Zombie Businesses – What to Expect in Your State During the Economic Recovery
Zombie businesses are the dead weight left behind by failed businesses. In economic terms, a zombie business is an unprofitable or stagnant business that requires huge bailouts from investors in order for it to survive or an unsecured debt-free business that cannot pay back the principal but not the interest. The definition of a zombie business may be fuzzy, but the concept is fairly simple. A zombie business does not earn any profit, it is entirely cash-flow dependent and its financial assets, such as property, are protected in bankruptcy even if the business ceases to exist. Any cash flow generated by the business is considered as pre-tax income.
Business initiatives aimed at preventing zombie businesses are in high demand. Some of these measures include the Small Business Administration’s Spring Forward Program, the Real Estate Acquisition Program (also known as the Investing in Real Estate Program), and the Small Business Administration’s Shift in Policy (SOAP). Many companies and businesspersons have experienced, firsthand, the hazards associated with being a “zombie” business. This is why the federal government has been prompt in providing governmental assistance.
Rise of the Undead: One Zombie at a Time
How did this condition arise? There are many factors responsible for the rise of the undead. One of them is the sudden outbreak of the so-called “petromenza”. As if that were not enough, there is also the issue of excessive credit card use by consumers. As more households are finding themselves literally stuck with no cash to pay their creditors, many businesses have been forced to take on unsecured loans that exceed their means and ultimately result in a default. These defaults result in an influx of debt that has become a breeding ground for the proliferation of zombie businesses.
Another cause for the rise of zombie businesses is the widespread default that occurred during the initial period of the outbreak of the global pandemic. There are still many companies that are struggling to meet payroll due to a large number of lay-offs. In addition, many companies have resorted to increasing their employee sizes in an attempt to keep up with demand, which has only made matters worse for them and now puts them at risk of closure.
The Zombie Debate
What can be done to solve the problem of zombie companies? The solution lies in convincing the U.S. Congress to fund the businesses through the emergency fiscal relief programs currently in place. Although these programs have already been pushed aside due to the sequester cuts that have occurred, September is still a very important month for the American economy.
In order for the government to regain the confidence it has lost due to its inability to pass a timely debt relief bill, it is important that the president has sufficient political support. With many congressional representatives opposing any type of stimulus plan, this may not be possible. However, the lack of support from the U.S. political establishment may very well work to the advantage of those small businesses that have gone out of business due to the current economic situation. If enough members of Congress are against the passing of any type of relief measure, the failing businesses will continue to stay closed until there is an acceptable solution.
Preparing for Zombie Companies: What You Need to Know
It is likely that many businesses that have gone out of business due to the economic crisis will begin to reappear in the next few months. Because there is no clear signal of when they will start to reappear, it is best for business owners to take steps now in preparation. Most businesses that are in financial distress do not have a long and positive future ahead. Many of these zombie companies have already reached financial insolvency and will most likely continue to struggle. For the sake of their futures, it is in all businesses’ best interest to contact their creditors and ask for a debt restructuring or payment holiday.
In order for the economic recovery to succeed, it is essential that both small businesses and large corporations remain financially stable. Without the necessary financing, it is unlikely that either could remain in business if their cash flow begins to dry up. It may be too late for some businesses to save themselves from the impending zombie wave, but by taking immediate action they can help their companies survive the worst of the recession and get them back on their feet once again.
Zombie businesses are the dead weight left behind by failed businesses. In economic terms, a zombie business is an unprofitable or stagnant business that requires huge bailouts from investors in order for it to survive or an unsecured debt-free business that cannot pay back the principal but not the interest. The definition of a zombie…