Kyriacos Floudiotis
Less than a fifth of South Africa’s small businesses have insurance, according to a survey by FinScope MSME. The great majority of small enterprises are unnecessarily exposed to the risk of events that could undo years of work overnight, at a time when legal disputes and access to affordable legal advice are growing concerns for many business owners.
If you are building a new business, it is understandable why insurance might not be top of your mind. You have enough demands on your time and attention: sales, margins, keeping clients happy and the lights on. You count every expense and weigh its value, and insurance can feel like one more cost for something you hope never to use. It is intangible in a way that stock, equipment and rent are not, so it slips down the list.
The risks, however, do not wait for you to be ready. Picture a fire in your premises. Your stock is gone, the building is damaged, and for weeks you cannot trade. You still owe rent and salaries, but no goods are moving and no clients are being served. For a large company, that might simply be a setback, but for a small business where regular cashflows are critical, it could be terminal.
Another reason for this chronic underinsurance could be a lack of awareness of the types of business cover available and their suitability for various stages of a business. Most people understand personal cover – car, home, life. Business cover is less familiar, and one of its useful forms, business interruption cover, is barely known. It helps safeguard your business from loss of profits due to property damage caused by an insured event like a fire or a flood to your business’s premises, which is often the difference between a pause or closing down.
There is a wide range of business insurance cover available, which can often seem overwhelming. Depending on the nature of your business, you may require cover assets such as vehicles, buildings, stock, and business equipment, as well as protection against the loss of profits through business interruption cover. These are just some of the types of cover available, and the right combination will depend on your business’s unique risks and circumstances.
A qualified insurance adviser can assess your needs and recommend a solution that fits your business. For many businesses, vehicle and building cover are good starting points, with additional cover added as the business grows and its risk profile changes. Two mistakes are common among newer owners. The first is overlooking the small things, like the equipment a business depends on, which is expensive to replace all at once. The second is informal self-insurance, where an owner absorbs a loss by dipping into the money meant to grow the business. While this may seem like a cost-saving measure, it can quickly become expensive. Money that should be used to hire staff, invest in new opportunities or expand operations is redirected towards recovering from an unexpected event. In this way, underinsurance does not only expose a business to risk; it can also hold back growth.
Part of running a successful business means recognising that legal support is not a luxury but a necessity. From contracts and compliance to disputes and regulatory requirements, having access to legal advice helps protect your business and supports better decision-making. Insurance is equally important, helping your business recover from unexpected events that could otherwise threaten its future.
Affordability is usually the real worry, and here the news is better than you might expect. Premiums are matched to the value of what you are insuring, so cover for a modest operation costs accordingly. You have control over the assets and risks you want to cover and how the policy is shaped, and cover can grow in step with the business. The aim is protection suited to the stage you are at and reviewed as your circumstances change.
Insurance need not be something daunting and can be usefully reframed as risk management. After all, as an entrepreneur you already weigh risk every day. You choose which clients to take on, which costs to carry, and when to expand. Insurance protection is an extension of that same discipline, a way of deciding in advance how much of a bad day you are willing to carry yourself. The value is partly financial and partly the ability to sleep at night knowing that one event will not erase what you have built.
The best place to start is by speaking to your banker or financial adviser about your business needs. They can help you identify areas where your business may be exposed to risk and, where appropriate, refer you to a qualified insurance adviser who can assess those risks and recommend suitable cover. Seeking the right advice early can help you make informed decisions and better protect your business for the long term.
First National Bank A division of FirstRand Bank Limited. An Authorised Financial Services and Credit Provider (NCRCP20). Insured by FirstRand Short-term Insurance Limited, a licensed non-life Insurer.
Kyriacos Floudiotis, Growth Manager, FNB Short-Term Insurance.
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