Starting a business as a young entrepreneur has several key advantages. Entering the market as a young businessperson can provide more time to learn from experience, leverage your skills as a digital native and be more flexible in terms of managing your time and personal responsibilities.
Although there are many perks of starting a business venture sooner rather than later, young entrepreneurs also face unique risks, particularly with regards to the landscape of liability and how to protect their business’ financial stability in the long run. This is where advice and guidance from a risk expert can prove invaluable.
Commenting on this is Alicia Narainsamy, Business Head of Digital Distribution at SHA Risk Specialists, a division of Santam Limited, who says that: “Planning ahead for the things you can foresee as an entrepreneur is crucial. But it’s equally important to be as prepared as possible for the unexpected. This is particularly true in the case of a small business, where seemingly small oversights and mistakes can lead to costly litigation and potentially, financial ruin. Even the best-run businesses can be susceptible to accidents, lawsuits or other unforeseen events that can result in significant damages.”
Focus on the fine print
Pointing to some of the specific risks that face young people in business, Narainsamy encourages entrepreneurs to gain a full understanding of the potential legal risks involved with starting a business. While these risks will vary according to the relevant industry, one common pitfall made by business owners across the board, is not having formal contracts in place with suppliers, contractors, employees and clients.
As she explains: “It may be tempting to rely on handshake deals or agreements made in good faith, but in the long-term, this is not good business practice. What we encourage first-time entrepreneurs to do right from the onset is to put contracts in place with all partners and stakeholders. These legally binding documents can provide much-needed clarity on the rights and responsibilities of all parties, setting clear expectations and minimising the risk of disputes as the relationship develops. Contracts provide legal certainty and protection against misunderstandings or breaches of agreement.
It is important for young entrepreneurs to realise that protecting your business comes with many key responsibilities, and part of those obligations involves ensuring that your operations are safeguarded against potential legal issues down the line.”
Cyber risk is very real
Small businesses in the digital age also face the increased risk of cybercrime. According to the latest SHA Specialist Risk Review, one-third of South African small businesses face cyber-attacks every year, in the form of ransomware (25%), phishing attempts (26%) and theft of funds (13%).
Furthermore, if business owners do not adequately address these kinds of risks and exposures, they could be held liable by customers and other partners in their own capacity, should there be a breach or leak of sensitive data.
Thinking about cyber risk as something that “will never happen to me” is a common error made by small business owners, who mistakenly believe that their larger counterparts are at greater risk of cybercrime. In fact, data collated by SHA Risk Specialists suggest that smaller ventures are even more vulnerable to ransomware attacks. This may be attributed to the fact that cybercriminals who play the “numbers game” may deem it more worthwhile to hold the data of a group of small businesses to ransom for between R10 000 and R50 000, rather than failing in an attempt to breach larger businesses who may have more sophisticated risk mitigation strategies in place.
Avoiding the pitfalls and protecting your business’ future
Another common error made by younger business owners is cancelling or failing to renew their insurance cover in an attempt to reduce their operating expenses. Financial constraints may also result in business owners not paying their insurance premiums on time.
In addition, a lack of understanding on the specific risks that face their businesses could lead to entrepreneurs being underinsured or paying for policies that they may not need.
Finally, neglecting to implement sustainable risk management practices or considering the risk exposures that exist long after specific projects have been completed, could leave small businesses more vulnerable to unexpected costs in the long-term.
Narainsamy concludes: “Young entrepreneurs need to see their insurance advisers and brokers as critical business partners who can help them understand the liability risks their business model and industry face. They can also assist entrepreneurs in identifying potential risks that may emerge as their business grows and evolves in an everchanging business landscape. And more importantly, they can offer practical solutions to mitigating those risks both through insurance cover and internal policies and procedures.”
