The number of companies on the verge of collapsing is on the rise, warns national accounting firm RSM.
These so-called “zombie companies” have higher-than-average debt levels and are dragging down the Australian economy, according to a report from the accounting firm, titled The Rise of the ‘Walking Dead’.
The situation isn’t going unnoticed, with RSM’s research finding a large majority of business owners believe there has been an increase in “walking dead” companies in their industries.
A lack of cash was cited as the number one reason why businesses enter financial trouble, followed by inadequate systems and poor planning.
Of the 1500 business owners and consultants that participated in the RSM study, 23% nominated cashflow problems as the primary cause of businesses entering the realm of the “walking dead”, followed by 21% who nominated inadequate systems and poor planning. Another 16% said market conditions are to blame, while 11% said the situation is caused by the actions of the Australian Tax Office.
The findings come after it was revealed there has been a spike in the number of insolvencies in the past 12 months.
What is a “walking dead” company?
Peter Marsden, head of restructuring and recovery at RSM Australia, told SmartCompany a “walking dead” business is one that is on the verge of collapse.
“Walking dead are those companies that have very large amounts of debt,” Marsden says.
“They break even or make a small profit. They’re only making ends meet because interest rates are low. As soon as there’s in increase in rates, or there’s any action by creditors to recover debts, they’ve got nothing.”
Marsden says walking dead companies are a big concern, given given businesses collectively owe the ATO around $34 billion.
“They [the ATO] need to recover that money to pull it back into the economy and encourage growth and do all the things the politicians say we need in the election campaign right now,” he says.
What can be done to tackle the “walking dead”?
There is “no doubt” the ATO will continue to crack down on businesses that owe it money, according to Marsden.
“This started 18 months ago and everyone I talk to at the tax office say it’s our clear objective to recover that money,” he says.
Apart from the ATO taking action, Marsden says there are practical steps business owners can take in order to address potential financial trouble.
Get SmartCompany FREE to your inbox every weekday.
“One of the biggest problems we have is people coming to us too late,” he says.
“There is always an opportunity to deal with the issues confronting your business, providing you do it early.
“You need to get an expert in the space that knows what they are doing.”