There has been much publicity in the financial press recently about the so-called zombie companies which are only being kept alive to prevent the banks taking further hits to their balance-sheets, whilst avoiding the utilisation of effective business recovery techniques.
Most of these businesses are technically bust but, so long as their bankers do not actually pull the plug, losses likely to be incurred by lenders in the event of bankruptcy are never actually crystalized.
Many would argue that this is not necessarily a bad thing since many of these companies might eventually recover as the general economic situation itself recovers. On the other hand however, traditional textbook economic theory maintains that recessions are always essential for healthy, long term growth because they create a redistribution of resources away from failing parts of the economy towards successful, expanding parts. In other words, by refusing to let the zombie companies finally go the wall, the banks are effectively depriving successful, thriving companies of funds and employees that they could use to grow their businesses more rapidly.
While such arguments might preoccupy politicians and economic theorists, the reality of the situation is rather more immediate for the directors and shareholders of the zombie companies themselves. As with any business that gets into real difficulty as the result of recession or some other reason, it is not a very comfortable position to be in knowing that its day-to-day existence is dependent on the whims and policies of banking committees.
Running a business which is living from hand to mouth is stressful enough for any management team but, when there is just one owner-manager, it can also be a very lonely existence, this not taking into consideration the business recovery process.
The best solution, especially for owner managers is to bite the bullet, swallow one’s pride and seek external advice. A business recovery or turnaround expert can take a dispassionate view of the situation and this alone can often prove to be half the battle. Most larger firms of accountants have business recovery specialists who can come into an ailing concern and identify problems which incumbent managers might have overlooked or not attached enough emphasis to. Being totally objective, their opinions will also be taken seriously by banks and creditors with the result that a business recovery road map can be established on which all parties are agreed.
If the position is totally beyond redemption, clearly they will have no option but to recommend voluntary liquidation and the appointment of an administrator. However, in most cases which are not too far gone, they will be able to identify solutions like asset disposals, restructuring and/ or the introduction of alternative financing to ease cash flow shortages. Where appropriate, they will generally be able to introduce additional equity or other forms of corporate finance.
HW Fisher & Company is a mid-tier top 25 London chartered accountancy firm – with business recovery services being one of their specialities. Their commercially astute organisation has a personal, partner-led service aimed at entrepreneurial small, medium enterprises (SMEs), large corporates and high-net worth individuals. Their reputation is grounded in quality, delivering premium advisory services efficiently and cost-effectively.
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