A vibrant small and medium business (SMB) sector is the key to creating jobs and prosperity in South Africa.

By Francois Potgieter, MD of Bi-me

According to OECD, the contribution of SMEs towards South Africa’s gross value-added (which is equal to GDP before taxes and subsidies) increased from 18% in 2010 to 40% in 2020. Yet around 70-80% of small businesses in South Africa fail in the first five years of their existence, a reality that means we’re not reaching our country’s full potential.

SMBs face a range of challenges to their success and sustainability, from natural disasters and crime to legal disputes and information security breaches. Such an event can leave a business and its owners seriously out of pocket; in an extreme scenario it could even lead to the business closing its doors. However, we estimate that less than half of South Africa’s 750,000 or so formal small businesses are insured.

For an entrepreneur with limited funding, insurance may seem like an expensive grudge purchase. There are, after all, many competing priorities for a growing business’s working capital. Business insurance also has a reputation for being complex to buy and understand, though digital platforms are changing that perception. Yet insurance can be one of the wisest investments you can make in your startup. Here are some reasons why:

  • Governance – If your business operates in a regulated sector or has corporate shareholders, you will most likely need to buy insurance to comply with laws and regulations or stakeholders’ policies. For example, if you’re an employer you will need to register with the government’s Unemployment Insurance Fund and Compensation Fund. If you operate as a financial services provider, the Financial Sector Conduct Authority requires you to have professional indemnity insurance.
  • Capital and investment protection – Most businesses depend on a range of assets to operate—computers, stock, machinery, vehicles, buildings, and so on. These assets are exposed to a range of perils, including theft, accidents, fires and floods. Replacing your delivery truck if it gets stolen or losing your stock to a flood could wipe out your cash reserves. If you’re insured, these assets are protected for the cost of a modest monthly premium.
  • Business continuity – In addition to the many threats to your business’s physical assets, there are a range of risks that could impede your ability to keep operating or to pay your bills. For example, if a member of the public slips on a wet floor in your shop and breaks a bone, they might successfully sue you. Your business might not have enough money to keep running after the legal costs and the pay-out. Public liability insurance will protect you against this outcome. Business interruption insurance meanwhile protects you if you are prevented from doing business by an event such as your premises burning down.
  • Credibility with customers – Customers want peace of mind, which is why they’ll often opt for a product with a warranty when they can. Likewise, insurance gives customers the assurance that you’re running a professional company and that you’re committed to protecting their interests. If you’re an event planner, clients will appreciate knowing that their business is protected against potential accidents, property damage, or injury claims during an event you organise on their behalf. And as an electrician, investing in liability cover shows your accountability and commitment to high-quality workmanship.


Insurance is central to a well-managed business 

Appropriate insurance cover is as central to a well-managed business as robust financial systems, good customer care and healthy employee relationships. Getting the right insurance policies in place will give you the peace of mind of knowing that your business is protected from risks such as theft, accidents, business interruption and liability claims.

As an entrepreneur, you simply don’t have the time or patience for long phone calls to multiple brokers and insurers, reams of paperwork, opaque terms and conditions, and poor service levels. The good news is that insurance for SMBs has become much easier in the digital age. With today’s digital insurance platforms, you can answer a few quick questions, receive multiple quotes and buy online within a matter of minutes.