Your business might be small – but your liability isn’t

South Africa is a nation of go-getters. Over two million entrepreneurs are carving their own paths and creating opportunities in our tough economy. In fact, micro, small and medium enterprises (SMMEs) account for more than 98% of formal enterprises in our country, employ 50-60% of our labour force, and contribute a solid 34% of our GDP.

But there’s a hard truth that’s often not spoken out loud: 70-80% of these businesses won’t make it past the five-year mark. Jacques Pienaar, head of commercial underwriting at King Price Insurance, says that while there are many reasons for this, one of the most avoidable may be a lack of basic protection, like public liability insurance.

Put simply, public liability insurance protects your business from the financial fallout if an external party is injured or their property is damaged because of something that happened during your operations. Examples include:

• Injury: Someone trips over your signage and is injured.
• Damage: Your plumbing business accidentally causes water damage to a client’s home.
• Bad advice: Unintentionally, you don’t exercise ‘due care’ when providing technical information or advice to a third party.
• Loss: A supplier’s laptop is stolen during a visit to your office.

In these cases, public liability insurance steps in to cover legal costs and damages, all of which could easily run into hundreds of thousands of rands.

A big misconception that’s putting entrepreneurs at serious risk is believing liability insurance is only for big businesses. Other myths include:

 “My business is too small.” Even a small operation can cause big damage. It doesn’t matter how careful you are: Accidents happen.

 “I won’t be personally liable if something goes wrong.” Actually, you might be. If you’re running a sole proprietorship or a partnership (which many start-ups do) there’s no legal separation between you and your business. So, if someone sues your business, then your personal assets like your car, house, and even your savings, could be on the line.

SMMEs already face massive hurdles. Many operate on tight margins, with limited cash reserves. A single uninsured incident could wipe out profits for months, if not permanently close a business. The stakes are particularly high for entrepreneurs who run their businesses from home. “It’s critical to separate your personal and business insurance. Apart from liability, your home contents insurance likely won’t cover business equipment or stock; even your car may not be covered.” says Pienaar.

The good news? Public liability insurance is far more affordable than many realise, especially when you weigh it against the cost of a potential claim.

Here are Pienaar’s top tips for protecting both you and your business:

• Keep your business and personal finances and insurance separate.
• Read your contracts carefully and make sure they define liability clearly.
• Work with a broker to understand all your risks and get the right cover for your set-up.
• Review your insurance annually to keep it aligned with your business growth.

As an entrepreneur, your energy, ingenuity and commitment are your biggest assets, but they won’t protect you when something goes wrong. Public liability insurance isn’t a luxury. It’s a non-negotiable safety net that could mean the difference between bouncing back and shutting down.