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The 5 biggest financial exposures that could stop you and your business dead in its tracks

Article provided by Econorisk

You’ve heard it all before; “the world is evolving at a rapid pace”, “technology is changing the way we do business”, “the internet and social media is overthrowing traditional marketing”. The list goes on.

The reality is that our environment, our world, is changing very fast. Each and every day that you wake up there is something new, something revolutionary that is altering the way we live, eat, exercise, interact, and, of course, altering the way that we do business. And with every new innovation, there are new exposures to risk that we have never even heard of.

There are those amongst us that are risk aware, forward-thinking and looking to protect ourselves against these risks. We have a contingency to avert the negative outcome of those risks as and when they ultimately manifest themselves.

Then there are those that are still thinking “that will never happen to me”. And like the age-old analogy of the frog in water slowly boiling as it acclimatizes to the steady rise in temperature, the same rings true in the business environment. There are companies acclimatizing to these exposures simply because they have never been faced with a particular type of event and have become acclimatized to the “rise in temperature” of these exposures. However, it is simply a matter of time before misfortune befalls them.

As expert risk advisers, we have identified the five most significant financial risks that companies are currently exposed to, without consciously being aware of it.

Cyber crime

Most companies, from SMEs to corporate entities, are using technology platforms in some way, shape or form. Whether you are running an intricate client database or simply using Facebook as an affordable marketing strategy, you’re plugged in to the global community 24/7. In an article published by KPMG in 2016 they noted as many as 60% of SMEs in the UK having fallen victim to cyber crime costing upwards of £75,000. Put that in rand terms and consider what will it cost your business?

Liability

Particularly, Directors and Officers Liability. With a growing emphasis on governance in relation to the Companies Act on the rise from the Department of Justice, this will put more pressure and responsibilities on the individuals charged with the management of companies. From executive and non-executive directors, to key individuals in managerial positions, there are stricter penalties for failing to adhere to the regulations contained in the Act. Any such individual contravening the Act could not only expose the company but themselves to right of recourse by persons such as employees, shareholders, creditors, customers, competitors, regulators or even government institutions. Whilst local statistics are difficult to come by, this risk could potentially cost your company millions, as well negatively impact the livelihoods of the directors or officers in question.

Employment practices

With a steady rise in unemployment in South Arica we currently have an estimated 12.8 million individuals in the workforce with an estimated 13.8 million unemployed and on state welfare. This system is of course supported from the proceeds of an estimated five million tax payers. With this in mind, the government has been instituting far stricter labour laws in favour of the employee. Dismissing an employee, no matter how just the dismissal, will most likely end up in the labour court and could cost you. How do you approach the situation and are you protected and prepared when having to pay settlements?

Fraud

Again, we refer to various Acts, which include PRECCA, POCA and FICA, all of which have been enforced in order to combat and prevent corruption, organized crime as well as unusual or suspicious financial transactions. Under the governance of these Acts, individuals deemed to be or even suspected to be guilty could be subject to very costly litigious proceedings as well as hefty fines and penalties and even jail time. Even when defending your innocence to such suspicions you need to have deep pockets. Do you have sufficient liquidity for such legal expenses?

Political risk

How does political risk affect you, your business and your revenue stream? What are the dangers to you and your business amidst an all too familiar sight in South Africa: riots, protests and associated violence? Have you been sufficiently prepared for every possible contingency: where this could cost your business as a result of lost assets due to destruction caused by rioters; the loss of business due to not being able to trade after such a loss; or the increased expenses to protect yourself against such losses in the first instance?

With these examples in mind the silver lining is that all is not lost. There are many risk management products that have been established with our evolving risk environment in mind, in order to protect your business from these exposures. Many of these risks can be averted or at the very least lessened by means of a solid risk management program to provide business owners, directors and officers with the insight to avoid, reduce or transfer the risks. This presents itself in the form of insurance. For every one of the threats mentioned there is a solid insurance program available in the market today that would afford any business the opportunity of not only being able to insure against these risks, but also conduct a risk survey of the exposure to help identify the business’s susceptibility to such exposures and provide expert advice on how best to diminish the likelihood of such events occurring.

There are many intermediaries in the market who are experts in their respective fields. They can advise on these exposures and how to avert the danger; do yourself and your business a favour and reach out to one of them today.

Econorisk is a proud Partner of the NSBC.