Warning of big rise in zombie companies as challenging economic conditions continue
A business advisor has warned that the number of North West mid-sized companies at risk of becoming a ‘zombie’ company has risen.
This is due to the effect of rising costs and challenging economic conditions which have left little breathing room for growth, says new research from accountancy and business advisory firm BDO.
In the past 12 months, one in six mid-sized businesses in the North West (16.5%) have been deemed to be at risk of being so-called ‘zombie’ companies – an increase of 3.7 percentage points versus the previous year’s figures.
Nationally, 15.9% of mid-sized businesses are classed as ‘at risk’, a year-on-year increase of 3.5 percentage points.
Zombie companies are those that generate just enough cash to continue operating and service their debt, but not to invest in growth.
The BDO tracker, which analysed more than 20,000 businesses with a turnover of between £10m and £500m, found that very few sectors have been able to buck the trend, with all but two showing a notable increase in the number of ‘at risk’ businesses.
UK-wide, real estate has the highest number of ‘at risk’ companies this year, with a quarter of the sector (25.1%) exhibiting signs of a zombie business.
This is an increase of 10.1 percentage points versus the prior year, highlighting the ongoing impact that relatively high interest rates, economic uncertainty and supply chain disruptions are having on the sector.
Leisure & hospitality has dropped one place to second, with 23.4% of businesses at risk, while mining and quarrying is the biggest riser in third, with the percentage of at risk businesses in the sector increasing by 11.9 percentage points to 20.7%, due to rising energy and input costs and weakening global demand for raw materials.
Kerry Bailey
Kerry Bailey, partner at BDO in the North West, said: “In light of the challenging economic conditions over the past 18 months, it’s no surprise that the number of mid-market businesses at risk of becoming zombie companies is on the rise in the North West.
“Although many have managed to navigate a difficult post-Covid environment, rising borrowing costs and inflationary pressures have significantly impacted their financial stability.
“Some of these companies cannot afford to wait for market conditions to improve, particularly in light of upcoming increases to employers’ National Insurance contributions, the National Minimum Wage and the National Living Wage, all of which will have a direct impact on profitability.”
Geographically, of the 12 UK regions, 10 have between 13%-18% of at risk businesses. Greater London has the highest concentration (17.8% and up from 13.3% in 2024), followed by the North East (17.6%).
Ben Peterson, partner at BDO and author of the report, said: “In general, mid-sized businesses have been hugely resilient in the face of geopolitical tensions, Covid-19 and Brexit. Over the last decade, these businesses have significantly contributed to UK GDP and overall employment numbers.
“However, while resilient they are not invincible. There is now a proportion of businesses in the North West that will require more transformational action to ensure they can prime themselves to survive the coming economic turbulence – whether that’s short term actions such as challenging the cost base and undertaking a rapid assessment of the business’s pricing strategy, to more medium term actions, including rightsizing the organisational structure or divesting underperforming areas of the business.”
He added: “Addressing these issues now will be fundamental to the business’ longer term health and protect shareholder value.”
BDO’s tracker defines businesses as at risk if they had a five-year annual compound turnover growth rate of less than five per cent and an interest cover ratio in their latest financial year of less than two times. The data analysed was sourced from the latest publicly available financial data per Companies House.
