November is Entrepreneurship Month, which recognises the critical contributions of entrepreneurs and small business owners. As we shine the spotlight on entrepreneurs who serve their communities and boost the economy, it also is an opportune time to highlight the importance of protecting businesses, especially in these uncertain times.
This is the view of Lizo Mnguni, spokesperson at Old Mutual Insure, who says that if you are a small business owner, you have no doubt worried about how to protect your business against risks that could lead to large financial losses.
“Not remaining adequately insured remains a challenge for South African businesses. Policyholders are often underinsured because they are unaware of the consequences – which can leave them exposed when faced with unforeseen events. If your equipment is worth R300 000 and you only insure it for R200 00, only 67% of your loss will be paid out when you claim. This puts pressure on your cash flow and could be a significant knock for your business,” explains Mnguni.
Below Mnguni shares his top five tips to help entrepreneurs protect their businesses.
- Manage your risk. Take the example of this year’s KwaZulu-Natal floods. Few businesses thought the mudslides that occurred following the floods were likely, although the risk had always been there. Rather be covered for something that seems implausible, as we live in uncertain times.
- Know your responsibilities vs your insurer’s. It is important to know your policy wording and to be honest – especially in the event of a claim. Insurance policies have been made simpler to read and understand by insurers, enabling policyholders to be able to understand important information with ease and therefore to exercise more control over their policies. It is your responsibility and duty as the policyholder to have full disclosure to avoid any nasty surprises at claim stage. You may get a better insurance premium, but you risk heavy losses if your claim is rejected due to dishonesty.
- Pay attention to the excess on your policy. Small businesses with cash-flow issues can ill afford to pay a compulsory excess upfront when making a claim. Try to build up an emergency fund so you’re not short of money when you need it most.
- Avoid the risk of underinsurance, and check you have the right type of cover. Insure your machinery and equipment for the correct amount so you’re adequately compensated in the event of loss, especially as inflation is wreaking havoc on the costs of things. Getting the right cover can be confusing. “If you’re in retail, ensure you have product liability in place. If you sell advice, take out indemnity insurance in case you’re sued.”
- Get help. Economic uncertainty, disastrous weather events, and temporary business closures are just a few reasons why small business owners may not have the right cover in place, or worse, even consider cancelling their policies. Speak to your broker and get a professional risk assessor to look over your business. They can help you by assessing the potential risk to determine the likelihood of future losses and how to guard against them.