‘Zombie businesses’ spread like a virus
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Photo Credit: MacBeales via Compfight cc

‘Zombie businesses’, those that are barely surviving due to their outgoings being equal to or greater than their income, now account for roughly one in ten British businesses, according to a new report from Company Watch.

Over the past five years, the prevalence of zombie businesses in the UK has increased by 108%, more than doubling the total number to 227,000.

This has severe implications for the national economy, as around half a million people are employed by these firms, and despite their financial difficulties, the companies themselves have a total net value of roughly £70 billion.

Perhaps most worryingly of all, however, is that zombification can spread like a virus, as the actions taken by ‘zombies’ just to continue operating can affect the profitability of their competitors.

“The problem with this ever-growing army of zombies goes well beyond any immediate threat of insolvency,” says Company Watch business risk analyst Nick Hood.

“These struggling businesses distort fair competition right across the economy as they underbid for contracts in their desperate ongoing battle to generate cash to keep their creditors at bay.”

 

Ironically, such behaviour has come to be associated not with an attempt for survival, but with quite the opposite – and is typically known as ‘suicide pricing’.

Across the sectors, construction and hospitality are badly hit, with 16,500 property firms, and almost as many pubs, clubs and hotels struggling at present.

A massive 65,000 business services firms are struggling too, along with 20,000 retailers – perhaps the sector that has received the greatest media attention during the recent spate of insolvencies – and roughly the same number of media companies.

But Mr Hood foresees troubled times for the zombies as the economy begins to improve; with few financial resources at their disposal, he predicts that they will be unable to compete, or to cope with rising interest rates.

Together, these factors spell disaster for those on the brink, along with an increase in toxic debts for their creditors.

 

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