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Protecting Your Business against Risk

Are you prepared for the risks your business might face?

Gerald Mwandiambira

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Most Entrepreneurs are considered risk takers by having chosen a life of creating wealth on their own as opposed to creating wealth for someone else. It is therefore in the best interest of every entrepreneur to protect themselves and their business against all risks.

Business risk is not limited to just the going concern, but also the lives of all the business’s key personnel and even trade secrets.

Related: How to Hire Professional Advisors

Contrary to popular perception, many business risk products are affordable. However, the complexities of some of these products mean that you have to consult a professional to assist you.

Death, Disability and Illness Risks

The biggest asset of any business is the intellectual property held by the owners, partners, founders and even key staff in key positions.

When a small business loses a key individual, this can be disruptive and indeed in some instances lead to business failure.

Many business owners are unaware that there are policies that protect the business including:

  • Business overheads policy: When a key person becomes incapacitated due to illness, disability or death. Overheads and bills need to be paid. In the case of a small business where often the founder is covering these expenses, the impact can be devastating. This type of policy covers these business related expenses often for up to 48 months including overdrafts, long term loan facilities and potential liabilities. This policy is of particular important in trades where there is high risk of physical injury or illness. Eg: Plumbers, Restaurant Owners, Doctors and Construction
  • Business Contingency: Many entrepreneurs stand as surety for their business. In the event of death or disability, this policy will settle such sureties so as not to impact financially on the deceased estate, affecting the dependents or family of the deceased, or the disabled person in the case of disability.
  • Deferred/Preferred Compensation: A deferred compensation plan is a type of policy plan, which is often used as a key staff retention tool. Should the key staff member fall ill, become disabled or die, an amount is paid to pre-determined beneficiaries of the key employee. The employee can also take out an endowment policy, which will immediately be ceded in security to the employer, who will pay the premiums on behalf of the employee. After the policy has matured and the employee has served a certain number of agreed years, the employee can cash the policy out.
  • Key Man Assurance: Here, the business receives a lump sum pay-out on the death or disability of a key person that is nominated. Often this payment may allow your business to recruit a replacement or use it as an incentive to get similar skills into the business. Replacing a key person can run into millions of Rand. Even the founder of a business can take out a policy on his life so that the business can hire a competent replacement in order for the business to pay dividends to remaining dependents if business continuity is desired.
  • Buy and Sell Policy: In a partnership or shareholding structure it can be a nightmare is the shares of your deceased partner or shareholder go into their deceased estate, and the wife or family decide they want to cash out of the business. If the remaining partners or shareholders do not have cash at hand to buy out the deceased estate, the business may need to liquidate assets, be sold to competitors or may become insolvent or cease altogether. These policies allow cash to be available to buy out a deceased partner’s interest in the business and the shares be re-allocated to remaining business owners as per contract determined when all partners were alive.

Tax Implications

As simple as Business Assurance policies sound, the real complexity is around the various scenarios around taxation and the tax implications. It is highly recommended that any entrepreneur considering business assurance products engage a specialist Financial Planning Professional.

Related: Why Risk Management Matters

Business Risks beyond just assets

All entrepreneurs and business owners are well versed and easily accept risk policies to cover machinery, vehicles, buildings and inventory against theft or loss.

It is however equally important that the lives and the health of key persons in a business are protected. It is important that all entrepreneurs be well aware that death, illness or disability can lead to the fall of a thriving business.

Consult a Professional

To understand, nd for expert advice on business assurance, please consult your financial planner.

If you do not have a competent financial planner already, you should consider interviewing prospective financial planners and conducting background checks with their references.

You will also need to confirm their accreditation with the relevant professional body.

To verify if a financial planner is a CFP® designation or to find a CFP® professional near you, visit www.fpi.co.za or call 086 1000 374 / 011 470 6000.

Gerald is the acting CEO for the South African Savings Institute. He is a CFP Professional postgraduate, Financial Planning Law graduate and an Economics graduate. He has experience in banking, stockbroking, insurance and investments. He also has experience as a financial analyst and strategic planner. Gerald is a specialist in the technical analysis of all financial markets and has extensive experience in dealing with high net worth, institutional clients and the broader mass market. Gerald is the recipient of the Financial Planning Institute of Southern Africa Media 2014 Award, for his work in promoting financial planning in the media.

How to Guides

Is It Time To Consider Renewable Energy To Power Your Business?

Can your business afford the 33% electricity hike that Eskom is proposing? If not, you should look into some of the renewable energy options South Africa has to offer.

Nicole Crampton

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In the past there was load shedding, now there are proposed high price increases, and more potential load shedding due to the strike action. Many businesses previously resorted to generators as alternative energy sources, but with the growing customer demand for more environmentally conscious options, they won’t be satisfied with this alternative energy solution.

Keeping a business operating in South Africa is hard enough without losing funds every time the electricity goes out, and although generators are known as the back-up, with the increase in petrol/diesel prices is this still a feasible long-term solution?

You may want to consider a more permanent renewable energy alternative, to both reduce your electricity bill, regardless of future tariff hikes, and demonstrate that your business cares about the environment.

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How Brigid Prinsloo Made (A Lot Of) Money On Airbnb

With the explosive success of Airbnb, the property investment landscape is changing. An increasing number of property owners are finding that it’s far more lucrative to rent out a property by the night than to install a long-term tenant.

GG van Rooyen

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It is possible to build property riches starting from a small base. This couple shows you how they did it. They’ve also launched a business that makes it easier to rent your property on Airbnb.

Although Brigid Prinsloo is a dyed-in-the-wool Capetonian who absolutely loves the city, she isn’t spending a whole lot of time there right now.

Like many young people, she’s pulled up stakes and hit the road, determined to see the world. When Entrepreneur spoke to her via Skype, she was busy exploring Vietnam with her Fiancée.

But, unlike many people who finance their travels by selling their homes and possessions, Prinsloo hasn’t liquidated her assets.

Related: 10 Weird And Wonderful Airbnb Listings, Including A New York Taxi And An Igloo

Instead, she has done the opposite – she has invested in a couple of properties that she lists on Airbnb.

The income from these rentals is significant enough to not only cover their respective bonds, but to bankroll her travels as well.

How has she managed it? And, more importantly, is it something that others can accomplish as well? Entrepreneur asked her to reveal the secrets to making a killing on Airbnb.

1. Getting Started: Listing Your First Property on Airbnb

How did you start listing on Airbnb?

Brigid Prinsloo

Brigid Prinsloo – Superhost SA

I used Airbnb during a trip to London and Dublin, and the experience was a very positive one. When I got home, I decided to try being a host. My fiancé and I had a spare room in our flat, which had morphed into a dishevelled storage room.

Almost on a whim, we decided to try and rent it out on Airbnb. We had a very ‘Lean Start-up’ approach to the whole exercise. Our small room acted as a minimum viable product (MVP), we listed it simply as a way of gauging interest.

Well, within an hour of listing the room, we received our first inquiry. Within the first day, we had our first booking. We weren’t prepared.

We ended up moving our own comfy bed into the room, just to ensure our guest could enjoy a decent night’s sleep, and slept on a spare bed ourselves.

By the end of that first month, we had earned close to R10 000 by renting out the room. The rent for our entire two-bedroom flat was R10 500 per month. We realised that we could earn a tidy sum by renting out an entire flat.

My fiancée and I purchased a property that we now rent out, and I also purchased a second property with my dad and my sister, which we’ve also listed on Airbnb.

Resource: New Ways SMEs Can Find Funding

2. Return on Investment: Making Money on Airbnb

How much income can you expect to earn on your Airbnb property per month?

There are obviously loads of different kinds of listings on Airbnb – everything from cheap spare rooms to lavish mansions. Based on the investment we’ve made, though, I’m very happy with the return we’ve seen.

If you take the entire amount that my fiancée and I have earned from renting our flat out through Airbnb and divide that by the number of months that it’s been listed, the average monthly earning is about R23 000.

And this is a property that had been rented out to a long-term tenant for about R6 000 by a previous owner. What’s great about this sort of investment, of course, is that the income generated is fairly passive, which is why I can afford be in Vietnam while everything ticks over at home.

Airbnb-accomodation

High quality images are important when listing your property on Airbnb.

3. Birth of Superhost: An Airbnb Management Company

Is there an easy way to manage multiple Airbnb properties?

If you’re renting out one room – or even one flat – managing your rental is fairly easy. However, once you start listing a couple of properties, managing them can become quite a task.

For example, someone needs to welcome guests and hand over the keys, ensure that the flat is clean, and even take care of all the admin that goes with managing a listing on Airbnb.

superhostsouthafrica

Brigid Prinsloo has made far more by listing her property on Airbnb then she could ever earn through long-term rentals.

We started a service called Superhost SA, which assists Airbnb hosts in managing their listings. As the popularity of Airbnb has grown, companies focusing on offer management services have popped up in lots of major cities.

Resource: 10 Businesses You Can Start Part-Time

For around 17% of the revenue earned, a company like Superhost will assist with the nitty gritty of renting out a space on Airbnb.

4. Location, Location, Location? Which is Best for Airbnb Property Owners

How important is location when it comes to listing a property on Airbnb?

Location is important, there is no doubt about it. A lot of travellers will judge a listing by what is within walking distance of the space.

So it is worth trying to get hold of a property in a decent location, even if it means you might have to go for something a tad smaller.

That said, however, you’ll find that the listings on Airbnb in Cape Town are surprisingly spread out. Services such as Uber have made it easier for people to travel in foreign cities. So location is important, but you certainly don’t need to be situated in the very heart of town.

Airbnb-location

Airbnb guests look for listings that are affordable, centrally located and well-equipped.

5. How to Build An Airbnb Property Empire

Can you build real wealth through Airbnb listed properties?

Some people are using Airbnb to build empires, there’s no doubt about it. You find that some people in large cities like New York have massive Airbnb portfolios with 200 listings.

Airbnb is providing an interesting alternative to the traditional strategy of buying properties and renting them out to long-term tenants to pay them off. You can make far more money from Airbnb.

That said, Airbnb isn’t going to turn you into a multi-millionaire overnight. Building up a portfolio will take time.

We might be able to pay off the bond on our flat in four years instead of 20 thanks to Airbnb, for example, but it’s not a get-rich-quick scheme. It will still take time.

Another interesting way to potentially make money through Airbnb is to rent a property and list it on Airbnb. But you don’t want to do it illegally.

Related: Watch List: 11 Teen Entrepreneurs Who Have Launched Successful Businesses

Airbnb has had to deal with some backlash overseas because of tenants who were illegally subletting their flats. You need to be honest with the landlord and make sure that he or she is okay with it.

Airbnb-lounge

Want to attract the right kind of guests? Create a listing that is cosy and inviting, and adds some local flavour.

6. How to Make Your Listing Stand Out

How do you achieve and maintain a high occupancy on Airbnb?

A lot of people are noticing the income potential of being an Airbnb host. In fact, Cape Town alone now boasts close to 10 000 listings on the website. So how do you make your listing stand out? Here’s Brigid Prinsloo’s suggestions:

Airbnb-listing

Airbnb boasts millions of listings so it’s crucial to make your listings stand out. High quality images are important.

1. Create a pretty listing

Hide the laundry, flush the toilet and make the bed before you upload an image of your flat on Airbnb.

Not only should the flat you’re listing look clean, modern and inviting, but you should also make sure that you post excellent pictures of it online. It’s even worth making use of a professional photographer.

2. Undercut the competition

You might not be better, but you can certainly be cheaper. Undercutting the competition is a worthwhile strategy.

The more people have visited you, rated your place and commented on your service, the higher your listing will be placed on the website. This means that new hosts can find themselves languishing at the bottom of search results, far from the eyes of potential guests.

Prinsloo suggests listing your space just below the market standard (5 – 10% below). “Most people filter search results by price, so being slightly cheaper than the competition will help you get noticed,” she says.

3. Connectivity is important

Around 70% of South African Airbnb guests are from overseas.

While these people won’t be travelling thousands of kilometres to sit in a room and watch TV, they’ll probably still want access to DStv.

Wi-Fi is another must-have for those looking to share their ‘African experience’ on social media. And it better be fast and uncapped.

4. Be friendly and helpful

As mentioned, reviews are important on Airbnb. And if you want to receive a good review you need to provide a great experience.

“A lot of people are looking for that personal peer-to-peer experience. They don’t want to feel as if they’re living in someone else’s room with their clothes in the cupboard and toiletries in the bathroom, but they do appreciate that personal.

Being friendly and helpful goes a long way. If someone is from out of town, it’s a good idea to provide them with hints on where to go and what to do in the city,” says Prinsloo.   

5. Add personal touches

You’re not a hotel, but you can still try to make your space as cosy and inviting as well. A good way of doing this: Provide those nice-to-haves like soap, shampoo and great coffee.

Related: 10 Tips for Finding Seed Funding

Prinsloo always provides a couple of bottles of local wine as well.

7. The Risks of Listing a Property on Airbnb

What are the risks associated with listing a property on Airbnb?

1. Damages

Whenever you hand over the keys to your house and possessions to complete strangers, there is an element of risk involved. However, Airbnb tries to mitigate this risk by allowing hosts to vet guests (and vice versa) to an impressive degree.

Guests and hosts verify their IDs by connecting to their social networks and scanning their official ID document. Although there are some horror stories out there, listing needn’t be terribly risky.

You just need to try and make sure who you’re dealing with.

Air-bnb-property

Handing your valuable possessions over to strangers can be intimidating. It’s important to do everything you can to mitigate the risks.

2. Liability

What happens when a guest breaks a leg while descending your stairs, chops off a finger with your kitchen knife or shocks himself with your electric fence (foreigners aren’t as familiar with electric fencing as we are).

Related: Luthuli Capital Co-Founder’s Advice On How To Start When You Can’t Get Finance

We live in an increasingly litigious society, and should something go wrong, you could find yourself being threatened with a lawsuit. Because of this, it’s a good idea to ask guests to sign a waiver that absolves your from any culpability.

3. Squatting

It’s great when guests arrive, but what happens when they won’t leave?

Airbnb rental falls into a murky category of property rental that could see you deal with the same legal hassles as someone trying to get rid of squatting long-term tenants. Squatter’s rights can make this very difficult.

It is a good idea to consult a lawyer to help draft a contract that will offer some form of recourse in the event of squatting guests.

4. Regulations

Some body corporates and home-owners’ associations will be less than impressed with the prospect of total strangers coming and going from your property at all hours.

Related: How Kevin Hart Went From Being A Comedian To The Guy Who Owns Comedy

You need to ensure that other home owners don’t have problem with the listing of your property on Airbnb. The last thing you want is for them to take their frustrations out on your guests.


Related: Watch List: 20 SA Tech Entrepreneurs Making It Big In The Industry

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How to Guides

(Podcast) Phone Calls Often Solve Email Problems

Irate customers can become your most ardent supporters, but it’s important to treat your clients like people. People like people, and phone calls are more personal than emails.

Nicholas Haralambous

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Emails solve problems – but they also create them. When a real problem arises in your business, is an email the best way to solve it, or should you pick up the phone and give your customer a more personal experience?

Irate customers can become your most ardent supporters, but it’s important to treat your clients like people. People like people, and phone calls are more personal than emails.

Listening time: 3 minutes

Related: (Podcast) Being An Entrepreneur Is Painful

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