Organisations can be labelled a ‘zombie company’ if they are stretched too thin and making little to no profit. These companies meet their immediate financial obligations but provide no room for debt reduction, growth, or investment.
Zombie companies can usually be kept in business for three reasons:
- Extension of credit agreed with suppliers
- Banks relaxing the terms of their credit facilities
- Entering into a time to pay agreement with HMRC
How can a business bounce back?
When a business runs into trouble, things often become worse from there on out. Without the money to invest in new processes or staff, it’s difficult to recover. However, with the right plans in place, it is possible, as long as you take the right approach. Here are some tips to help get you on the right track:
- Act early - Businesses that realise early on that they are in trouble and fully commit to turning the situation around are more likely to succeed in doing so. Assess your situation and make changes that will immediately have a positive impact on revenue and cash flow. Set out your objectives and construct a plan on how you will achieve this.
- Gather information - Look at your financial data, cash is king, so look at your cash flow. It may be possible in the short term to restructure or extend your financial credit through communication with your suppliers and financiers as quick as possible, to get as much breathing room as you can. Remember whatever you agree should be in line with your cash flow forecasting, to ensure the best chance to keep up with any arrangements in place and build good relations going forward.
- Talk to your customers - You may have to make changes to the invoice scheduling and terms of payment. It is critical that you communicate with your customers to encourage earlier payments improving cash flow.
- Cut costs - Review your bank statements, what expenditure is really necessary for the running of the business? Look to cut back any unnecessary expenditure to free up cash.
- Seek professional help - In order to make the correct changes, as an organisation you should seek professional help. MGJL recommend speaking to advisors who have experience with zombie companies and insolvency. They can help show you how to restructure both your financial commitments and operations to maximise your chances of recovery.