Zombie Businesses fall linked to lower insolvency rates

15 July 2013

The number of so called "Zombie Businesses" has been declining significantly in the last quarter when compared to the same quarter last year.

According to Red Flag Alert, the research service for Begbies Traynor, levels of ‘critical’ financial distress among UK businesses have fallen 39% compared to Q2 2012.  This is a significant fall in numbers.  The decline from Q1 of this year was 9%.  Interestingly the fall has been seen across all sectors of the economy with food and leisure performing particularly well.

Critical problems by sector:

Sector Q2

2012
Q2

2013
%

Change
Q1

2013
Q2

2013
%

Change
Automotive 127 83 -35% 91 83 -9%
Bars &  Restaurants 223 172 -23% 135 172 27%
Construction 988 516 -48% 630 516 -18%
Financial Services 86 60 -30% 84 60 -29%
Food & Bev Manufacturing      
Beverage Manufacturing
26 14 -46% 22 14 -36%
Food Retailing 64 44 -31% 43 44 2%
General Retail 244 179 -27% 168 179 7%
Hotels 38 43 13% 31 43 39%
Ind Transport  Logistics                 115 65 -43% 67 65 -3%
Leisure 37 23 -38% 38 23 -39%
Media 87 59 -32% 67 59 -12%
Other Manufacturing 246 222 -10% 208 222 7%
Others 305 127 -58% 122 127 4%
Printing &  Packaging 34 22 -35% 24 22 -8%
Professional Services 158 64 -59% 66 64 -3%
Real Estate 326 229 -30% 227 229 1%
Spors &  Recreation 33 24 -27% 34 24 -29%
Support Services 264 153 -42% 169 153 -9%
Telecoms & IT 124 102 -18% 110 102 -7%
Travel Tourism 60 32 -47% 44 32 -27%
Uncoded 1,206 640 -47% 785 640 -18%
Utilities 3 8 167% 4 8 100%
Wholesaling 153 120 -22% 114 120 5%
All Sectors 4,947 3,001 -39% 3,283 3,001 -9%

Critical distress is defined by serious delays in processing payments and outstanding legal actions by creditors.  In addition the alert service monitors the general financial health of the companies by monitoring their results posted at Companies House.

The economy has certainly been improving over the last few months which is reflected in these figures. However, still the greatest risk to small companies is the lack of finance.  There are many alternative forms of finance out there that are not attached to the main banks.  See this page on finance for details.

Alternatively if the business is really struggling then a CVA or company voluntary arrangement is often the best solution as a proportion of the debt can be written off.