The latest research from BDO has indicated an increase in the number of UK mid-sized businesses at risk of becoming ‘zombie’ companies.
In the past year, approximately one in six mid-sized businesses (15.9%) have been identified as at risk, marking a 3.5% point increase from the previous year’s data.
Zombie companies are firms that generate enough cash to cover operating costs and service their debt but lack the resources to invest in growth.
The BDO tracker reviewed more than 20,000 businesses with turnovers ranging from £10m ($12.6m) to £500m ($630m).
It revealed that this trend is widespread, with nearly all sectors except two experiencing a rise in ‘at risk’ companies.
The real estate sector has been particularly affected, with 25.1% of companies showing signs of stagnation, an increase from the previous year.
The sector’s challenges are aggravated by high interest rates, economic uncertainty, and supply chain disruptions.
Leisure and hospitality now rank second, with 23.4% of businesses ‘at risk’.
Meanwhile, mining and quarrying has seen the largest sectoral increase, with ‘at risk’ businesses climbing to 20.7% due to surging energy costs and decreased demand for raw materials, according to the research.
Regionally, Greater London, the North East, and the South East have the highest proportion of businesses at risk.
Greater London leads with 17.8%, an increase from 13.3% in the previous year, followed closely by the North East.
BDO’s criteria for ‘at risk’ businesses include a five-year annual compound turnover growth rate under 5% and an interest cover ratio of less than two times in the latest financial year.
The analysis is based on the most recent financial data available from Companies House.
BDO partner Ben Peterson said: “In light of the challenging economic conditions over the past 18 months, it’s no surprise that the number of mid-market businesses at risk of becoming zombie companies is on the rise.
“Although many have managed to navigate a difficult post-Covid environment, rising borrowing costs and inflationary pressures have significantly impacted their financial stability. Some of these companies cannot afford to wait for market conditions to improve, particularly in light of upcoming increases to employers’ national insurance contributions, the national minimum wage and the national living wage, all of which will have a direct impact on profitability.”
Earlier in February 2025, BDO announced a partnership with NAVEX to enhance governance, risk, and compliance services by integrating NAVEX’s platform, NAVEX One, with BDO’s client services.
