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
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
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
He lists the following sections of standard commercial
insurance as must-haves when it comes to cover for small businesses:
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.
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.
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.
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.
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.
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