An increasing number of firms have seen profits decline to such an extent that they exist merely to pay off their debts and survive. Is the UK overrun with zombie businesses? Our sister site AccountingWEB.co.uk takes a look at a situation that could give George Romero an idea for his next screenplay.
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There are currently 52 UK based accountancy and bookkeeping companies posting growing losses and, despite the obvious freeze in the credit markets, increasing their debts, according to the latest Plimsoll Industry Analysis study.
These so-called zombie businesses are carrying debts at an average of 63% of turnover, existing simply to service their out of control liabilities. Many are also using their suppliers to finance their growing losses, taking twice as long as to pay their bills as the industry average of 44 days.
David Pattison, author of the study, explained: "They are falling behind the rest and their productivity is well below the industry average. It’s hard for them to compete as their cost base is just too high. As a result, investment plans have been mothballed meaning their aging assets are further restricting their ability to remain competitive."
While this may seem like bad news for the companies concerned, it actually presents an opportunity for investors. "Canny investors are seeing an opportunity to pick up a bargain. Some of these companies, stuck in a zombie state because of their balance sheet, have lots of potential for new owners to turn it around," said Pattison.