You might still view insurance as a grudge purchase but the day that your factory burns down or a customer takes your business to the National Consumer Commission, you’ll be glad about having invested in the right kind of cover. While there is a great deal you can do to proactively reduce and avoid certain business risks, the simple reality is that there are those business risks that can only be mitigated by having the right insurance.
Quinten Matthews, Santam’s executive head, Specialist Business, points out that businesses don’t need to necessarily insure against all risks. “The SME owner needs to decide what risks he can manage himself and therefore retain within the business, and what risks he can’t retain and needs to transfer to an insurer,” he says. Doing so is the key to obtaining lower premiums, he adds.
First, however, you need to conduct a thorough risk and needs analysis. “It’s helpful to obtain appropriate advice on what to insure and what to retain, as this changes from one small business to the next,” says Matthews. Retaining risk is also linked to the measures you put in place to properly manage such risks. A retailer, for example, may decide they can retain the risk of theft of a certain sum of money because they have a drop safe and have arranged for regular cash collections, and they’ve put incentives in place to encourage customers to pay via credit card. However, they may decide to transfer the risk of stock theft to their insurer.
An insurance broker can help you identify the risks, as can your banker and your audit firm. As Colin Hill, solution manager – Risk and Financial Crimes, at SAS Institute, points out, “Your business banker is working with many other SMEs and has a good grasp of the issues that lead to business failure. The same can be said for audit firms. Both of them can provide valuable assistance in identifying your risks.”
Risk assessment should be revisited at least twice a year, advises Matthews. “Risks change and this means that insurance needs to change accordingly,” he adds.
Because risk profiles and appetites differ from one business to the next, a one-size-fits-all insurance solution is not ideal. Specialist insurance is very different to off-the-shelf insurance and addresses the needs of companies in industries such as aviation, marine, logistics, construction, engineering and industrial or manufacturing sectors. If you’re looking for the best cover and a cost-effective solution, opt for a tailored insurance package.
CPA and the increased need for liability insurance
Large and small companies need to consider increasing liability insurance in the context of the new Consumer Protection Act (CPA). “The CPA places stricter liability on the supplier of goods and services, so companies can no longer fob this responsibility off on manufacturers, for example,” says Matthews. And because the CPA has driven greater awareness among consumers of their rights, there is an increased chance of litigation. Matthews points out that businesses need to look at the potential damages that could be made against them, as well as the cost of litigation. Both of these should be considered when taking out liability insurance.
Top mistakes to avoid
Quinten Matthews offers the following advice when taking out insurance, based on the most common mistakes businesses make:
- Fully understand your business risks — you can only insure what you know to be a risk area.
- Beware of under-insurance (taking out a policy that is not sufficient in value to cover the cost of your losses). It means you will have to partially refund the replacement costs.
- Partner with a reputable insurer that has a track record of paying claims.
- Get comparitive quotes from different insurers.
- Don’t chase a lower premium at all costs as this can lead to less-than-comprehensive cover.
- Build an open relationship with your broker that is based on full disclosure of your risks.
Are You Focusing Too Much On The Little Details (And Forgetting The Bigger Picture)?
To what degree do outside influences impact your business’s success? As a business owner, should you be focused on your business, or taking a macro view of the world?
Entrepreneurs live in the daily grind of their businesses. This is unavoidable but can often be fatal. Day to day we think that the little things matter more than the very big things do. A little thing like the floor of your office or store being mopped daily can become a huge issue if not done.
Sure, these things are important because they create a culture of care and pride, but what you might be missing while you watch your team mop the floors is the macro-economic climate shifts that happen more rapidly than you think.
Step back to move forward
Early in the life of a new business the only way to survive is for the founders to do absolutely everything. From designing a logo and launching a strategy all the way through to writing tweets and emailing customers when there are issues.
This makes sense when you’re building a business, your team is small and your cash is tight. However, as you grow, it becomes important to let your people do their best and take on the day to day work.
Related: Expanding At The Speed Of Stress
As an obsessive entrepreneur it’s often hard to let go of these little details. Day to day operations will always be integral to the growth of your business and an important part of someone’s job in your organisation. However, it shouldn’t be yours if you are taking care of the big picture.
As the leader of your business you need to take a step back from the grind and look at the world around you.
To truly understand the positioning of your growing business you need to understand your country, continent and world.
You should understand the economic position you’re in as well as that of your province, country and even the markets that might directly influence your sales. Get a good understanding of the political stability of your country and the world.
Finally, you should figure out if there are any large- scale impending disasters. If disaster is imminent, like Zuma pillaging a nation and tanking an economy, then you have to get your head out of the floor mopping and into the high-level strategy of survival and preparation for disaster.
Move the needle
Every day there are 24 hours that you can fill. You can choose to work during that time and faff with the things that were once important, or you can figure out what is going to move the needle in your business.
What is going to really help you survive and grow in the years to come? Founders, CEOs and leaders need to be thinking about the next three, five and ten years. Let your team worry about today. Let the smart people you work with make today and tomorrow and next week work.
Chances are, the things you are doing in the hours/minutes aren’t saving your business or moving the needle. It’s the things that you plan for the next six months that affect the next five years.
Don’t live in a bubble
It’s easy to fall into the trap of thinking that you live in an isolated country or region that isn’t affected by world events. Unfortunately, no matter how hard you close your eyes and hide your head under the pillow you can’t avoid the fact that your business exists in a globally connected environment.
At Nic Harry we were affected by the Brexit events that unfolded in the UK and Europe. British shoppers were scared and didn’t spend their money when they were on holiday in Cape Town over the peak holiday season. I was so busy preparing for the seasonal uptick that I missed the link between a huge global event and my sales.
You live in a world that is filled with online shoppers and tourists who visit your business whether you know it or not. Prepare for the world to start having an effect on your business more and more.
Broaden your view
I am always fascinated by the narrow view of the world many entrepreneurs display. I may sell men’s socks, accessories and style but that doesn’t mean that the mining sector doesn’t affect my business.
Even if you were an entrepreneur building a business in Antarctica I would urge you to read about oil prices, political world events and the intricacies of overfishing in the South American seas. Being well rounded and having a broad view of the world and your business can only make you a more robust thinker who sees more angles to exploit, protect against and thrive on.
Why Adversity Is Actually The Best Thing For Your Business
There’s been a lot of talk about privilege lately: What is it? Who has it? Who doesn’t have it? I have a slightly different take on privilege and prefer to frame it as the privilege of adversity.
Studies across the globe show that the minorities in all contexts have higher rates of entrepreneurial activity than the incumbent majority. There are a host of reasons for this, but one of them is that adversity creates resilience and self-reliance that are vital for entrepreneurial success.
Every successful and exponentially successful entrepreneur that I have met or read about has transitioned through a baptism of fire. They have overcome insurmountable obstacles and used the lessons gifted through their experiences to rocket their business to the next level.
Related: Approach Adversity Head-On
The Five Gifts Of Adversity
A sense of where your true limits are. These are always far beyond what your belief system believed them to be. The experience of testing your limits breaks the preconceived notion of where your limits are or were.
Confidence. Once you have overcome an issue, the experience of overcoming it builds a high level of confidence that should the issue reoccur, you will have the ability and resources to overcome it. For example, if you lose your biggest client and manage to keep your business afloat, the next time you lose a big client you will not panic or become despondent, but will instead kick into action and claw your way out again.
Insight. Insight as to which of your non-financial resources you can tap into. When the chips are down and money is nowhere to be found, it’s amazing how many resources you will now perceive around you that can potentially help you transition to success. These resources come in the form of advice from friends, access to new markets through networks, credit from suppliers, and free promotion through networks, to name a few.
Your relationship with your own resourcefulness. The experience of not having resources but somehow manufacturing some out of thin air, recalibrates your sense of your own resourcefulness, which in turn builds a level of confidence that should you be dropped off in the middle of the desert with only a matchbox and a magnifying glass, you will survive.
Faith. A level of faith and a belief system that there is always a way to overcome a problem. This is true no matter how overwhelming the problem may be. The more you overcome impossible problems, the less you’ll believe in the existence of impossible problems.
So instead of worrying about who has privilege, who doesn’t, or what privilege actually is, use the lessons gifted to you when overcoming insurmountable obstacles to propel your business forward.
The Principles Of Cession: A Powerful Business Tool
Relinquish your rights with these quick and easy tips.
In terms of South African law, the legal concept of cession was defined in Johnson v Incorporated General Insurance Ltd 1983 (1) SA 318 (A) and in FNB vLynn1996 (2) SA 339 (A), as:
“…an act of transfer to enable the transfer of the right to claim to take place.F Accomplished by means of an agreement of transfer entered into between the cedent and the cessionary and arising out of a justa causa, from which the intention of the cedent to transfer the right to claim appears or can be inferred and from which the intention of the cessionary to become the holder of the right appears or can be inferred.”
In simple terms, according to the online Oxford Dictionary, cession is ‘the formal giving up of rights, property, or territory by a state’. According to the online Free Dictionary, it is ‘the act of relinquishing one’s right’.
This means that cession is clearly distinguishable from contracts because it does not create obligations and is also distinguished from delegation and subrogation, which do not involve the actual transfer of rights.
Valuable tool for business
Cession is a valuable business tool because it allows businesses to cede assets that can be ceded by transferring them − completely or not − when there is no cash available to secure a transaction or assure performance. However, it is essential that the parties involved understand and express their needs rather than blindly signing documents that do not enshrine their true intentions.
Legal requirements for a valid cession
According to van der Merwe et al 2002, the following requirements must be met to affect valid cession:
- A right inhering to the cedent
- Agreement between the cedent and the cessionary to give and accept transfer of the right
- Compliance with any formalities set by the law.
1.1. A right inhering to the cedent
Existing rights versus a spes
According to FNB v Lynn 1996 (2) SA 339 A, our courts have to date followed the approach that only existing rights may be ceded, and not rights which amount to nothing more than an expectation or spes. The determining factor in this approach is whether or not the right falls within the cedent’s estate at the time of the cession.
However, according to Muller v Trust Bank 1981 (2) SA 117 N, there is another theory that deviates completely from this approach and deserves a mention. In terms of the doctrine of cession in anticipando, cession of a spes may happen provided the cedent and cessionary conclude both a contract (obligatory agreement) as well as a transfer agreement to affect cession. Upon the materialisation of the right, when the right actually comes into existence, cession may take place.
There is no formal objection to this approach and our courts have not indicated that they are completely adverse to it. Nevertheless, there is no precedent to date that guarantees cession can be enforced based on this common law doctrine.
Accordingly, any personal right may be ceded provided it already falls within the cedent’s estate and is capable, in law, of being ceded. Therefore, this even applies to rights that have not yet come into force or effect − such as vested rights (for example: the rights of the beneficiaries of a family trust before its dissolution); contingent rights (rights which are subject to a condition); and/or the right to receive your pension pay out upon reaching the age of 65 years.
1.2 Justa causa (or intent)
A causa, or reason, for the cession taking place essentially determines the nature and extent to which the right is transferred between the cedent and the cessionary.
In the case of out and out cession, or normal cession, the right is usually transferred to the cessionary while the cedent has a reversionary right to cancel the cession and (re)claim the right, should it become necessary.
Whether or not total transfer of rights takes place in the case of security cession, or cession in securitatem debiti, has been widely debated for some time now. But, legal uncertainty prevails to a certain extent. The question remains as to whether security cession is only a ‘sue do’ or ‘theoretical cession’, where the cession is treated like a pledge of the right. In this case, no actual transfer of the right takes place.
The only logical explanation for this theory is that the cedent retains ownership but only relinquishes his ability to exercise or enforce his rights. Although the courts have, in fact, confirmed this construction may be theoretically unsound, some continue to apply this model based on the notion of an established legal precedent that has been applied for over 70 years. This was confirmed again in Grobler v Ootshuizen 2009 ZASCA 51, where the Supreme Court of Appeal held that security cession is nothing more than a pledge.
There is an opposing argument that this type of cession, regardless of the difference in causa, is treated as an out and out cession and transfer of rights. This theory is further supported by the case of Picardi Hotels v Thkweni Property 2008 ZASC 128, where the court held that a cedent who has not exercised his reversionary rights lacks locus standi in the enforcement or exercise of the right so ceded.
2. The agreement
Although an agreement for cession need not be in writing, a written agreement is always preferable. The only requirement set according to Botha v Fick 1995 (2) SA 720 (A) is that ‘mere consensus is sufficient to effect a cession’.
In addition, the cession must also be lawful and the rights of debtors should not be prejudiced. This does not imply that the debtor must be notified or that the debtor will become a party to the cession.
In most cases, there is no need to comply with any formalities to affect cession. In some instances, however, certain formalities are prescribed by law. In the case of a mortgage bond, for example: it must be registered at the Deeds Office.
Cession is a valuable tool in business. That said, it is of utmost importance that the cedent and cessionary both understand the legal nature and consequences of their transaction, or cession, before entering into an agreement.
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