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Don’t be scared of the Zombie Business says Deborah

THE curse of the Zombie Business sounds like it should be a commercial nightmare…but it could actually be the key to a brighter future.

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.

Statistics suggest that as many as one in ten UK companies may now be operating as Zombie businesses, with factors such as the effects of the pandemic and increasing concerns over the war in Ukraine adding to the pressure.

But Deborah Lockwood, a partner in Sheffield insolvency and business turnaround practice Graywoods, says there might be an unexpected benefit to Zombie businesses finally closing down.

“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,” Deborah explained.

“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.

“If the Zombie companies begin to fail, however, this will release capacity and opportunity both in terms of staff and customers for the remaining businesses.

“At its most positive this will assist in helping them to recover and, more importantly, to recover quicker.

At the same time, though, Deborah warned that the mix of pandemic stress, rising costs and concerns for the international situation might actually lead to a rise in the number of businesses facing a Zombie crisis.

“The problem is all these issues leave already vulnerable companies prone to any kind of economic shock and even a small change can tip them into Zombie territory,” she 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.”

This was posted in Bdaily's Members' News section by John Highfield .