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Zombie state spreads like virus
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www.businessmag.co.uk
The number of ’zombie businesses’ in the South East has increased dramatically in the past nine months from 5,000 to 23,000.
Local insolvency experts warn the figures suggest the economic recovery is putting pressure on some businesses rather than making their lives easier.
Experts from the Southern Committee of R3, which brings together insolvency practitioners from local accountancy, legal and recovery firms, say thousands of businesses risk getting stuck in a state of limbo where they are still in business but with little chance of growth.
Zombie businesses are defined as those that can only pay off the interest on their debts rather than paying off the debts themselves. In November 2013 the number in the South East dropped to a record low of 5,000. But latest figures show the number has skyrocketed to 23,000.
Andrew Watling, chairman of the Southern Committee of R3, the insolvency trade body,
and a director at Quantuma in Southampton, said: “The first flush of growth generated plenty of cash for businesses but now some are experiencing the side-effects of growth too. Over-trading and late payment can easily put businesses with bulging order books in a position where cashflow becomes a major headache.
“Businesses will get into trouble if they’re trying to run before they can walk and don’t get paid quickly enough for the work they’re doing. Access to new finance is still tight so businesses low on cash have limited options to give themselves some breathing room.
“Making the minimum payments on debts or renegotiating payment terms with creditors can free up some extra cash and buy some time, but it’s not a long- term solution. Healthy cashflow is critical.“
Among the members of R3 are representatives from Moore Stephens, Chantrey Vellacott and Blake Morgan.
Business confidence continues to climb
The latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM) has found that confidence in the region rose to an all-time high. At +41.7, the Index passes the previous record set in Q1 2014.
Companies in the South East have seen a healthy increase in profits over the past year, rising by 5.5% during the year. This has however been driven largely by domestic demand, with exports remaining flat. While the region has the lowest unemployment rate in the UK, at just 5.2%, the availability of non- management skills is now more of a challenge than a year ago.
Andrea Dunhill, ICAEW regional director for London and the South East, said: “It is great to see that confidence in the South East is bucking the national trend. However the imbalances in our economic recovery continue to persist – our exports remain
weak, and finding skilled workers is proving difficult. We look to the Bank of England and the Government to work harder to ensure that the recovery is placed on a broader footing before we see this optimism erode away.“
Ian Smart, London managing partner at Grant Thornton, commented: “The positivity from South East businesses is an encouraging sign, particularly as the region plays such a pivotal role in supporting wider UK trade links into the continent. As demand for British goods and services picks up abroad, this confidence should only increase and translate into tangible business opportunities for British companies. However, with the lowest level of unemployment in the UK, ensuring supply meets demand through a variety of job roles and skills sets could prove a slight challenge.“
THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – OCTOBER 2014
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