As a small business owner, you may not realise that your organisation is exposed to risk. This may include physical threats, such as a fire, or administrative threat, such as legal action from a third party.
In either case, you can protect your business by taking out insurance. We have a look at why this is important, and we find out what you should consider covering.
Tip: Your car is also worth protecting. Get a car insurance quote today.
The importance of being covered
According to Anton Ressel, strategic head of SME Support at Fetola, insurance is something you don’t necessarily realise you need until disaster strikes.
“Imagine you had a robbery and all your machinery was stolen, or a flood caused you to lose all of your stock. How long would it take you to get back up and running, and at what cost?” says Ressel.
He suggests that you weigh this scenario against the monthly cost of being covered.
“While paying an insurance premium every month can feel like a waste of money – especially when things are tight – it should be one of the very first things any business owner budgets for,” says Ressel.
“Business insurance can be relatively affordable, and most insurers will craft something to suit your budget, even if it means you are not 100% protected, or have to pay a higher excess when making a claim,” he says.
What should you cover?
Ressel points out that insurance requirements depend on your business model and risk profile.
For example, a business that manufactures products will have different needs to a tour guide or a retail business. But, overall, the most important principle is to have some cover for your assets, your revenue, and your liabilities.
According to Fiona Fitzpatrick, managing director at IF Brokers, many business owners only cover what they are contractually obliged to cover, such as items under finance agreements. However, she believes that cover should include more than the required minimum.
She explains that if loss or damage happens to a critical tool or asset, this can hinder trade or make you close up shop entirely.
“When considering the risks that your business faces, you should start with the critical items in order to make sure you can continue to operate under dire circumstances,” says Fitzpatrick.
A financial analyst can assist with the purchase of keyman cover - a form of life cover - for the business, and income protection for you as a business owner. This will cover you in the event that something happens to you which renders you unable to work.
From a non-life perspective, she explains that you should look for cover that would protect your business from catastrophic situations where your entire service could be destroyed.
“If a business suffers damage at the premises as a result of catastrophe, business interruption insurance will cover the financial impact for a set period of time, or until the business is back up and running,” says Fitzpatrick.
She makes note of SASRIA, a specialist insurance company that offers cover for physical property and loss of revenue during riots, strikes, and special risks that South African businesses face.
Legal liabilities are another consideration, and this is often overlooked by busy business owners.
“If any negligence causes damages to a third party, the business can become liable for damages. Even in circumstances where the business is not negligent, but it stands accused, there could be large legal defence costs which would follow,” says Fitzpatrick.
She says that she has seen many businesses close after experiencing damages as a result of a catastrophe or a legal liability when there was no insurance in place.
If you plan to expand your small business, consider a personal loan.