Latest data shows 1 in 6 UK mid-market businesses are ‘at risk’ of being or becoming a ‘zombie’. This is a sharp increase of over 600 businesses (3.5 percentage points) in the last 12 months.
These newly published figures are from the international network of public accounting, tax, consulting and business advisory firms BDO.
It says: “Previous reports showed only modest year-on-year increases, but the mounting pressures from rising borrowing costs, high energy prices, unstable consumer sentiment, and inflation are now starting to show in our data.
“Real Estate Activities, Leisure & Hospitality and Mining & Quarrying are the sectors most vulnerable.”
“The latest tracker shows a significantly weakened position. We are beginning to see the effects of increased borrowing costs, high energy costs, unstable consumer sentiment and wider inflationary pressure.
“A significant 15.9% of the UK mid-market are deemed to be ‘at risk’ of being a so-called zombie. This represents a sharp rise of 3.5 percentage points in 12 months, up from 12.4% in February 2024.”
Zombies are companies that earn just enough money to continue operating and service debt but are unable to pay off their debt. Such companies, given that they just scrape by meeting overheads (wages, rent, interest payments on debt, for example), have no excess capital to invest to spur growth.
Among the pressures on businesses as revealed by the BCC (British Chambers of Commerce) a 1.2 percentage point increase to 15% and a reduction in the salary threshold from £9,100 to £5,000, are significantly changing business plans.
It says that 82% of businesses are reconsidering their plans.
The BCC analysis, which polled around 1,300 firms, highlighted widespread dissatisfaction with government policymaking, with 79% believing the effects of new policies are not being properly assessed.
Alex Veitch, director of policy at the BCC, said: “Firms are already telling us they are sitting on a powder keg of costs,” indicating that many will need to raise prices and reassess recruitment strategies.
BDO urges businesses to take action as soon as possible.
“Companies that are currently ‘at risk’ with low profitability and high debt burdens need to address their resilience and take action.
“The strength of company balance sheets often depends on the level of funds shareholders have taken out as dividends, the amount of debt taken, or the amount invested in new products and assets. This will impact a company’s options and the time available to implement changes or turnaround actions.”
As ever our advice is to keep a close eye on business finances and to help you do this you can download our free cash management tool here to help you https://lnkd.in/ee3pfuGa
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