How young entrepreneurs can secure the future of small businesses

Young entrepreneurs can secure the future of their small businesses by focusing on the fine print, taking cyber risks seriously and avoiding the pitfalls and challenges that come their way.

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.

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Although there are many perks to start a business venture sooner rather than later, young entrepreneurs also face unique risks, particularly regarding the landscape of liability and how to protect their business’ financial stability in the long run, Alicia Narainsamy, head of digital distribution at SHA Risk Specialists, a division of Santam Limited, says.

“Planning ahead for the things you can foresee as an entrepreneur is crucial but it is 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.”

Focusing on the fine print

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 is not having formal contracts in place with suppliers, contractors, employees and clients.

“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. We encourage first-time entrepreneurs to put contracts in place right from the start 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, she says.

Cyber risk is very real

Small businesses in the digital age also face the increased risk of cybercrime and data collated by SHA Risk Specialists suggest that smaller ventures are seemingly more susceptible to ransomware attacks.

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%).

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In addition, 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, Narainsamy says.

“Thinking about cyber risk as something that will never happen to you is a common error small business owners make who mistakenly believe that their larger counterparts are at greater risk of cybercrime.”

Greater vulnerability to ransomware attacks could 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 as a young entrepreneur

Another common error younger business owners make is to cancel or fail 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, Narainsamy says.

Neglecting to implement sustainable risk management practices or consider the risk exposure that exist long after specific projects are completed, could leave small businesses more vulnerable to unexpected costs in the long-term.

“Young entrepreneurs must regard 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.”