Worrying sign many small and medium businesses in Australia could go bust

Small and medium businesses across Australia are facing a new financial challenge that could make many companies go bust.

Many small and medium businesses in Australia are at risk of underinsurance, with some so complacent that they have no plan if something bad happens, new data has revealed.

Only 43 per cent of small businesses surveyed said they believed they were fully covered from insurable business risks but 34 per cent indicated they had no plan, according to the Vero SME Insurance Index 2022.

Others had not even thought about what might happen or chose to cross that bridge when required.

Jane Mason, from online business insurance service BizCover, said despite many businesses being aware of their underinsurance, price concerns seemed to be a major factor.

“What’s worrying is that the dangers of underinsurance can leave the insured in a worse situation if underinsured or not insured at all,” she said.

Ms Mason said conditions were set for an underinsurance crisis, noting Australian businesses had already had to endure floods, bushfires, the Covid-19 pandemic and cost of living pressures in recent years.

Only 43 per cent of small businesses surveyed said they believed they were fully covered from insurable business risks. Picture: BizCover

She said revenue was being hit hard, so many businesses were looking for ways to save cash.

“It’s tough out there and unfortunately, some businesses put their insurance on the chopping block,” she said.

“But what this also says is that the businesses who are more likely to be hit by underinsurance are already struggling.”

Rising inflation and supply chain disruptions are further pushing up the claims costs for insurance companies, which results in higher premiums.

“What was adequate cover a year ago may not be adequate cover now because of the rising cost of materials,” Ms Mason said.

Another pitfall with underinsurance is that an insurer will not necessarily cover the full cost of damages.

“If you purchase below what your business’ true value is, you could become responsible for the share of the loss and not receive full payment for your claim,” Ms Mason said.

“It’s important to insure your business for an amount that is sufficient to cover not only the tangible assets, but the cost of repairs and any other variables that might leave you out of pocket.

“After that, consider jumping online to compare quotes so you could then decide whether the price of the cover justifies the protection.”

With revenue being hit hard, many businesses are looking for ways to save cash.

Meanwhile, separate research by parcel delivery company CouriersPlease has revealed almost nine in 10 retailers are prepared for more inflation, higher interest rates and lower consumer spending.

A survey of 202 business owners or decision-makers found that in the past two years 36 per cent of respondents had boosted their investment in e-commerce and marketing, while 35 per cent had given their workforce flexibility and 32 per cent had expanded their product range.

A further 29 per cent had switched or renegotiated supplier contracts, while 23 per cent had introduce more efficient technologies.

Only four per cent indicated their business had been too negatively impacted to make changes.

More than half of the retailers surveyed said they expected profits to be squeezed, while 50 per cent said they would experience lower revenue due to less consumer spending, and 41 per cent will struggle to maintain reasonable prices.

CP chief executive Richard Thame said it appeared the economic climate would have the greatest impact on a company’s bottom line, with revenue expected to take a big hit.

“With the CPI currently at 5.1 per cent — and an increase on the horizon — as well as interest rates continuing to climb, retail and logistics businesses will look for efficiencies across operations and other business areas to buffer these impacts,” he said.