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In difficult economic times, it’s important that you carefully watch how your business allocates its hard-earned money.
This is particularly true when it comes to your insurance cover. Small to medium-sized businesses may have limited cash flow and potentially have insufficient cover in the event of something affecting their ability to do business.
We often find that small to medium-sized businesses focus on insuring portable, expensive all-risk items like cellphones and tablets, or tools on the back of a bakkie.
They are usually focused on what can affect their 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.
What you need to think about
Our experience shows that less than 20% of small and medium-sized businesses have insurance cover for business interruptions.
Premises are often covered because they have to be when they are financed via a property loan.
However, there is often no cover for the potential risks of not being able to conduct business for an extended period of time.
What would happen, for example, if a fire burns down an engineering company’s workshop and ruins one or two specialised machines?
The cost of rebuilding the premises and replacing the machines would be covered under a standard commercial insurance policy.
But what about the fact that it may take six months for new machinery to be ordered and shipped from Germany? Who pays for the associated loss of income, so that the business can continue to meet its many expenses over those months? More importantly, do you know that you can insure your business against such eventualities?
Questions to ask your adviser
The first step to making sure that your business is properly covered is discussing business interruption insurance with your adviser – which options exist and which are most suitable.
It is also a good idea to re-look your existing insurance cover to make sure it is still sufficient.
There are many different risks that can be classed as arising from a business interruption. These vary considerably from sector to sector and company to company. A few of the more common risks include:
If a company’s trade is interrupted, how will it honour its financial commitments, such as an overdraft, salaries or a set of lease agreements? How will it pay for stock that has been ordered but not yet delivered?
What about discounts that have been negotiated? Will they still stand? If not, what will that cost the company when it resumes operations?
Are there any expansion plans in place that still need to be paid for (such as a second warehouse being built)?
What is the risk of losing skilled staff, and the cost of retaining them during the interruption period or replacing them if they decide to leave?
It is reassuring to know that you can insure yourself against such risks, so that the success of your business is not jeopardised by unexpected adversity. Because business risks are so diverse, it is best to consult a qualified adviser who can help you to assess and quantify your unique risks.
Time spent on in-depth analysis will ensure business continuity in the event of a major interruption.
*Bertus Visser is chief executive of distribution at PSG Insure
