Business recovery – How do you breathe life back into zombie companies?

business sunsetIt’s not a particularly pleasant sobriquet so you could be forgiven if your business looked in the mirror and didn’t recognise itself as a “zombie” company. You would however be doing yourself a huge favour if you took a good long hard look at your firm as if you were an outsider looking in. What do you see? A business just ticking over and waiting for the recession to end so that it can enjoy the benefit of increasing sales, profitability and cash flow or a company so mired in debt that it really isn’t capable of competing even in a more benign economic climate.

If you can privately admit that your business falls into the latter category, then you certainly aren’t alone. In fact, there are so many so-called zombie firms in the UK that they have attracted the attention of the European Commission who have stated, probably correctly on this occasion, that, collectively, they are hogging too much of the banking “pot” and preventing financial resources from being concentrated on businesses which are capable of expanding even in the current economic climate.

The argument goes that the zombies are only surviving because the banks don’t want to put them into receivership and see losses crystallised on their books. By taking these losses, they would further erode their capital reserves which would have to be replenished by other means such as getting in the business recovery experts. However, they would then also have recharged their lending ability which they could use to help prosperous companies to grow.

Happily, there is a third way that could enable many zombie enterprises to become less of a burden on the banking system and still give themselves a fighting chance of achieving sustainable progress. This requires them to talk to business recovery specialists who are experienced in restructuring companies especially those with very heavy borrowings.

This is not an exercise that can be easily undertaken by business owners since it requires experienced business recovery professionals looking at your company objectively. They will also have all the necessary contacts to provide external assistance.

Any restructuring which is designed to put a business back on its feet and make it viable once more very often involves a fresh injection of equity capital that is contingent on the bank taking some sort of haircut to enable a recapitalisation to take place. The banks are normally amenable to this since they prefer to have a chance of recovering some of their money rather than none at all.

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