Ever feel like your company is just shuffling in circles? Doing just enough to get by, but not enough to actually go anywhere? Have you considered that your company might be undead?
The term zombie company was first coined in the 1980s and gained popularity amongst economists referring to Japan’s credit-happy loss-making businesses which, despite billions in losses, received bailout after bailout from Government-backed banks to keep them afloat during The Lost Decade. The justification for these loans was to keep people in work, and to lessen the blow of recession on the Japanese economy.
Back in the present day zombie companies have become a legitimate drag on the UK economy in recent years, and are defined as companies that make enough revenue to service the interest on their debt but not any profit, or (worse still) need constant cash injections to stay alive. They tick over, not dead… but not really alive. It’s not brains that zombie companies crave – it’s cash.
The problem with zombie companies isn’t that they are necessarily destined to fail – many are able to cover their fixed costs (including rent, payroll and suppliers) for years or even decades – but that they aren’t able to invest in expansion or research & development and contribute to economic growth. They are an economic hamster wheel.
A 2012 estimate by R3, the industry body for insolvency experts, found the UK was home to almost 150,000 zombie companies, a large percentage of which are micro-businesses.
For many large zombie companies, such as Japan’s Daiei supermarket chain, their fate is inescapable. With billions in debt and hulking corporate structures in need of overhaul a fast turnaround is all-but impossible. Instead these firms lumber from repayment to repayment while enduring lengthy restructuring programmes.
For smaller firms, dezombification is a possibility.
Things to do in business when you’re dead
While zombification in humans is usually caused by viral infection or occasionally voodoo magic, zombie companies are usually the result of restricted revenue and cashflow. A healthy company will have earnings that exceed their expenditure – but in zombie companies outgoings are equal to or greater than their revenue.
So, to return to health zombie companies must either reduce their outgoings, or increase their earnings. Either that or a bullet to the head.
Restructure your debt
Traditionally seen as a meaningless money-shuffling exercise for big firms, if you’re weighed down by a multitude of credit cards and loans a bit of consolidation could actually do you the world of good.
Speak to your bank, an Independent Financial Advisor or an alternative lender to see if you could put all your eggs in one lower-interest basket. Even if it means the term of the loan is longer, reducing your monthly payments could free up cash to be used on growth.
A quick cash injection can be a great way to pay down some debt and reduce your monthly outgoings – does your business have any assets or equipment you don’t need any more?
Old computers, furniture, or even intangible assets like trademarks and patents can all be offloaded to get some much-needed capital into your business. Go on an eBay spree, and you’ll come out the other end with a wad of cash and a cleaner office.
Raise your rates
It’s good to increase your prices every so often, and a zombified company is just about the best reason to bump up your day rate. If your revenue and expenses are roughly the same, even a 5% increase in rates across the board can be enough to tip you over into profitability and cure your undead curse.
Review your suppliers
A big chunk of your spending every month probably goes on business necessities like broadband, postage and insurance. Research by comparison service SimplifyDigital found that people who switched broadband providers regularly saved big – sometimes pocketing over £350. Switching suppliers regularly to take advantage of introductory deals and falling prices is the best way keep your bills down.
So open up your online banking, go to the Direct Debits tab, and review each and every supplier to see if you could be getting a better deal elsewhere, or if you can ditch them entirely.
Ask HMRC to defer your payments
If your Corporation Tax payment is coming up and you don’t have enough cash in the bank, many business owners will turn to loans to make sure they pay HMRC on time – but HMRC itself could prove a better source of credit.
If you inform HMRC ahead of time that you will not be able to make your payment you can arrange to pay your tax at a later date, and pay 3% interest in the meantime. With interest on business loans sitting anywhere between 7% and 15% you could save a chunk of change by dealing with HMRC directly.
Salvation is at hand
Your business may be a mumbling, calcified wreck, but the best cure is a bit of dedication and careful planning. Stop feasting on brains and instead gorge yourself on rigorous cashflow management, and you can return to profit, growth, and health.
Photo by Daniel Hollister