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Managing a business is difficult and creates many challenges to stay afloat and see green ink at the bottom line of the Income statement every month. There are many risks involved in operating a business, the risk of the wrong location, market trends that changes, new competition and many other that can have an adverse effect on the sustainability of ones business. These risks require the skills of the manager or owner to ensure that the business is viable and managed properly. There are however some risks that can be insured and managed.
Business insurance is a specialised type of insurance and the idea of this editorial is merely to give some insight into the different types of risks that can be insured. It is the responsibility of the insurance company or adviser you use to do a proper assessment of your business insurance requirements. Let us try and answer a couple of questions: What happens if your building burns down and you cannot trade for a couple of months? Can you be insured against theft, what if lightning strikes out your computers?
What are the insurance options you have?
Well the first is, yes you’ve guest it, fire insurance. This kind of insurance can cover your equipment, shop fitting and stock in case of any so called “acts of God” i.e fire, storms, lightning etc. If you are a landlord you can insure the rent which could be lost due to fire or severe storm damage. For the business owner the amount that you insure for is important. In the first place it influences the affordability of the insurance and secondly you need to know what the amount is that will ensure that you can stay in business if something adversely happens. You therefore need to value your stock and equipment and know what the replacement cost is of these assets. If you are a tenant your lease may include a clause which makes you responsible for any damages to glass shop fronts or doors. This kind of insurance is separate and is only covered if you specifically included it in you policy. Read through your lease agreement and check if you should insure for this. This will cover you in case a customer breaks the glass door or rams a trolley into the shop front.
Another type of business insurance which is very important in South Africa is insuring cash. This is typically very expensive and the insurance company may require certain safety measures to reduce the risk i.e drop safes or surveillance cameras which could lead to an additional capital expenditure. If for instance your business handles cash in excess of a specified amount i.e R30 000 a day, the insurance company may require the transport of the cash by a security company. All these things add up and increases costs but if your business can afford it this is important for managing the risk in your business. As a matter of interest this kind of insurance covers the cash in the store as well as in transit between the store and the bank.
It is also possible to insure your turnover in cases where you cannot continue your business activities for a prolonged period of time. The insurance company will determine this on the conditions of the policy pay out the average daily turnover off the past year for the time your business is hampered. This kind of insurance only applies to business restrained because of “acts of God”. The owner of the business must also be able to prove his/her turnover and this is once again a fairly expensive type of insurance.
The next question is what if a client or employee gets injured on your premises? What insurance do you have to pay out for liability claims? Most general business policies include liability insurance but make sure that the amount is sufficient and under what circumstances it pays out. Many companies also nowadays have legal support, find out if your insurance company have this back up.
You can also insure for theft. It is very important to note that for this kind of insurance to be paid out there must be forced entry and does not apply to shoplifting. This means that if someone enters your store during normal business hours and steals something from the shelf you will not be covered under this kind of insurance. Insurance against theft only applies in case someone broke into the business breaking a door or window or used some or other forced entry. This will also only cover stock and equipment stolen. If cash is stolen you will only be covered if you have specific cash insurance.
It is also possible to insure your data, information and software. The costs required to reconfiuger your computers is calculated using an hourly rate for the services of an expert and the number of hours it will take to complete the programming of your systems. Based on this an insured amount can be determined.
Risk can be dealt with in two ways. One is to manage it and the other to finance it. It is the business operators’ task to determine what the risks are he/she can manage by putting systems, procedures and equipment in place to reduce the risk i.e using surveillance cameras or putting in an alarm etc. The remaining risks need to be insured but very often it is a difficult decision because of cash flow constraints. The manager/owner must evaluate the risks and insure at least those that has the potential of permanently closing the business down and which risks will merely set it back for a while. The ones that will create permanent damage must be ensured.
As stated at the start of this editorial business insurance is a specialised field and it is essential that a proper risk evaluation should be done before deciding on this kind of insurance. The objective of this editorial is also not to be an all inclusive description of all the types of insurance but merely to expose you to some of the possibilities. Obviously there are many more insurance categories under this type of insurance.
And just as a matter of interest you cannot claim for damages caused by load shedding.
Till next time keep your chin up!
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