Number of companies at risk of becoming 'zombies' on rise in West Midlands, new research shows

According to research from from accountancy and business advisory firm BDO, in the last 12 months, one in six mid-sized businesses in the West Midlands (15.3%) have been deemed to be at risk of becoming a ‘zombie’ company – an increase of 0.9 percentage points versus the previous year’s figures. 

So-called 'zombie companies' are those that generate just enough cash to continue operating and service their debt but not to invest in growth.

This compares to 14.7% of businesses in the East Midlands – a figure which has risen from 13.2% since 2024.

Nationally, 15.9% of mid-sized businesses are classed as ‘at risk’, a year-on-year increase of 3.5 percentage points.

The BDO tracker, which analysed more than 20,000 businesses with a turnover between £10m and £500m, found that very few sectors have been able to buck the trend, with all but two showing a notable increase in the number of ‘at risk’ businesses.

“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 in the Midlands," said Ben Peterson, partner at BDO LLP in the Midlands.

“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.”

UK-wide, real estate has the highest number of ‘at risk’ companies this year, with a quarter of the sector (25.1%) exhibiting signs of a zombie business. This is an increase of 10.1 percentage points versus the prior year, highlighting the ongoing impact that relatively high interest rates, economic uncertainty and supply chain disruptions are having on the sector.

Leisure & hospitality has dropped one place to second, with 23.4% of businesses ‘at risk’. While mining and quarrying is the biggest riser in third, with the percentage of ‘at risk’ businesses in the sector increasing by 11.9 percentage points to 20.7% due to rising energy and input costs and weakening global demand for raw materials.

Geographically, of the 12 UK regions, 10 have between 13%-18% of ‘at risk’ businesses. Greater London has the highest concentration (17.8% and up from 13.3% in 2024), followed by the North East (17.6%).