With growing economic uncertainty, South African businesses face an increasing number of risks that could impact them financially. Entrepreneurs who have blazed a trail into successful business ownership might overlook a crucial aspect of running a business – that of insurance.
In the latest Allianz Global Corporate & Specialty’s global business risk barometer, business interruption was ranked as the second biggest risk that South African businesses will face in 2020.
“When your business has grown, it’s important to consider your responsibility to protect yourself and your employees – and one aspect of this is ensuring you have the right insurance in place,” says Bradley Du Chenne, CEO of online comparison website Hippo.co.za.
There are various insurable aspects of a business, ranging from your equipment, your vehicles, your staff and your premises to yourself as the business owner. While all of these are important, one of the most critical aspects of a business is its ability to generate an income.
“Should a business suffer loss of income, all other operational activities will cease. Business interruption cover will protect a business against this loss of revenue,” Du Chenne says.
He explains that this type of cover ensures the business can continue paying overheads and expenses, such as employee salaries and rent. To avoid an insurance shortfall, business owners should allow a sufficient coverage period included in the policy in order for the business to have the time to fully recover.
“Examples of disasters your business could face that could lead to loss of income include fire and storm damage, or if one of your suppliers suffers a loss that prevents them from providing you with goods and services. Each of these types of scenarios could impact your business operations significantly,” says Du Chenne.
He explains that an important consideration when it comes to business insurance is to accurately calculate how long it will take to overcome a disaster and have the correct sum total insured. This amount should be calculated based on the insurance gross profit and not on the financial gross profit of the business.
Financial gross profit refers to water, electricity and wages, while insurance gross profit takes into account uninsured working expenses, such as bad debt and discounts received and allowed. If business insurance only covers items that are included in the financial gross profit, the business will be underinsured since varying working expenses, such as wages for overtime, have not been taken into account.
Du Chenne says that if your production is interrupted, you’ll immediately start losing money. “So, having insurance in place will help you to get back up and running as quickly as possible. Business owners are advised to select the kind of cover that you need based on the business that you run,” says Du Chenne.
“You don’t necessarily have to tick all the business insurance boxes. But it’s important to consider all the risks you face in the course of doing business. Insurance can mean the difference between financial loss and protection.”