Advice on commercial property insurance for young South African entrepreneurs

It’s vital to first work with a valuation expert to provide an accurate valuation of your property.

South African small businesses are faced with several unique challenges, as well as specific types and levels of risk. A strategic approach to long-term growth and a solid risk mitigation strategy can help to protect your venture from the unforeseen, so that your business can become one of the millions that fuel the South African economy.

These three pieces of advice on what to consider when purchasing commercial property insurance will help you get your business off the ground safely.

1. Insurance: protecting your business
   It’s essential to bear in mind that, in the event of an unfortunate accident such as water damage caused by a leak, fire damage or accidental equipment damage, not being insured could end up costing you far more than the total amount of your insurance premiums. In a small business, where cash flow is the most important factor, a sudden and an unplanned financial loss can be devastating and very difficult to recover from. This is why property insurance is a necessity.
   
   You could therefore think of insurance for your business in terms of the three important P’s – protection, preparation and peace of mind.
   
   
2. Consider the difference between market and replacement value
   One of the biggest mistakes first-time business owners make when insuring their commercial property is to under-insure. This is why it’s vital to first work with a valuation expert to provide an accurate valuation of your property, and then to seek advice from an insurance adviser, who will provide you with a working understanding of how insurance may benefit your specific operation.
   
   

   Firstly, you’ll need to understand the difference between the market value and the replacement value of your property, and also ensure you do not use the municipal value. Another thing to keep in mind is that market value also includes the land value, which should be ignored when determining the insurable value.

   Generally, market value is the amount the property is worth in relation to surrounding properties that are similar in size and position. The purchase price can either be higher or lower than this. Replacement value, however, considers the amount that would be needed to rebuild the property from scratch and accounts for the replacement of the structure’s fixtures and fittings, as well as additional costs such as cost of demolition and disposal of debris. Insuring property for purchase price alone will not cover the cost of its complete destruction in the event of disasters such as a fire or flood.

3. The finer details explained
   Commercial property insurance works a bit differently to home insurance, in that multiple sections could be required to ensure sufficient cover. Commercial insurance should be taken out to insure the building, with office contents and electronic equipment type risks each under their own section. A similar-minded approach is required where stock would need to be insured separately from plant and machinery. Bear in mind that commercial insurance policies are customised to each client’s unique business needs.
   
   In general, the best way to ensure that your experience with commercial insurance runs smoothly, is to lean on the experience of an adviser, who will give you sound advice on risks that are specific to your sector, geographical location, operational requirements, and working arrangements.
   
   

   Be sure to ask questions and empower yourself with expert opinions and advice that will assist you in making informed, strategic decisions about the future of your business.