Lots of small start-up companies look for investors, and putting your money behind one can be a good move for your long-term financial prospects. However, before you invest your hard-earned cash in a business, make sure that it isn't a zombie business. Here is what you need to know to protect yourself from this peculiar variety of the walking dead.
What is a zombie business?
A zombie business is one that has been stuck in a state of zero growth for a while. Its debts are so high that any cash it generates can barely cover the interest and there's nothing left over that will allow the company to expand. Companies like these can stubbornly hang on for an extended period of time without folding—but they certainly can't be called thriving or growing.
Can you tell if the business is a zombie just by looking?
Sometimes you can tell that a business is clearly already dead, even if it hasn't stopped operating yet, just by making a visual inspection of the operation. When you look at the business, is it well-maintained? Are the grounds professionally kept and is maintenance regularly performed? If the bushes need to be tended and weeds are growing through the hardscaping, that's a good sign that there isn't enough money to cover any "extras." Broken windows or equipment that's been amateurishly repaired are also signs that a company is trying to make do without incurring extra expenses.
What other signs indicate that a business is a zombie?
Another sign that you might be looking at a zombie company is if the company has gone through a period in the past where it restructured, cut down its staff and maybe its services. If the company has since refocused and started expanding in new directions, that's a sign that the pruning was necessary and healthy. If the company hasn't made inroads in new areas, that's a sign that it's just sacrificing anything it doesn't need to keep shuffling along.
Another sign that a company is among the walking dead is an insular culture that ignores the changing environment and times. If a company hasn't paid attention to emerging technology, that's a recipe for an apocalyptic failure. For example, Blockbuster Video was so convinced of its supremacy in the video business that it failed to adapt to the online market that Netflix captured, leading to massive financial failures after a prolonged decline. Warning signs in smaller businesses include things like employees who are so dedicated to the survival of the company that they're working for reduced pay or deferred pay.
Probably the best way to avoid being bitten by a zombie business is to hire an attorney to investigate the company's financial stability and prospects before you invest. For more information, contact a business attorney like one from Strauss Troy in your area.Share