By Matthew van den Heuvel, Joint Group CEO at Econorisk.
Starting a business is both exciting and challenging.
The risks faced by small businesses are not significantly different to the risks faced by their larger counterparts. Risks are indiscriminate by nature; the main difference lies in the impact of the risk on the business. Larger, established businesses have built up resilience over time and have the benefit of dedicated resources focused specifically on the risk management process. This process usually forms part of an enterprise risk management framework. Smaller businesses tend to be more exposed to risk as they generally don’t have these frameworks.
Small businesses should pay greater attention to the following risks:
- Business interruption events, which can jeopardise your income-earning capacity during the downtime
- Cyber-crime – the fastest growing economic crime in the world. South Africa is ranked third on Cyber Exposure Index’s most targeted list. SMEs without extensively sophisticated IT security systems make easy targets for cyber criminals
- Natural catastrophes and extreme weather events, which have intensified in scale and occurrence. The financial impact and potential liabilities from these events could be huge – devastating without an insurance policy offering protection against losses of this nature
When starting out, small businesses should consider how best to manage their risks. Building out a business plan is one element of starting a business, but understanding the risks you could be exposed to is something that should not be overlooked.
- Don’t choose insurance simply based on price. Insufficient or no insurance cover for a risk event can jeopardise the future of a small business. While cost is an important factor, small business owners should understand the scope of cover that comes with the premium charged
- Ensure you obtain multiple quotes from different providers to ensure you get the best solution at competitive rates. Take the time to look for the best insurance partner
- Find an insurance partner who can advise you on the terms and conditions of the cover. Not understanding your policy – especially your obligations as the insured client – can lead to unnecessary and costly headaches when claiming, with the worst-case scenario being an outright rejection of your claim
An intermediary or insurance broker can assist you in helping to manage the risks your small business may face. Brokers work with and for their clients in order to source insurance options from different providers that best suit their clients’ needs.
There is a common misconception that an insurance broker is expensive to use. In fact, a broker can actually assist clients to bring their insurance costs down by sourcing and negotiating the best rates with different insurance providers. Additionally, a broker assists their clients in the unfortunate event of a claim and can manage the claim from notification to settlement. With this in mind, it makes sense for small businesses to use a brokerage to help them manage their risks.
The small business sector is growing in South Africa and will play a key role in the economic future of our country. We advise that risk management should not be an afterthought that is only considered once a company reaches a certain size. We work with our clients using our insurance advisory services to better address the needs of small businesses and build a partnership based on solid risk management principles and practices.