It sounds like a commercial horror story…the curse of the Zombie Business!
But behind the catchy and headline grabbing name, there is the truth of as many as one in 10 businesses struggling to survive a continuing hostile trading environment.
Zombie businesses are defined as indebted companies that, although generating cash, find that after covering running costs and fixed costs like wages, rates and rent only have enough funds to service the interest on their loans, but not the debt itself.
As a result they have to depend on their creditors for their continued existence, effectively putting them on never-ending life support that denies all opportunity to grow.
The problem hit a height in the wake of the last major recession in 2008/9 and many commentators were saying that the crisis had passed.
But the latest official statistics now suggest that as many as one in ten UK companies may be operating as Zombie businesses.
“These companies are able to function by firefighting, by dealing primarily with the creditors who shout loudest and paying the interest on their debt without ever being able to pay off the debt itself,” said Adrian Graham, a partner in Sheffield insolvency and business turnaround practice Graywoods.
“In effect they are surviving by standing still and in most cases even by going backwards rather than looking forward.
“They are not able to invest in the future or take on new staff and develop the fresh ideas and products that all companies need to succeed.”
Adrian added that it was a problem which could affect all areas of the business community and that it was also an issue that could strike quickly, depending on wider trading factors.
“Things beyond a company’s control such as exchange rate issues and current fears for the commercial future can leave even an ostensibly successful business unexpectedly high and dry if they run into unexpected turbulence.”
There were, he added, ways that a business could attempt to weather the storm, including suppliers extending lines of credit and loans being restructured.
“The problem is, though, that these approaches leave already vulnerable companies prone to any kind of economic shock and even a small change can tip them into Zombie territory,” Adrian said.
“The simple truth is that when the economic squeeze is on, the Zombies tend to re-emerge and the best way to survive is to think ahead and seek advice before a problem becomes a crisis.”
