Concerns on zombie firms

"ZOMBIE" firms which survive by making only interest payments on debts are heightening concerns over the Midlands economy.

Turnaround specialists say the zombie phenomenon is on the increase across the region - while some firms continue to thrive.

Christine Elliott, CEO of the Institute for Turnaround (IFT), said: "Unfortunately, zombie companies are most likely to be small and medium-sized enterprises, companies which are the bulk and lifeblood of the local economy.

"Businesses most susceptible to becoming a zombie are in the retail, manufacturing and property sectors. There is an urgent need, before it's too late, to convert their pent-up economic potential.

"This is one of the biggest constraints holding the UK economy back and sorting it out will drive the recovery that our economy so badly needs."

Ms Elliott stressed that some businesses were still thriving despite the tough economic climate.

"They are quietly applying the turnaround skills that IFT members practice every day, including strong management; identifying and dealing with problems early; having a robust business model; staying close to the customer; pricing keenly; not over-diversifying and paying attention to their cost base. "Businesses that follow these principles are much more likely to do well, and their management should be celebrated. Time and again we see business es such as Barretts fail because they aren't making the operational changes necessary to achieve sustainability.

"Turnaround skills should be taught to every company finance director and CEO, because they reflect the core practices that will help businesses bring the economy back to its full potential."

Jon Moulton, IFT Fellow and founder director of venture capitalist firm Better Capital, said: "Over 80,000 UK companies would have been liquidated if the long-run interest rate had been applied to the past five years. Instead they may be operating as zombies."

Experts said the firms were "stuck in a kind of purgatory".