Zombie companies are businesses that have failed to make enough profit for three years or more to cover their debts.In “The Walking Dead,” Rick Grimes offers hope amidst the apocalypse: “If we start tomorrow right now, no matter what comes next, we’ve won.”
This concept gained prominence in 1980s Japan, when, during a period of economic upheaval, the government allowed companies to defer debt payments. Instead of using this cash influx to restructure, companies maintained the status quo. They ignored profitability, efficiency, and changing consumer needs. When the grace period ended, these zombies were in even worse financial shape.
With so much at stake, then, how can you identify if your company — or one you’re considering as part of a corporate partnership — is exhibiting signs of becoming a zombie company?Financial instability is often the most obvious sign. Look for high levels of debt relative to equity, with the company struggling to service it. Frequent refinancing, persistent losses and very low-profit margins are all red flags.
Don’t overlook human factors. Low employee morale, high turnover rates and a lack of transparent communication from leadership about the company’s financial health or future plans can all point to underlying issues. Consider your priorities. Would you rather be a $200 million company losing money, or a $100 million company making money? When it comes to priorities, profit must be king. This requires hard conversations , but profitability is essential to the health and longevity of any company.
Ensure operational efficiency. Use Lean Six Sigma practices to make sure you’re operating as efficiently as you can. Eliminate redundancies and non-value-added work.