While there has been a rapid growth in the number of small or medium-sized businesses in South Africa over the last few years, up to 80% of these go out of business within the first year of operation. According to JonJon Smit, a Director at CIB Insurance, one of the major reasons for this high failure rate is that new business owners are unaware or fail to take seriously all the unexpected risks that owning their own business presents.
Results from a 2008 survey conducted by Global Entrepreneurship Monitor - which measures business start-ups - reveal that eight in every 100 adult South Africans owned a business that was less than three and a half years old. This is up from just over five per 100 measured every year between 2004 and 2006. At a national level, South Africa has approximately two million small businesses, representing 98% of the total number of firms in the country. Small enterprises employ about 55% of the country's labour force and contribute approximately 42% to the country's wage bill.
The global economic crisis has added momentum to the growing trend towards entrepreneurship as people in large companies are retrenched or face a slower career path.
“It is therefore imperative for the health of the economy that these businesses succeed,” says Smit. “Unfortunately, while many of these people have great business ideas, they often come unstuck due to poor financial and risk management practices.”
According to Smit, 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 always an issue. Unfortunately, in an effort to keep costs down, many small business owners choose to forego insurance cover, believing that they will just be extra cautious about providing customers with a safe environment, or in the way they treat their equipment and property. We strongly discourage any new business owners from taking this approach as it is simply impossible to avoid all pitfalls all the time.”
According to Smit the following types of insurance are must-haves when it comes to cover for small businesses: