Small Business

Protect your business

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by Andrew Newton Brown

If all the assets in your business were destroyed overnight, stopping you from trading for the next six months, would you be able to manage? Could your business recover? While this might sound like an extreme scenario, the reality is this event does happen, and many people don’t have the kind of protection needed to weather a crisis. Gerard McDermott from GIO, part of the Suncorp Group, joins Peter Switzer to look at what every business needs to know about insurance.

“There are many risks that can affect and can potentially destroy a small business and whilst you can’t control the risks, you can certainly manage against those and that’s what business insurance does,” McDermott says.

Mind the traps

McDermott says there are four key categories business owners need to consider: assets, revenue, liability exposures and people.

“Business owners tend to be pretty good on the assets side, insuring the things that they can physically see, although they do have a tendency to underinsure the levels, and that is a problem within itself, but generally that’s not too bad.”

In terms of revenue, there are traps people run into, which can affect the cash flow of a business. McDermott says business owners should consider what would happen if their business was destroyed in a fire and all their contents and stocks were destroyed – would they have enough insurance to replace everything? Also, would they be able to cover ongoing revenues and fixed expenses such as loan repayments and staff wages that need to be paid even if trade is not possible while the business is being rebuilt.

“That’s the revenue aspect that people fail to cover,” he says.

“The Insurance Council of Australia research would suggest that there’s only 15 per cent of small businesses that are adequately insured.”

McDermott says another trap business owners fall into is they insure staff under worker’s compensation, which is compulsory, “but they forget about what might happen if they became ill or had an accident and weren’t able to operate their business as well”.

Switzer says most Australian are scabs. That is, they don’t want to fork out money for something that may not happen. So how does McDermott overcome this issue? He says they strongly recommend and encourage customers.

Keep up to date

“When our customers speak to us, we do highlight the risks they’re taking,” he says. “We strongly encourage and advise them around how they should be adequately insured. At the end of the day, I do think it is about the Australian culture, which is, it won’t happen to me. And people just tend to naturally self-insure to a degree and I think that’s a scary proposition. If I was running a small business, I don’t think I’d sleep very well at night if my livelihood wasn’t preserved through adequate business insurance.”

Some businesses don’t keep their business insurance up-to-date. Business owners take out business insurance when they start the business, but don’t update as the business grows.

“In terms of the cost, on average, business insurance represents about one per cent of the total operating cost of a business, typically,” he says, adding that this is an average and higher risk business may be more.

So do people cut back on insurance in tough times? McDermott says yes, but his business tries to discourage them from doing so.

“In times like these, cutting back on cost is what you should focus on doing,” he says. “But I absolutely believe business insurance is not an area you should be focusing on [cutting back]. It’s probably more important than ever in making sure, during times likes these that you’ve got adequate business insurance.”

Published on: Thursday, September 03, 2009