Recruitment today: massacre of the zombies?
Anthony Haynes (pictured) writes: A recent article in Recruiter points to an increase of insolvencies amongst recruitment companies. In 2023-24, 413 agencies went under. Insolvencies are obviously very bad news for the owners, investors, and employees of the businesses concerned.
But the harsh fact is that they are less obviously bad news for the sector as a whole. The article points out that "The slowing of the recruitment market is seeing more recruiters struggling to service the debt that they took on during the pandemic".
In other words, insolvencies are in part the result of a shake-out of what are known as zombie companies (characterised by Wikipedia as "Zombie companies are indebted businesses that, although generating cash, after covering running costs, and fixed costs (wages, rates, rent) only have enough funds to service the interest on their loans, but not the debt itself. As such, they are generally dependent on the refinancing of maturing debt for their continued existence and may face solvency risks should interest rates rise or investors withdraw from further financing".
The question of how much debt companies should incur is quite complex and inevitably a matter of judgment. Our approach has always been an ultra-cautious 'boot-strapping' approach: that is, we finance growth out of profits rather than debt.
In many conversations over the years, particularly when the base rate was low, people have suggested that this strategy was restricting the rate at which we could grow. We've always felt that was a fair comment - but one that we were happy to live with, because we prefer the reduced level of risk to the business itself and to colleagues' livelihoods.
Now that the UK base rate is over 5% and the labour market is far from buoyant, those erstwhile advisers are, strangely, keeping a low profile