THE growth and sustainability of Small and Medium Enterprises (SMEs) plays a significant role to solving South Africa’s developmental issues, says Jon-Jon Smit, Sales Director at CIB Insurance Administrators.
While small businesses employ just over half of the country’s labour force, a number of studies have shown that start-up South African SMEs have a failure rate of 75% – one of the highest in the world.
According to Smit one of the most important areas any start-up enterprise should consider is to correctly insure the operations of the business, such as the premises, stock, vehicles and machinery to ensure that the business will not be fatally crippled in the event of loss or damage to assets.
Considering that around 12.8million people are employed in South Africa, SMEs provide around 7.8million jobs, according to a World Wide Worx 2012 survey. Smit contends that it is therefore imperative for the health of the economy that these businesses succeed.
“While many start-ups have great business ideas, having strong financial and risk management practices are just as important to ensure the success of the venture”
Smit says one of the keys to running a successful enterprise is ensuring you have the necessary business insurances in place.
“When starting a new business, cash flow is often an issue. Unfortunately, in an effort to keep costs down, many small business owners choose to forego insurance cover, or to seek out the cheapest cover possible. He adds that a professional broker, who understands risk management, is best suited to advise the business owner of what cover is essential in the business in the early stages and as the business matures that it is adjusted to provide adequate cover.
He lists the following sections of standard commercial insurance as must-haves when it comes to cover for small businesses:
Fire Cover. This cover is taken as the basis of all insurance policies and is designed to insure against a potentially catastrophic loss of a building, stock, machinery and equipment such as electronic items. The cover extends to include storm and lightning losses as part of the insured perils.
Business Interruption Insurance. This section would be included to cover operating costs, such as wages in the situation where the business is not operational due to a claim such as a fire that has burnt down a factory and production and income are affected. The amount that is required for business interruption as well as the period for which the cover will remain in effect, are both considerations that would have to be borne in mind when electing this form of insurance. Again, a professional business insurance broker will be able to assist in giving the correct advice needed.
Theft Cover. This would cover the business owner’s stock and equipment in the event of a robbery. The cover need not be on a full replacement value, but rather for an elected amount which will be calculated through a consultative process with the business owner and the broker, who would once again assist in this process.
Public Liability Cover. This is available to insure loss or damage to a third party or a third party’s property whilst on a business owner’s premises. There are various extensions to this cover available such as products liability.
Motor Cover. This is particularly imperative for a business that relies on sales representatives who use their vehicles for business purposes or for businesses that use vehicles for transportation and delivery of goods. It is important to ensure that the description of use of the vehicle is correct and that the cover taken is as comprehensive as possible. Car hire following a loss under this section can also be an important addition to ensure minimal interruption to the business following a claim. If the business requires the goods or equipment which are being transported to be insured, this can be covered by adding the Goods in Transit section, which again, has various cover options.
“Given the general failure of the formal and public sector to absorb the growing number of job seekers in South Africa, increasing attention has focused on entrepreneurship and new business creation as a means of addressing the unemployment situation. While insurance is regarded by some as a grudge purchase, as a vital element of any business, the importance of having the right cover cannot be underestimated,” says Smit.
FIN24 – SME South Africa