The number of mid-sized businesses at risk of becoming 'zombie' companies has risen in Yorkshire and the North East, as economic challenges and rising costs squeeze financial stability, according to new research from accountancy and business advisory firm BDO.

In Yorkshire, one in six mid-sized businesses (15.1%) are now considered 'at risk'—a 2.3 percentage point increase from the previous year. The North East fares worse, with 17.6% of businesses classified as at risk, marking the second-highest concentration of vulnerable firms in the UK and the largest annual rise of 6.2 percentage points.

Nationally, 15.9% of mid-sized businesses are at risk, up 3.5 percentage points year-on-year. Zombie companies are defined as those that generate just enough cash to continue operating and service debt but lack the means to invest in growth.

The BDO tracker, which analysed more than 20,000 businesses with a turnover between £10m and £500m, found real estate, leisure & hospitality, and mining & quarrying to be the most vulnerable sectors. Nationally, real estate leads with 25.1% of businesses at risk, up by 10.1 percentage points. Leisure & hospitality follows at 23.4%, while mining & quarrying saw the biggest increase, rising 11.9 percentage points to 20.7%.

Mark Thornton

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, increased 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. Proactive actions will be critical to maintain stability and protect shareholder value.

Ben Peterson, partner at BDO and author of the report, added:
"In general, mid-sized businesses have been hugely resilient in the face of geopolitical tensions, Covid-19 and Brexit. Over the last decade, these businesses have significantly contributed to UK GDP and overall employment numbers.

"However, while resilient they are not invincible. There is now a proportion of businesses in Yorkshire and the North East that will require more transformational action to ensure they can prime themselves to survive the coming economic turbulence — whether that’s short-term actions such as challenging the cost base and undertaking a rapid assessment of the business’ pricing strategy, to more medium-term actions, including rightsizing the organisational structure or divesting underperforming areas of the business. Addressing these issues now will be fundamental to the business’ longer-term health and protect shareholder value."

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

BDO’s tracker defines businesses as at risk if they had a five-year annual compound turnover growth rate of less than 5% and an interest cover ratio in their latest financial year of less than two times. The data analysed was sourced from the latest publicly available financial data per Companies House.