Companies can reach this zombie status when they are stretched out, making zero profit and have no growth, but are meeting their financial responsibilities.
Why are zombie companies kept in business?
- Extension of credit terms agreed with suppliers
- Entering into a time to pay agreement with HMRC
- Banks relaxing the terms of their credit facilities
As these companies strive to stay alive, they are under invested and reliant on low interest rates. Any negative changes in their market place will probably see them become insolvent. If a company is consistently underperforming financially, or failing to meet financial obligations, then it is likely to fall into the bracket of a zombie company.
How can a business avoid becoming a zombie company?
When companies begin to encounter financial difficulty, it usually becomes a slippery slope. Without sufficient cash flow or money to invest in the company, it can be hard to recover. But with the right approach and plan in place, it’s possible. Here are some key steps to help you bounce back.
Companies that quickly realise their financial difficulties are often the ones that succeed in turning their fortunes around. Once you fully analyse your situation and commit to making changes, you will find that this can have a positive impact on cash flow and revenue.
Look at your credit control, communicating with your customers to encourage earlier payments can be fruitful. Look at your marketing strategy, what is the company’s unique selling point, how can this be used to generate more sales? Look at the sales process itself, do you convert enough enquires, when converted do you have a high retention rate? Remember to act rationally and be decisive with your decisions.
Gather as much information from your suppliers and financiers quickly. To get as much breathing space as possible you may be able to negotiate, extend or restructure your credit facilities.
If you want to turnaround a difficult position that you believe could lead to insolvency, you should seek professional advice. Business and insolvency specialists MGJL aim to help companies restructure their financial commitments and move forward without the historic difficulties.
All information is intended solely for informational purposes and should not be used as a substitute for specific professional advice.