but it is a great way to keep your name in front of customers."

4. Redefine Your Workforce; Leverage Talent

One way to gain a competitive advantage by harnessing brainpower is to hire independent contractors on a project-needed basis. This HR strategy also helps a company with cyclical sales better manage labor costs. Wong now has 15 independent contractors he uses for a variety of tasks. All are senior engineers who specialize in hardware or software niches and work on contracts that range from six months to three years. Similarly, Hines hires consultants and contract engineers to do everything from nanostructured film development to mixed-signal PC-board design. This allows her to tap high-level expertise she could not afford to employ full time.

Hines also has a research option agreement with Temple University and works closely with a team of about 10 undergraduate and graduate students and postdoctoral scientists led by Eric Borguet, a Ph.D. in chemistry, to develop film coatings for sensors that can be used on the products Applied is working on for NASA and a medical-diagnostic-device developer. "This is truly a collaborative effort," Hines points out. "The school loves the opportunity to give students real-world commercial experience, and if the scientists there come up with a patentable technology, I have the option to license it."

5. Look for Financing Alternatives

Take a lesson from Dreyer's playbook and turn to nontraditional lenders when the bank says no. Asset-based lending - loans against a company's equipment, inventory, accounts receivable or other liquid assets - has been used for centuries. The economic crisis has served to highlight the role of this type of bridge capital, which is ideal for thinly capitalized companies working on tight margins. That's why interest is booming. Last year, lenders in the industry - estimated at $500 billion by the Commercial Finance Association - saw a double-digit increase in demand, while syndicated lending dropped by 39% according to Dealogic Inc.

Entrepreneurs like Dreyer love its flexibility. "I now fund 40% of my business using purchase-order finance and factoring," he reveals. "This allows Fantasma to better compete on price and manage cash flow." Of course, there are challenges. Wells Fargo does site inspections of the overseas factories and audits the company quarterly. Fees can be high - typically 1% to 3% of the purchase order depending on the supplier's creditworthiness. Any way you look at it, it's been a way for the master illusionist to do what he does best - escape from peril and land on his feet.

6. Avoid the Wrath of the IRS

Recession-smitten business owners obsess about generating new sales. But another determinant of profits is simpler to come by - the money saved by avoiding tax penalties. There are several ways to keep your tax fines and late fees down. One is to do things that reduce chances of a tax audit because that lowers the odds you'll be slapped with penalities. For example, don't round off figures when it comes to reporting income or expenses. "If you report income as one thing and a client reports the corresponding payment from them as something else, it tells the IRS that you're not necessarily reporting things accurately," says Duncan Connor, editor of content at Company.com, a firm that helps businesses save cash.

Secondly, be sure to pay taxes on time each quarter to avoid hefty late-fees at year end. Business owners are required to cough up either 90% of their taxes owed or 100% of the taxes they paid the previous year by the current year's end to avoid being slapped with underpayment penalties. In periods when cash is tight owners may be tempted to push off such payments. But beware: the IRS will take its pound of flesh - and more - if you're late.

Finally, be wary of deductions and other items that could raise red flags for the IRS, such as having multiple offshore accounts or making giant contributions to charities. And for all deductions, have well organized receipts.

7. Increase Your Company's Clout (Via Coops)

Small businesses should consider joining cooperatives in order to negotiate lower prices. Cost savings of 8% to 18% can be achieved when purchasing products through coops, estimates Howard Brodsky, co-founder and co-chief executive of CCA Global Partners, a firm that oversees about 14 different business coops. Moreover, it's not just paper supplies and related office goods; it can also cover such services as insurance and web-site construction.

Normally, business owners joining a coop will be asked to pay an upfront fee, which can be charged monthly or annually, and they must also agree to spend a certain amount of money through the coop each year to maintain their membership. In some cases, the coop is run by a business owner from within the coop; in other cases, it's run independently by someone who was specifically hired to negotiate prices and run the coop.

Cathy Buchanan, the showroom and sales manager at her family-owned Independent Carpet One Floor & Home store in Westland, Mich., joined a coop in 1997 and has been reaping rewards ever since. The coop developed her company's website and offered advertising and branding programs that helped market her store to new customers. Also, the coop allows her company to buy flooring supplies at discounts of 10% to 20%, and the coop's partnership with certain insurance companies sends new customers her way whenever a home is damaged by fire or flooding. "This is additional business that we would never have had," says Buchanan.

8. Make Your Website A Tool For Growth

A viable website is key for any business in this digital age. "You're closing off the vast majority of your [potential] customers if you don't have a really strong robust web presence," says Pete Blackshaw, executive vice president of Nielsen Digital Strategic Services and author of the book Satisfied Customers Tell Three Friends - Angry Customers Tell 3,000. Driving home the point, he notes that online search engines have greatly surpassed offline tools, such as the yellow pages, when it comes to attracting new customers.

A company website isn't just for playing offense; it also offers a great way to protect the brand. In today's wired world, if customers are dissatisfied with a company's product or service they may angrily unleash their wrath in the cyberworld, posting lengthy vitriolic complaints about their experiences that can quickly turn viral. Such complaints may be rare but they can cause costly - and sometimes irreparable - damage to a company's reputation and potential business.

Conversely, an interactive company website, where customers can express concerns and companies can address complaints before they turn viral, is an invaluable shock absorber. "It's better to take the hit directly than to see it cascade across a million public venues - that's really where a lot of brands have gotten stung big-time," says Blackshaw.