How do you survive a zombie apocalypse?

Blog Economy

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What is a zombie company?  It is a company that can repay the interest on its debts but not the capital.  There is no cash to invest, recruit or grow.  The entrepreneur is unable to be paid market rate remuneration.

If this sounds like a few of your clients that’s no surprise, the low interest environment post credit crunch has enabled the survival of these companies which would have otherwise failed.

So is the survival of these zombies a good thing?

Well, no.  Who really benefits from a company which is so laden with debt that it cannot thrive?

  • The shareholders
    Zombie companies rarely post a profit and certainly can’t afford a dividend to shareholders. Ultimately the purpose of any company is to make profits which are then paid to shareholders.
  • The directors
    A non-shareholder director might appear to have a short term interest in keeping a sinking ship afloat. However, if they are being honest, wouldn’t they prefer to show what they can achieve having restructured or started afresh with a company that is not shackled with a poor cashflow?
  • The staff
    Perhaps the directors think that by soldiering on they are doing the best for their staff? Again this is short-termism.  How does it feel each year when they have to explain that in spite of inflation, “the company can’t afford any pay rises this year.”  In essence, they are giving staff an annual real terms pay cut to reward their loyalty and hard work!  This will lead to the loss of their best staff and an inability to recruit.  Hardly a recipe for success!
  • The banks
    Probably the party with the greatest vested interest in keeping the zombies alive. They are making profits from the interest and don’t want to write off the capital debt.

Americans have a positive attitude to business failure seeing it as a learning process.  Indeed, the mantra in Silicon Valley has become “fail often, fail fast”.  The British attitude is far less progressive with a perceived stigma overlooking the fact we learn from our mistakes and will invariably do better on our next attempt.

If the UK economy is going to match the growth in the US, we need to throw away these outdated values.  It’s no wonder the G7 ranking of productivity puts the UK behind all but Canada and Japan.

The last Bank of England monetary committee said rates would need to rise “earlier” and to a “somewhat greater extent” than envisaged in their November review.  Any apparent light at the end of the tunnel for a zombie company trying to survive will therefore edge away as 2018 progresses.

Now is the time to have a honest discussion with any zombie company clients and find out where they want to be in the future.

Gibson Hewitt can help your client through the process enabling them to restructure and restart with a healthy company which is ready to grow.

If you would like further advice, phone Gibson Hewitt on 01932 336149 to arrange a meeting with Lynn GibsonThe first meeting is FREE with no obligation.