“Zombie Businesses” could bring a surge in insolvencies

A recent report has suggested that years of financial unrest has affected thousands of UK firms, turning them into so-called “zombie businesses”, and potentially produce a surge of insolvencies when they finally cease trading.

According to the report, commissioned by a financial health monitoring group, the number of zombie businesses has increased in the past few years to over 227,000. Zombie businesses are those which are only just surviving, with just enough money to pay their employees’ wages and day-to-day running costs – but with no spare cash for any unexpected bills that may arrive.

It is thought that zombie businesses have around 500,000 employees collectively which could have a huge impact on unemployment figures if – as expected – the businesses fail.

This situation is made worse still by the knock-on effect of bad debts on banks and other creditors, as zombie businesses can cause harm to healthy businesses in their bid to stay afloat. Many, particularly those in the construction industry, resort to ‘suicide pricing’, which depresses the profitability of the whole sector.

The largest number of “zombies” is in the business services sector, where 65,000 businesses are desperately holding on with little prospect of breaking even.

Other industries with large numbers of “zombies” are:

  • Construction – an estimated 26,000 “zombies”
  • Media – approximately 21,000 affected businesses
  • Retail – an estimated 20,000 affected businesses

According to the research, around 63,000 UK firms have negative equity of between £50,000 and £1m, while nearly 3,500 have debts of even more than that, which far outweigh their assets.

At Palmers, we can help to provide tailored solutions for your clients’ financial problems. Contact Andrew Skinner for more information.