Research shows that the most successful businesses are built in the most challenging economic and market conditions. Businesses forged and successfully grown in volatile and unpredictable environments, generally go on to thrive when market conditions improve.
With high unemployment exacerbated by a volatile macro environment and unfavourable domestic market conditions, “South Africa has never been more reliant on the imagination and tenacity of its entrepreneurs. Difficult times also present new challenges – and new opportunities to solve them,” says Christelle Colman, Insurance Expert at Old Mutual.
As any entrepreneur will tell you, the start-up phase of a business is the most unpredictable. It is also when fledgling businesses are at their most vulnerable. One thing that can help manage risk at this critical stage of a businesses’ life is, “a strategically thought through and applied minimum insurance package for start-ups,” says Colman.
Start-ups should focus on events that can cripple their business. One tends to think about assets that can be destroyed in a fire, explosion or in a flood, but often due to a low frequency of such events, decide not to purchase insurance. Although these events do not occur that often, it could be catastrophic if a fire destroys your property, even more so when you have a bond or a bank loan that still needs to be repaid.
Other events that may be overlooked is the risk of legal action against a start-up due to someone getting injured on their premises or loss or damage arising from the products they manufacture or supply. Start-ups generally require a basic combination of cover for: commercial liability arising from negligence, product liability arising from a product or service causing harm or damage, and credit insurance in the event that creditors don’t pay.
In short, “entrepreneurs turning light-bulb product or service ideas into winning businesses concepts should expect that either one or a combination of these covers will be necessary in those first volatile years,” says Colman.
When premises are new, accidents happen. When services are being pioneered things go wrong. New products get contaminated, break down or cause harm. And, “every business learns the hard way who pays and who doesn’t,” says Colman.
“Entrepreneurs should also take the time to talk to brokers,” advises Colman.
Developing a relationship with a seasoned broker who has been supporting businesses for years is extremely valuable for any start-up. Experienced brokers can very quickly identify the immediate and most dangerous risks faced by a new business, “putting together a minimum basic combination of cover – focused on key risk areas,” says Colman.
While tempting, in an internet age, to purchase business cover direct, “there is a lot to be learned from brokers who have been in the business of building businesses for years,” advises Colman.
Other risks that today’s start-ups should consider are; cyber, and travel and business interruption insurance.
When starting up a business, losing the business’s basic assets, “like the building it operates in, its equipment or machines, or its single delivery vehicle, can wipe out the business,” warns Colman.
As such, basic asset insurance, covering the assets essential to the operation of the business is a must for start-ups. Later, as the business expands to include more premises, machines, equipment or vehicles, “losing a computer here or a vehicle there becomes less of business-destroying event,” says Colman. In the beginning, however, “asset insurance, including property, contents, fire, theft and motor vehicle cover is essential,” she adds.
Old Mutual is also observing an increase in South African startups doing business with neighbouring countries as well as countries further afield in Africa. As South African business and trade expands into Africa, “commercial or corporate travel solutions should be part of any start-up working cross-border,” says Colman. In addition, companies taking clients cross-border, like tour operators working into Namibia and Botswana, for example, “should consider extending their commercial travel cover to include clients,” advises Colman.
Business interruption cover should also be considered by certain start-ups. Old Mutual found that during the Knysna fires, for example, many accommodation establishments that were fortunate in not being damaged by fire but still, “lost a lot of business from having infrastructure, like access roads and bridges destroyed, and water and electricity supply interrupted,” explains Colman. While not directly damaged by fire at all, “many clients nonetheless lost several months of income because of the fire,” explains Colman.
Fortunately, many other entrepreneurs have trod the same start-up path. As a result, the South African insurance market offers a variety of covers – and a lot of advice – for start-ups. No matter how original or unique a business, “give your business its best chance of survival by ensuring that the basic risks faced by all start-ups are covered, freeing you to build the best business possible,” concludes Colman.