Invasion of the Zombies!

2010 has seen a phrase used more and more in UK business circles: ‘Zombie Businesses’, companies that are dead on their feet, going nowhere which could fall into liquidation at any time.

Plimsoll reports show significant numbers of Zombie Businesses across most of the major business sectors, including aerospace, manufacturing, retail, tour operators, recruitment, double glazing, and even debt collection!  Commentators abroad have argued that keeping Zombie Businesses alive by continuing to throw money at them does more harm to the economy in the longer term: it’s far better to grasp the nettle and close businesses with dated business models and poor management sooner rather than later.  Japan is oft quoted as the example not to follow, America appears unwilling to learn from Japan’s mistakes, and it’s unlikely that our government has the stomach to deal with the problem: dealing quickly and clinically with Zombies would undoubtedly involve major job losses.

The banks are not lending to businesses with strong business models let alone Zombies.  HMRC have indicated they will not support unviable businesses.  Increasingly I see trade creditors reducing credit lines to businesses they see as weak, even if they are desperate for business.

Going forward, given the Japanese experience, I do not anticipate the government putting the banks under a huge amount of pressure to start lending again.  The coalition government will not want to be seen to be putting large numbers of private sector jobs to the sword, even if in the long term that could be the right thing to do.  They will do that indirectly instead, over time, happy that the banks carry the blame.  Unfortunately, because Zombie Businesses effect all around them, this means there is considerable pain yet to come across most business sectors: we are now paying for our failure to deal with Zombie Businesses over the last ten years.

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