Think of the attributes required to start a small business and tenacity, initiative, opportunism and the willingness to take a risk or three spring to mind.
For budding entrepreneurs, unbridled optimism also features on the pros and cons checklist when asking: “Does my boss really peeve me enough to forego a safe salary in favour of a venture statistically unlikely to succeed?”
But just as cock-eyed optimism is a mandatory quality for business owners, it can also blindside them into ignoring the inherent risks of running a business.
Any decent muffin shop proprietor will be preoccupied with ensuring the tasty wares sell like hot cakes, not fretting about the devastating effect of a prolonged power outage, or the enforced closure of the retail precinct because of fire or civil disruption.
The risk of business interruption was starkly highlighted by last September’s power blackout that affected all of South Australia, for periods ranging from hours to days.
Industry group Business SA assessed the cost to business at $367 million, with a median cost to individual enterprises of $10,000.
The blackout was described as unprecedented – and indeed it was in terms of electricity deprivation.
But the incident paled in comparison with the Victorian gas outage in September 1998, a disaster of biblical proportions that literally lasted 40 days and 40 nights.
Apart from boosting the popularity of residents with electric hot water systems, the outage inflicted an estimated $1.3 billion damage bill on business.
The Victorian and SA outages – as well as a succession of ‘one-in-100 year’ floods and cyclones in Queensland – should have reinforced the importance of SMEs taking out suitable cover for business interruptions.
They haven’t. While few SMEs or householders would not dream of leaving their property or vehicle uninsured, insurance broker Steadfast estimates only 42 per cent of SMEs have business interruption cover.
In the case of the SA blackout, Business SA claimed only 37 per cent were covered.
Generally speaking, business disruption insurance covers the cost of getting back to normal after an unforeseen event and any resulting loss of profits.
These expenses include the cost of temporary relocation and of bills still incurred despite lost or curtailed income (such as power bills).
The policy might also cover the loss of business caused by disruption of a key supplier, on the proviso the cause of the problem is similar to that of the insured party.
Another insurable event is the closure of a local attraction, such as an entertainment park, that draws custom to the insured party’s business.
For retailers around the Melbourne Star Observation Wheel in the city’s Docklands precinct, their world stopped spinning after the attraction closed after cracks appeared in the infrastructure.
It didn’t reopen for another five years.
In most cases, the key risks are foreseeable and thus able to be mitigated in the first place. Given a fridge full of prawns is unsaleable after only a brief power interruption, a seafood retailer would – or should – be well aware of the need for a back-up generator.
Covering the unknown unknowns can be more problematic, which is why perusing the fine print of a policy is crucial.
We doubt that alien abduction of key personnel counts highly among these scenarios, but collateral damage from a disaster certainly can come from left field.
In the aftermath of Cyclone Debbie that hit northern Queensland in March, one proprietor claimed not so much for immediate damage but losses caused by looters thereafter.
So, budding business owners: temper your cockeyed optimism and devise a checklist of all of the conceivable risks as well as opportunities.
But don’t be deterred from having a go. Small business is the lifeblood of the nation and your country needs you.