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Business Development & Marketing Cash Flow & Forecasting Finance General Rescue, Restructuring & Recovery Turnaround

January planning – Re:fresh

RefreshYou’ve done your research and consulted with staff and others and should now have outlined your business goals for the coming year. Now it is time to refresh your business plan.
The big question in this phase is how to achieve your goals.
If your goals are ambitious, achieving them will require additional resources.
New products or services require investment of time and most likely money in R&D, in testing and refining, in design and packaging, in recruiting and training production staff, in plant and machinery, in stock, in marketing literature, in promotion and many more aspects that are key to the success of a new product.
New clients or markets require investment in time and most likely money in market research, in market testing, in advertising and promotion, in sales and marketing, in recruiting and training sales staff, in finding distributors, in learning about foreign markets and many more aspects that are key to establishing new markets.
Once you have a plan, then the plan needs to be resourced. Indeed the availability of resources and finance normally influence the plan. It may be possible to find it with reserves or borrowings but other options should be considered such as partnering with manufacturers, suppliers, distributors or clients who may be prepared to use their own resources for a slice of the benefits. Manufacturers may fund tooling and production and suppliers may fund stock and distribution or both might provide extended credit in return for higher margins. Distributors and clients may pay deposits or prepayments to fund production.
Whatever your plan, an accurate picture of the financial health of the business and projected cash flow will be needed as part of the planning process. Indeed it is often necessary to use the planning process to reorganise aspects of your existing business and restructure its balance sheet.
Having a plan is also necessary to monitor progress throughout the year and provide valuable insights for future goal setting and planning.
Having a refresh stage in the annual planning process will ensure your business remains competitive, even if you do not want to grow. Re:fresh can be used to reinforce a culture of continuous business improvement

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Banks, Lenders & Investors Cash Flow & Forecasting Finance General

Why UK is struggling to fund new ideas

It could be argued that in the past investors had a more direct connection and interest in the businesses in which they invested.
They would therefore be willing to be more patient and to wait longer for a return on their investment. Equally they could justify a larger investment by using their knowledge and experience to reduce the risk of losing their investment.
However, as fewer businesses have been involved in making tangible goods for purchase so that the UK’s manufacturing sector has shrunk dramatically and the service sector has grown, so too, investors have become more dissociated from the organisations into which they put their money.
Alongside this, investors have become more impatient to see a profit and shift their money around much more quickly, as demonstrated by returns to hedge funds and justified by some high profile, rapid growth companies.
The high profile, rapid growth investment opportunities are mainly in the technology sector, which can be less predictable but which also requires fewer staff, particularly at middle-management level.
This explains why it is difficult to source finance for disruptive technology or to fund new ideas in UK to find large investors unless they move to California.
Outside friends and family, the main option for SMEs with rapid growth potential to find finance in UK is from crowd funding.

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Banks, Lenders & Investors Finance General

Investor Visas offer another source of finance for UK businesses

Businesses looking for investors may be able to take advantage of another avenue of finance, as a result of revised rules of access to the UK for overseas investors.
Tier 1 Investor Visas allow people from outside the European Economic Area and Switzerland to live and work or study in the UK for up to three years and four months on certain conditions.
The visas are conditional on applicants investing at least £2 million in either UK Government bonds, share capital or loan capital in UK-registered active & trading companies. The money has to be held in a regulated financial institution such as a bank, building society or stock brokerage for 90 consecutive days before making a visa application.
Tier 1 Visa investors cannot invest in companies mainly engaged in property investment, property management or property development companies.
Investors can apply to settle in the UK if they make further significant investment, of £10 million after two years, or of £5 million after three years of living in the UK on a Tier 1 visa.
UK Government data has revealed that there has been a significant increase in the numbers of Chinese applying for the Tier 1 Visa doubled in 2014 compared with 2013, with 357 visas granted, while 184 Russians were granted Tier 1 visas in 2014.

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Accounting & Bookkeeping Banks, Lenders & Investors Business Development & Marketing Finance General

How can a start-up business assess the advice it is given?

An intending start-up business needs advice that is good quality, good value for money and, crucially, impartial.
Getting good quality advice that is value for money is the challenge for every entrepreneur and start-up on a budget.
Whereas the large corporate looking for advice can afford expensive lawyers and advisers, this is rarely the case for a start-up, which has to be more careful about where it spends its money.
It is important to identify those areas for which it is important to pay as opposed to those where it is less so.
Typically the areas where advice is needed include fundraising, investor and shareholder agreements, terms of trading with clients and suppliers, employment, finance and accounts, business planning and development, production, systems, sales and website. Wow, it is a lot and as a business rescue specialist, it is easy to see which areas were neglected when a business gets into financial difficulties.
One way of prioritising what is worth paying for and is good value is to do a lot of research and exercise a degree of judgement. Most lawyers and advisers will provide a level of free advice so take advantage of it. In addition other business owners are normally happy to share the benefit of their experience, but beware that they may only know the way they dealt with a problem and may not be able to advise on alternatives, hence the need to do lots of research.
A good tip for assessing advice you are given is whether an adviser is outlining a range of possible alternatives as options and helping you work through the assessment process to consider the pros and cons of each option.
Steer clear of those who simply tell you what to do as you don’t know if they only know one way, or they have an agenda for recommending their way.
Furthermore you won’t learn from such advisers as it is the assessment and exercising of judgement about alternatives that helps you learn how to manage advisers and often reject advice.
Only when you have spoken to a number of lawyers and advisers will you be able to tell who is trying to sell you a product and who is giving genuine advice.

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Business Development & Marketing Cash Flow & Forecasting Finance General Rescue, Restructuring & Recovery Turnaround

Planning for the year ahead

SMEs often use new year as an opportunity to plan for the year ahead and might benefit from knowing about Rudyard Kipling’s six wise friends: Who, What, Where, Why, When and How.
But while it may be straightforward to answer What (the goals and targets), When (by what deadlines) and Where (what sector and what clients might be most productive) the Who, Why and How are more difficult.
Who: the allocation of tasks is critical for success, including leaving you time to spend on the non-daily activities. Do you have the right people in your organisation, do they have the skills, such as devising and carrying out the marketing strategy that will be needed to meet your goals?
How: are there alternative ways such as outsourcing activities?
Why: this essentially invites you to consider your business model that encompasses all the elements of your business. Is it viable? Do you have sufficient funds or the cash flow to support your plans? Does it generate sufficient profits to justify your effort?
Finally, are you as the owner spending enough time on strategy, finance, marketing planning and leadership as all too often these are neglected when you are busy with the daily operation?
When planning for the future, it is worth considering whether an outside expert might be able to help you, you might be surprised how valuable this can be and it doesn’t need to be expensive in terms of cash and time.
I wish you a very happy new year.

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Banks, Lenders & Investors Cash Flow & Forecasting Finance General Rescue, Restructuring & Recovery Turnaround

Glass half full?

In an ideal world every small business is planning ahead but needs some clarity and certainty about the future economic environment in which it is likely to be operating.
The reality, however, is more like an exercise in crystal ball gazing.
Business headlines portray a rosy picture of the UK economy back to pre-Great Recession levels of performance which is underpinned by unemployment falling dramatically. It should however be remembered that we are already in the build-up to the next election, now less than a year away.
Other commentators who are not getting the headlines are promoting a level of caution that no one wants to hear. We have had quite enough bad news over the past 6 years and now want some good news.
It may however be unwise to be unaware of the warning from IMF Chief Christine Lagarde, that financial markets may be a little too optimistic, given that recovery is still lagging in Europe, one of the UK’s chief export markets.
It would also appear that not everyone is enjoying a boom if the reports are correct about UK businesses being in arrears with VAT, calculated as having have risen by £100 million to £2.6 billion in 2013, according to business finance provider LDF.
The Bank of England’s Monetary Policy Committee is also concerned about signs of a weakening in growth in the second half of the year, pointing out also that real wage rates have not yet started rising, while inflation is edging up.
We should know that economic forecasting is by no means a precise science, and if we had forgotten 2008 was a big reminder that chancellors of the exchequer cannot ensure there will never be a return to “boom and bust” economics.
Business planning needs to take into account confidence or lack of it. Hope and spin are not much help to the small business deciding whether to seek funds to invest in the future or avoiding taking risks.
So, apart from continuing to keep a close eye on cash flow as a prudent measure, is it time for businesses to plan for growth? And who is going to back them by sharing their risk?

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Banks, Lenders & Investors Finance General Rescue, Restructuring & Recovery Turnaround

What would be on your wish list for banking reform?

A full-scale investigation into whether there is sufficient competition among banks is perhaps a step closer, though not yet a certainty, following the announcement that the CMA is to study and consult further before making a decision in September.
Quite why the CMA (Competition and Marketing Authority) needs further consultation before making the decision is a mystery when its studies so far have led to a provisional conclusion that small businesses and personal account customers have not been receiving a good service from the banks.
There has been enough evidence from the FSB and regularly released figures that small businesses have been finding it increasingly hard to access lending from the banks, that they have been mis-sold products (eg Interest Rate Hedging Products) and that the days of having a relationship with a proper bank manager who knew and understood them are long gone.
So assuming that the CMA does start a full-scale investigation in September, likely to take at least 18 months to complete, as a small business what would you like on your wish list for banking reform?

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Banks, Lenders & Investors Business Development & Marketing General Insolvency Rescue, Restructuring & Recovery Turnaround

Gut feelings and fair weather advisers

A piece of research among business leaders carried out by the Economist Intelligence Unit recently found that nine out of 10 would be likely to rely on their gut feeling if presented with data that contradicted their intuition.
In a world that teems with business consultants offering guidance on best practice and must do’s of every shape and colour it can be difficult for the small business owner to know whose advice to trust, when to trust it and when to trust their own instincts.
It makes sense for start-ups and SME owners to take advantage of the wealth of support on offer particularly when they can’t afford to employ experienced executives or if they are looking for investment or finance.  However, it can be more tricky when the situation changes from optimism and doing well to one when plans are not working, or one when the business is running out of cash.
When optimism becomes a harsh reality, one reality is finding out about your advisers, most become unavailable, the more so when they are not being paid and the money is running out.
When as a business owner you are overcome with concern, have sleepless nights and are experiencing anxiety, you need advisers who can deal with reality. When running out of cash you need a business doctor to take a cold, hard look at the situation and at the opportunity so they can discuss your options for survival, for growth, or if necessary for closing down with dignity. The right advisers will have contacts for providing finance as well as having experience to help you deal with the issues that are causing you concern.
Most business owners know when they are being spun a line, when they are hearing what they want to hear but the courageous ones listen to their gut instinct while also employing advisers who will challenge them.

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Banks, Lenders & Investors General Insolvency Interim Management & Executive Support Rescue, Restructuring & Recovery Turnaround

Turning around the economic juggernaut means restoring SMEs’ confidence

Business Secretary Vince Cable warned at the LibDem conference that rebuilding the economy was going to be a long process requiring investment in business, in research and in training people in the skills that will be needed in the future.
We are also told, repeatedly, that SMEs are the primary engine for the country’s growth.
The trouble is that SMEs’ confidence has been knocked for six over the last five years, not least because despite innumerable Government initiatives they have time and again been refused lending by the banks. The most recent figures on the Funding for Lending scheme published earlier this month showed that lending to businesses and consumers had fallen by £2.3 billion since June 2012.
Now the Federation of Small Businesses (FSB ) has produced research showing just how beleaguered SMEs are feeling with more than 56% of those polled believing that the banks just do not care about them and more than a third reporting sharply increased bank fees over the last year. Very few of those polled knew that it is possible to appeal against a bank’s refusal of a loan application.
Worse still only 37% of those polled were aware of alternative sources of lending, such as crowd funding. 
K2 has a comprehensive, free, downloadable guide to sources of business finance available at http://www.k2finance.co.uk . The FSB has also launched a guide, How to Get a Bank Loan, which also covers appealing against refusal, switching banks and other finance options.

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery

Season of Goodwill?

December marks a “pinch point” for many businesses, particularly for the high street retailers.
The quarter day – when quarterly rents to landlords fall due – is on December 25. About then most businesses will be facing their next pay run of salaries for employees and possibly of payments to additional temporary staff who have been taken on to cover the festive season. Then there is a VAT return with VAT to pay on the Christmas trading.
If all has gone well the seasonal stock will have been run down and there will be a lot of cash in the bank from the Christmas trading.
The question is what will the banks do at this point? Are they lining up to pull the plug on businesses at the point in the year when their clients have most cash? Or the point when their clients have significantly reduced the overdraft? Arguably Christmas is the best time for a secured creditor, such as the bank, to call in its loans, or reduce the overdraft. The banks don’t even need to pull the plug, they can just take the cash to offset a loan or simply reduce the overdraft facility.
With banks seeking to repair their balance sheets and the uncertainty ahead, are we likely to see a sudden upsurge in insolvencies immediately after the Christmas period?
It is estimated that 160,000 businesses are classified as ‘zombie companies’, defined as those who are surviving by only servicing interest with little prospect of ever repaying the loans. Since the start of the recession it may not have been in the interests of the banks as secured lenders to pull the plug, however Christmas can be the best time for them to consider such an option.
Companies who are just servicing interest ought to be concerned. They ought to be seeking advice before the bank swoops.

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Banks, Lenders & Investors Business Development & Marketing General

Crowd Funding has a Key Factor that makes it Attractive to Firms Seeking Cash

The plethora of Government initiatives designed to stimulate lending to small enterprises and StartUps, seem to have mainly sunk without trace as the economic meltdown continues.
From Project Merlin, via the National Loan Guarantee Scheme and others including the latest initiative, Funding for Lending, they have largely been ignored by both banks and companies.
Throughout the downturn the banks have said they are willing to lend, and most commentators have claimed there is no shortage of finance, however business lending has continued to decline.
There seem to be two main issues that have caused the decline, firstly the banks are more cautious and want both security for the loans and business plans that demonstrate they will be repaid, and secondly companies remain uncertain with few applying for loans unless they are in financial difficulties.
Similarly investors have been somewhat absent from the market. Many have already been wiped out leaving those with cash very wary.
Despite the tax relief incentives offered under the Enterprise Investment Scheme (EIS), and for StartUps, the Seed Enterprise Investment Scheme (SEIS), there has been little interest. This lack of appetite can be explained by the stringent pre-qualifications. In the case of StartUps, SEIS investors may qualify for 50% tax relief on up to £100,000 however the HMRC guidance notes may help explain why no one is excited: http://www.hmrc.gov.uk/seedeis/index.htm
There has however been much excitement over a newer funding alternative called “Crowd Sourcing” or “Crowd Funding” since the launch of the UK version of the US enterprise Kickstarter on 31 October 2012.
While Crowd Funding may prove to be a good option for many firms, StartUps in particular should do their research. Kickstarter, for example, is restricted largely to creative projects that have a defined beginning and end and its website clearly states: “Starting a business …does not qualify as a project.”
This innovative type of funding is becoming more common. There are already several finance providers each with its own criteria and the number is likely to grow as investors and lenders put up more cash.
The Crowd Funding providers appear to have one common factor that makes them attractive to firms seeking cash. They make it simple to apply for finance, whether debt or equity.

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Banks, Lenders & Investors Business Development & Marketing Factoring, Invoice Discounting & Asset Finance General

Is the Economic Recovery Being Imperilled by Banks’ Continued Failure to Lend to SMEs?

Despite government rhetoric, evidence continues to pile up that the banks are still not lending to Small and Medium-sized Enterprises (SMEs).
We are hearing that when companies apply for any lending the banks are only considering loans or overdrafts secured on tangible assets, with most also demanding personal guarantees from the directors in addition.
Total net lending by the UK’s five main banks fell in 2011 and they missed their lending target to small firms, whose use of bank overdrafts and loans has also declined over the past two years.
The FSB reports that of 11,000 SMEs just one in 10 obtained a bank loan in 2011 and that 41% of applicants had been refused loans in the three months to February 2012. The FSB believes the UK banking system is not geared up to lower end loans of less than £25,000, because “there’s no money in it”.
Business Secretary Vince Cable has warned that recovery is being imperilled by the “yawning mismatch” between bank lending and SME demand for finance and at the end of April economists at Ernst and Young predicted that they expected lending to reduce further this year by 6.8 per cent, to £419 Billion.
Meanwhile invoice discounting and factoring have increased significantly, though banks are seemingly no longer offering these facilities, leaving the door open for independent companies such as Bibby, Close, Centric, SME, Ulitmate and the new British bank, Aldermore.
Are the banks struggling or are they simply withdrawing from the SME market?
We think the banks are being deceitful. Whatever the rhetoric, they are using PR tactics to report new loans, which are in fact not really new lending but the refinancing of existing facilities such as turning an overdraft into a term loan or a factoring facility.
This is piling even more pressure onto small businesses because there is a net decline in the flow of money into SMEs, and furthermore any new money is being provided at a very great cost in terms of fees and interest. While high rates of lending may be justified by the risk when it is unsecured, it is not justified when the loan is secured.
K2 would be very interested to hear from SMEs that have managed to secure a bank loan.

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Banks, Lenders & Investors Cash Flow & Forecasting Debt Collection & Credit Management Factoring, Invoice Discounting & Asset Finance General Rescue, Restructuring & Recovery Voluntary Arrangements - CVAs

Businesses Should Pay Down Debt and Beware Offers That Seem Too Good to be True

Many businesses are overburdened with debt and desperate for ways to deal with pressure from banks, HMRC and other creditors. All too often they are prepared to pay off old debt by taking on new debt which leaves them vulnerable to unscrupulous lenders.
Prior to 2008, interest-only loans and overdrafts were a common method of funding, and were reliant on being able to renew facilities or refinancing.
Like many interest-only loans, an overdraft is renewed, normally on an annual basis, but it is also repayable on demand. What happens when the bank doesn’t want to renew the overdraft facility?  With the economic climate continuing to be volatile and uncertain and banks under intense pressure to improve their own balance sheets, they are increasingly insisting on converting overdrafts to repayment loans and interest-only finance is disappearing.
This has created a vacuum for alternative sources of funding to enter the market where distinguishing between the credible salesman and the ‘snake oil’ salesman can be very difficult. Desperate businesses are desperate often try to borrow money and become more vulnerable to what at first sight seem to be lenders that can offer them alternative funding solutions that the banks cannot.
Generally the advice is to beware, as the recent eight-year prison sentence handed to “Lord” Eddie Davenport illustrates.  The charges related to a conspiracy to defraud, deception and money laundering, also referred to as “advanced fees fraud”. 
The court found Davenport and two others guilty in September. Meanwhile a large number of businesses had paid tens of thousands of pounds for due diligence and deposit fees for loans that never materialised and left victims even deeper in debt. The case only became reportable in October, when restrictions were lifted.
Many businesses just want to survive and are trading with no plan or in some cases no prospect for repaying debt. In such instances they should be considering options for improving their balance sheet by reducing debt. Options might include swapping debt for equity, or debt forgiveness by creditors or setting up a CVA (Company Voluntary Arrangement).

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Will Project Merlin Make any Difference to Business Lending?

With so many companies in financial difficulties will many companies be able to take out further loans as a result of the new agreement known as Project Merlin?
The government last week announced that it had reached agreement with the UK’s four biggest banks to increase the amount of new lending to business in 2011 to a total £190 billion, of which £76 billion would be for small and medium sized businesses (SMEs). The SME portion is an increase of 15% on 2010.  
The lending to businesses will be on commercial terms that reflect the reduced number of lenders in the market. With bank base rates being so low, currently 0.5%, companies are being charged a huge premium with interest rates being set as 8 – 9% above the base rate. In addition, huge arrangement fees are also being applied, where fees representing 5 – 10% of the loan are not uncommon.
Many balance sheets are so decimated carrying huge liabilities to creditors such as HMRC, suppliers and asset based lenders (often at over value) that many businesses will not be able to justify a loan.
Business advisers, who see the effects of policy on the ground, say that one effect of Project Merlin will be for the banks to convert short term revolving facilities, such as overdrafts renewable daily, monthly or quarterly, into medium term loans. These will almost certainly be categorised as new loans in the quota reports but won’t actually represent additional, new funding. The banks continue to run rings around the politicians.
Converted loans are increasingly repayable on demand and therefore are being agreed on terms that allow the bank to keep all its options for essentially demanding immediate repayment.
Andrew Cave, of the Federation of Small Businesses, commented that the majority of small businesses were not seeking finance from the banks at the moment because the cost of existing and new borrowing is increasing and David Frost, director general of the British Chambers of Commerce, also cast doubt on whether the agreement will make any difference because of what he called the banks’ poor and opaque decision-making and over-centralised processes, with a lack of good frontline relationship managers locally in the banks.

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

The Deadline for Repaying Bank Bail-out Money Implies Continued Pressure on Business Lending

British banks have until 31 January 2012 to pay back the money made available to them by the Bank of England since April 2008 through its Special Liquidity Scheme, the support that was provided following the temporary public ownership of Northern Rock in the UK, the collapse of Lehman Brothers in the US and the onset of the global economic recession.
Where is this money is going to come from? The likely answer is from businesses and customers. While banks are likely to borrow some money via issuing corporate bonds in the marketplace it is unlikely there will be much inter-bank lending.
So it is reasonable to assume that banks will make up the difference by withdrawing money from the marketplace, that is from businesses and individuals from repayment of loans and overdrafts.  In addition to reducing existing loans, it will be difficult for banks to find new money for lending and businesses and other borrowers will find it harder to agree loans, and even if they are successful will find that repayment terms will be stricter and more costly.
The amounts involved are almost too big to imagine.  The amount due to be repaid is £185 billion which is similar to the combined value of the UK’s four leading banks (LloydsTSB, Barclays, HSBC and RBS).
At the same time the banks know they face tighter regulation on lending and capital reserves under new regulations, called Basel III, from the world’s banking regulator. Meeting these new requirements will require banks to raise substantial amounts of fresh capital placing further burden on the lending market.
At the same time the Government has now introduced a series of measures, including a rise in VAT, higher National Insurance Contributions and public sector cuts, aimed at reducing the country’s budget deficit.  The bulk of businesses on which the economy depends are small traders and entrepreneurs and if they are experiencing a combination of higher costs and tightly restricted lending they cannot plan for growth and increasing the profits they would need to be able to expand and in fact should be focusing on cash management and cash flow in order to survive.
It is difficult to see how a long gentle decline can be avoided in these circumstances, when the fact is that the banks must find the money for repayment somewhere. Double dip recession?

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Business Survival Depends on Stakeholder Co-operation and Collaboration

The support and co-operation of its stakeholders can be crucial to the success or failure of the efforts by a business in difficulty to restructure and survive.
Stakeholders are all those people who have an interest in the business and are likely to be affected by its activities and most crucially by its failure, and they include shareholders, investors, creditors, the bank, suppliers, landlords, employees (and their union representatives) and customers or clients.
Plainly, when a business is in difficulty and has called in a rescue adviser to review its activities, costs, business model and viability, any actions it may need to take as a result will be more likely to succeed if its stakeholders both understand the situation and support the proposed solutions.
While there is one key interest that all hold in common, which is that all have an interest in the business surviving if they want to continue to receive income from it, it is probable that the interests of some stakeholders will conflict with those of others.
Employees will be most concerned about keeping their jobs and their co-operation in any restructuring is likely to depend on whether they feel the management is considering their concerns as well as involving them in the changes that may need to be made.  If there are unions involved getting them on board can be the key to persuading employees to co-operate.
Creditors and investors, on the other hand, may just want to be paid what they are owed and whether they are prepared to forgo or renegotiate payments or finance in the short term will depend on how much confidence they have in its future. 
The bank’s primary concern is to ensure loans are secure, safe and will be paid and will want to be kept informed as well as being given evidence that the business has been properly looked at by a specialist adviser, shown to be viable and any proposals are realistic and have a good chance of achieving the desired results.
It is crucial that the rescue adviser is involved in the management of the stakeholders thus ensuring that their concerns are understood. This will go a long way to ensuring stakeholders’ co-operation.