Why D&O Insurance is a Smart Move for Small Businesses & Startups

South Africa’s current employment landscape is challenging, and the lack of available jobs might have you thinking it’s a smart move to start your own business. After all, operating a startup can give you a leadership position as well as flexibility to manage family and home responsibilities with less effort. Before you take the plunge, make sure you’ve done your homework on what could hamper your success. We recommend taking out D&O Insurance or Directors and Officers Liability Insurance as the first step. Keep reading to discover how even budding businesses need insurance and how 1st for Women can protect yours and help it grow.

Small businesses and women in leadership in SA

According to 2023 research, women run around 22% of SA businesses, which is below the global average. On top of this, the number of women in top management positions is 29%, and, on average, women hold about 32% of board seats in the country. The reasons for this aren’t simple, and neither are solutions. What is known is that starting your  own business and leading it is one avenue that can give women the chance to ascend to leadership positions, possibly more quickly and easily than in the traditional workplace.

When you run your own business, you can avoid lots of the restrictive, unspoken rules that apply in the corporate world. It means that you can make incredible progress in a relatively short period, like going from selling goods from your kitchen to purchasing a factory that supplies your offerings to the entire country. Of course, this also means that the risk of failure is much higher, and there are fewer safety nets. In just as short a period, you could find yourself owing millions and having to close up shop.

Small business challenges that women need to know about

Women who start their own business face unique challenges that men in similar positions don’t necessarily face. Here are a few of them.

 Fewer mentors

As there are fewer women than men in leadership positions in businesses across South Africa, there are limited opportunities for budding female entrepreneurs to pick the brains of those who have gone before them and learn from their mistakes. This means that the stakes are higher and that the risks of making mistakes can be even higher. 

Fewer formal businesses

Government research has found that most female small-business owners in South Africa operate in the informal sector. As their income and desire for growth expand, they might want to branch into the formal sector. This means negotiating a significant volume of paperwork that dictates everything from how much tax to pay to what kind of records to keep and submit. This can get complicated, and even an accidental compliance failure can set back a business.

Fewer finance opportunities

Few businesses can grow without an external financial injection from an investor or bank. However, women business owners can find it more challenging to access or secure finance than men business owners do. One way this can play out is investors' more rigid requirements for women to meet before they qualify for finance. 

While the above challenges don’t guarantee failure, they illustrate that women-led businesses face unique threats. If you plan on starting one, consider protecting your efforts early on, such as by investing in the right type of insurance.

3 Reasons even smaller enterprises need protection for their leaders

Your small business will likely benefit from many forms of insurance, but this article focuses on the value that Directors and Officers Liability Insurance provides, along with some of the common reasons you need it.

1. Legal & Regulatory Compliance

Businesses must manoeuvre through intricate legal and regulatory obligations that differ across industries and regions. You might need protection against lawsuits regarding decisions you made or claims of regulatory breaches or mismanagement. Insurance can cover your legal defence costs and settlements or compensation. 

2. Succession planning

Succession planning means ensuring there’s someone to take your place at your business should you want to step down or unexpectedly be unable to lead it. A change in leadership can result in conflicts or legal issues, as well as allegations of mismanagement or unfair practices. Having Directors Liability Insurance can help ease the transition and minimise any negative impact on the business.

3. Reputation and brand management

Your business relies on its reputation and brand to build trust with customers, partners, and investors. If you’re accused of making poor decisions (even if the claims aren’t true), your company’s image can be tainted. D&O Insurance covers reputation management to ensure your company doesn’t lose support during crises.  

What to keep in mind when choosing D&O Insurance for your SME

Before investing in Directors Liability Insurance, you must know what role it will play in your business.

Directors and Officers Liability Insurance protects you against personal financial loss if you’re sued for decisions you made or you face legal claims. It can give you peace of mind, help you attract investors, and support long-term growth. However, it has its limits. It doesn’t cover illegal actions like fraud or criminal behaviour. It also doesn't protect physical assets such as buildings, cars, or equipment — separate insurance is needed for those.

To get the most value from this product, choose a reputable insurer, know exactly what your policy includes and excludes, and know who is and isn’t covered by it. 

Get a Directors and Officers Insurance quote

While the challenges of running a business as a woman are real, all it means for your future success is being aware of them and protecting yourself, just in case. 1st for Women can talk you through your D&O Insurance options so you get the coverage you need. Ask us for a Directors and Officers Insurance quote today to get started.