Small Business Owners, Don’t Bet Your Passion – Insure It!

Small businesses start with an exciting idea – but they don’t fail because of that idea. All too often, they go to the wall because of a single calamity that interrupts their cash flow and they’re unable to recover.

For example, a plumber sets up his own operation and everything’s going well – until someone T-bones his bakkie in the traffic. Short on funds for repairs and unable to service his clients until he’s on the road again, his cash flow takes a fatal knock.

Or a coffee shop owner is just getting feet through the door with her superb brews and delicious pastries, only for a customer to slip and fall – and sue. Ruined financially by the legal costs, she’s forced to close her doors.

What they both lack is business insurance that is geared to their particular requirements, affordable and – perhaps most importantly – accessible. Insurance that can ensure that they’re back on their feet as soon as possible following a loss, with minimal disruption to their all-important cash flow.

Let’s step back for a moment, and take a look at how important small, medium and micro-enterprises (SMMEs) are not only to the entrepreneurs who create them and the people who find employment through them, but to South Africa as a whole.

According to Statistics South Africa, quoting the 2019 Annual Financial Statistics survey, formal small South African businesses generated R10.5-trillion in turnover in the 2019 financial year. Of that, 22% – or R2.3-trillion – was generated by small businesses, up from 16% in 2013. This is as a result of annual growth of 12.3% by small businesses, compared with an average of 7%.

This shows that SMMEs are increasingly important drivers of economic growth. But the small business sector is also the one that has suffered the most since the start of the Covid-19 lockdown last year.

In its quarterly update for the third quarter of 2020, the Small Enterprise Development Agency records that the number of SMMEs had declined by 11% year-on-year to 2.36-million, from 2.65-million in the third quarter of 2019.

Of a total of 290 000 small businesses that had failed, 232 000 of them were lost in the second quarter of 2020 – clear evidence of the impact of the pandemic and lockdown. And 1.5-million of the jobs lost to the economy in that period, 90% in total, had been in the SMME sector.

Now let’s look at insurance penetration among SMMEs. We estimate that of the 2.36-million small businesses, only 750 000 of them are in the formal sector – and of those, only between 250 000 and 300 000 have business insurance. One can only speculate as to how many small businesses (and jobs) could have been saved in 2020, had more of them been insured.

But why is insurance penetration so low in the SMME sector when, clearly, it is so important to the South African economy? Why do so many entrepreneurs not make insurance for their businesses, which they had conceptualised and created out of a sense of optimism and passion, a priority? I believe there are several reasons for this.

Firstly, owners of start-ups know that setting up their new ventures requires a great deal of time, effort and bureaucracy: registering their business; registering for tax and UIF; setting up bank accounts; tackling of governance issues such as shareholder agreements and the like; finding staff. An entrepreneur’s work is truly never done.

Insurance is often not seen as a priority, even though it should be, and sometimes entrepreneurs don’t have the time. Or if they do prioritise cover, and I’ve observed this personally, they’re looking for it in the dead of night because that’s the only time when they’re not doing everything else.

Then there’s the sweat equity: working long, long hours to get the business operating, doing a lot of the work themselves, trying to overcome the challenge that few want to support start-ups. It takes a special kind of sacrifice to be an entrepreneur sometimes, which I’ve learned to appreciate through starting up my business – and I’ve had the great benefit of corporate backing!

On top of this is the difficulty of getting a broker to help them set up their business insurance. Cover for start-ups can be small change, so the commission is not worth the effort for the broker. This is a shame, because SMME owners are people who could do with an insurance expert in their corner.

And here’s the thing: being insured is good for business, not just mitigating losses. For example, an SMME’s chances at tender stage are boosted by having even basic insurance – such as public liability cover – in place, because it gives the prospective client comfort.

Like with so many other things in modern life, the solution lies in technology. In the past 25 years we’ve seen a transformation in personal lines insurance – such as homeowners or motor vehicle covers – to be simpler and easier to access directly. For years now, we’ve been able to go online or pick up the phone and buy these kinds of insurance in moments.

But business insurance, which is more complex simply because of the huge variety of businesses and types of cover out there, has been slow to catch up. If you wanted to insure your small business, you’d need a broker – but invariably, your broker wouldn’t need you. That’s changing, and I’m proud to be in the vanguard of digital broking in South Africa.

While I believe there will always be a place for the traditional, flesh-and-blood kind of intermediary, digital broking offers small business owners the opportunity to understand the insurance cover they need, compare quotes from various insurers, buy their cover at the right price, and have the support they need come claim time. All from the comfort of their desk, and potentially sorted out within minutes.

There’s never a good time to start a new business, and certainly conditions haven’t been good in the past two years, going as we did into the Covid-19 unknown with a faltering economy. But there is a glimmer of hope.

Our economy, while still far off pre-COVID levels, is growing again. According to Statistics South Africa, South Africa recorded first-quarter 2021 economic growth of 1.1%, for an annualised growth rate of 4.6% projected for the year. Much of this growth is driven by the wholesale and retail sector, indicating that South Africans are once again spending more.

That’s good news for brave entrepreneurs launching their dream businesses. But I’d like to be the voice of reason for a moment, and say this to them: don’t bet your passion on the belief that everything will be okay, because it can take only one unlucky roll of the dice for you to lose it all.

Instead, turn the odds in your favour by insuring your nascent business. And these days it’s easy. With its power, convenience and cost-effectiveness, digital broking clears away the barriers to you mitigating your business risk – and it’s quite literally at your fingertips.

• Francois Potgieter, CEO of Bi-me, a South African digital broker for SMMEs