Business Risks, Insurance and SMEs

Business Risks, Insurance and SMEs

Business Risks, Insurance and SMEs

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Being an entrepreneur can be an exciting life but it is not as easy as it seems.

The day you begin to carve a business plan, you will realize you will have to go through many hardships with no guarantee of making profits or earning enough to even cover expenses — this is one of the major risks you will face and what you need is the ability to foresee the risks and planning to manage those possible risks.

There are many risks that impact the competitiveness and profitability of Small and Medium Enterprises (SMEs). These include financial risks, operational risks, regulatory risks, political risks, and risks from natural disasters. While some business risks are practically within the control of the entrepreneur, some are totally uncontrollable. However, the business owner, who carefully identifies the risk of its business and take appropriate action accordingly to mitigate the risk, will be on a stronger path to business success. What therefore remains is whether SMEs do know their risks and whether they know that most of them are insurable. This is because you cannot control what you don’t know.

The ultimate resource to mitigate risks related to businesses is insurance. This article is aimed at providing a high-level summary of some of the common types of business insurance.

Common Types of Insurance

1. General Liability Insurance: this type of insurance protects company’s assets and pays for the legal fees and support that an entrepreneur needs should someone (i.e. customer, but not an employee) decide to sue for damages while utilizing the product or service. It may also cover copyright violations, slander, and libel.

2. Medical Insurance: medical bills come big these days and can potentially put an entrepreneur out of business even if it’s a young, healthy entrepreneur. Having the health insurance plan helps to optimize the health costs.

3. Commercial Auto Insurance: This is an insurance cover for company vehicles such as pool cars, official executive vehicles, delivery vans and shuttles. This type of insurance is meant to cover vehicle accidents, burglary into the vehicle and for instances when such vehicles are stolen. Comprehensive auto-insurance are usually preferred to the cheap third party insurance.

4. Group Life insurance: Entrepreneurs and their employees have families that are indirectly dependent on the business success. Life insurance helps to provide guarantee and cover for all the caring that the loved ones would need in the event of long-term incapacitation or untimely demise. Getting life or disability insurance covers ensures the entrepreneur have enough to take care of long-term cares of the loved ones. The level of the benefits that can be derived is directly dependent on the premium being paid.

5. Property Insurance: In order to start a business, the entrepreneur might probably start with a building or at some computers, whether leased or owned, and product inventory as part of the business operations. Property insurance protects the personal property, computers, furniture, product inventory and other assets that may be critical to keeping the business running.

6. Fire (& Other Risks) Insurance: With the help of fire insurance, the losses arising due to fire are compensated and the society is not losing much. The fire insurance does not protect only losses but it provides certain consequential losses also war risk, turmoil, riots, etc. can be insured under this insurance, too.

7. Goods-In-Transit Insurance: For entrepreneurs that are involved with the trading business or delivery business, goods-in-transit insurance is definitely another “must have” as it helps to provide cover for the goods while in transit between the vendors and the company warehouse, and from the company’s warehouse and the customer’s location.

Conclusion

Although, having insurance coverage for your small business may seem like an unnecessary expense or an outright waste of money as a new start-up, the security it provides can potentially be invaluable. So, make sure your business is fully insured. Be protected!

Author: Wole Oluyemi is a chartered accountant and business advisor, with special interests in SME businesses, strategy, finance and tax. He is also a doctoral researcher at Cranfield University (UK) with research focus on corporate political strategy. He can be reached at @WoleOluyemiCo on Instagram, Twitter and Facebook.

Rödl & Partner is an international company providing integrated professional services in the areas of audit, legal, tax, financial accounting, payroll and business advisory. With 111 offices in 51 countries. In West Africa, we work through our offices in Nigeria (Lagos, Port Harcourt, Abuja and Ibadan) and Ghana (Accra).

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