Zombie companies

By Susan Moor | Published: 09 December 2011 | Comments (2)

"Something is getting in the way of the process of "creative destruction" usually associated with recessions – the natural market mechanisms that would allow one generation of companies to be replaced by another. Capital should get reallocated from non-traded goods and services to tradeables when the exchange rate falls as it has, but that's not happened.

"The fact that banks dare not recognise large tracts of what are effectively bad debts – this is especially the case in overborrowed commercial property – for fear of the damage it would inflict on solvency may help explain why things aren't changing more swiftly. Britain has become a zombie economy. Capital is no longer being allocated efficiently."

Jeremy Warner, Assistant Editor, The Daily Telegraph, 29 September 2011. Read the full article.

So is this really the case? Will 2012 see the rise of more and more zombie companies? And crucially, is there a way out?

Well call it festive spirit and hope for the New Year – but I don't think our business community is about to be taken over by the living dead. I also think interim managers can play a vital role in getting capital through to businesses, particularly SMEs.

In his Autumn Statement the Chancellor announced his determination to ensure that UK SMEs are given the financial support needed; the Regional Growth Fund is being boosted by £1billion, alongside a £21billion credit-easing scheme, a Seed Enterprise Investment Scheme to be launched in April 2012 and a National Infrastructure Plan hoped to kick-start industry.  The key with this extra funding will be making sure it gets through to companies fast enough.

The reason of course that the government is having to step in is that funders, whether bank, venture capital, private equity or the markets, remain risk averse – understandably, but still it's not really helping anyone.

However there does seem to be a thawing. Data collected by the Bank of England under Project Merlin, which tracks the lending to UK businesses by our five major banks, shows a quarter-by-quarter increase in lending this year; from £47.3billion in Q1, reaching £57.4billion in Q3. The pattern of lending to SMEs however is a little more sporadic; £16.8billion in Q1, up to £20.5billion in Q2, but back down to £18.8billion in Q3.

Our SMEs are still suffering – and I think, interim managers have a part to play in helping to re-kick start these companies.

Over the past two to three years many SMEs have been locked in a round of cost-cutting, pricing as competitively as possible, fighting tooth and nail for new business, trying to deliver more with fewer staff and, when managers can spare the time, considering how best to innovate in this market to get ahead.

Few have been in a position where anything other than trying to refinance has been on the agenda – so if there is a chink of light in the thus far convincingly shut funding curtains, the chances are a large number of owner managers  may not know how to identify, package and propose a business case to secure investment. This is where interim managers can help to plug a skills gap.

An interim manager with the right background can guide a company through the securing investment process and ensure that whatever change programme is implemented is effective – giving the comfort factor not only to management but importantly to the funder.

Interim managers can breathe life back into a business – giving support and guidance to allow the existing management team to concentrate on the company's strategic development again. As we move slowly, oh so slowly, through recovery next year, the skills of the interim manager with expertise in the SME market will become more and more in demand.

Tags: Interim Management