This article was first published in the 4th quarter 2017 edition of Personal Finance magazine.
CAPE TOWN - As a small businesses owner, it’s important to watch carefully how your business allocates its hard-earned money. You may have limited cash flow, and if something unexpected happens, such as a fire or robbery at your business, you would need sufficient insurance to cover your losses. Sometimes you have to spend some money to save some money. Below are some key considerations.
The roof over your head
Your business premises must be covered against structural damage such as that caused by fire, flooding or a burst geyser. If you are the owner of the premises, you are responsible for the maintenance of your building, but if you are renting, these responsibilities fall on your landlord. Keep in mind, however, that some rental contracts state that tenants are responsible for windows on the premises, or even cleaning gutters – so it is best to obtain clarity to make sure you meet any maintenance expectations.
Everything under your roof
Your business’s contents need to be sufficiently covered. The cost of replacing everything must be factored in, keeping in mind that you must also take inflation into account. You can also have all-risk cover for the items you take with you to and from work, such as your laptop and cellphone.
We find that small businesses focus on insuring portable, expensive all-risk items – those that can affect immediate cash flow. However, a more prudent approach is to focus on things that could interrupt your operations and ultimately put you out of business. It is possible to insure against business interruption. If your trading is interrupted, how will you cover stock supply and financial commitments such as your overdraft, salary and rental payments? Rebuilding what you lose may be next to impossible without cover.
Professional liability cover
Some professions provide advice and services to clients that can be costly if incorrect. Depending on the industry you’re in, there are specific elements to consider when determining the right cover to protect you against claims made against you. The limit of the indemnity cover is determined by various aspects based on your previous year’s gross fees and income, as well as current-year estimates and forecasts for the next financial year. To determine the premium and required excess, the insurer will look at your qualifications (and those of your business partners), insurance and claims history.
If you’re in the business of transporting goods to your customers, road accidents are a risk, and happen more often than you might think. Goods-in-transit cover does not extend to transporting your own goods (for example, if you are moving to different premises) but does cover goods you are delivering on consignment. This will cover you from the time the goods are loaded and secured at your business premises to the time they are offloaded at the consignee’s premises.
Fidelity insurance is designed to protect you against losses incurred as a direct result of fraud or theft by an employee. There are a few technicalities, such as that the employee that commits fraud must have gained financially. When the crime was committed will also have a bearing on the outcome.
Determining how much cover you need will be based on your risk profile and other relevant information, such as how many staff you have, stock flow and possible incentives to commit fraud. If your business sells luxury items, for instance, and the value of your stock is high, it will be more susceptible to crime, as it is physical stock that can be stolen.
For small businesses, stock theft or even low-level financial fraud could be financially crippling without cover.
Many business owners make use of the cloud to store data. Although this puts you at risk of your data being compromised or stolen through a cyber-attack, many of the same risks exist if your data is stored locally on your own server.
Risks can be difficult to eradicate completely, but you can insure against data risks under a cyber insurance product. As with any other type of insurance, providers will have certain requirements you must fulfil for them to assume liability.
It is reassuring to know that you can insure yourself against these risks, but commercial insurance does tend to be complex. It is, therefore, best to consult a qualified adviser who can help you to assess and quantify the risks unique to your business.
Bertus Visser is the chief executive of distribution at PSG Insure.
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