Nobody understands the impact of trauma, stigma or discrimination better than the person experiencing it.Drew Browne
Sapience Financial and Investment Services is the first Trauma Informed Organisation providing speciality Financial Advice and Insurance Advice.
This is what that means for you and your family.
As a kid, I clearly remember the repeated warning about the dangers of running with scissors.
What I didn't hear was the dangers of running off with a credit card, and I wonder which one has caused me more damage in my life so far?
Can you relate?
So it's fair to assume there’s also a lot of siblings of those same people living with a disability or chronic illness.
We often forget that for every person with a disability, there’s probably a sibling or extended family member helping support them or who act as the financial backup for that person too.
Maybe you find yourself facing financial demands from both your own young family and older family? You're not alone.
Welcome to the life of the Sandwiched Generation.
I must confess it was a childhood experience that led me astray and taught me the 7 early financial lessons of the schoolyard.
If that worked, the tax department wouldn't need to get people to pay their taxes; you could just 'think about' it for them instead.
Drew Browne Director of Sapience Financial and Investment Services was interviewed by James Cook, speaker, author and marketing adviser at Massage Champions.
00:00 - 34:05
[00:00:00] James Cook: It's so great to have you on the show here today Drew. I'm really looking forward to this discussion, which I don't know. If a lot of people say that about insurance, but it is something that comes up a lot in our group and I know there's going to be heaps of people listening that are going to take some great value from what it is.
[00:00:13] You've got to share with us.
[00:00:14] Drew Browne: Maybe it's great to be here. So ask all the hard questions you want because now, it's the time to get some free good advice.
[00:00:22] James Cook: Yes, absolutely. And I know that you've got your own business story to share and you've got lots of experience in business yourself, but first off just share with us, where are you right now? What business do you run? What does it look like to be Drew.
[00:00:36] Drew Browne: James my business is called Sapience Financial and Investment Services. Now the very first thing that happens when I say that people say, 'what does Sapience mean?' Actually sapience is a familiar word. We know it from the word homo sapient.
[00:00:51] It means wisdom from unusual places. So there's a little bit of fun dig in there. So what business is called Sapiens Financial and Investment Services, we've been doing this for some 20 years and we work in the financial advice space but we specialize in working with small business owners and their families.
[00:01:12] James Cook: Absolutely, and you've got a whole range of knowledge around insurance and I specifically wanted to grab you on the call today because of had a quite a few questions come up in our support network, in our group for massage therapists around insurance. Now massage therapists as part of the requirements of practice, they have a couple of kind of insurance already. They need to have public liability, professional Indemnity that kind of stuff. So that's that's all handled although open to advice on that too. But the main question that [00:01:40] comes up is around income protection insurance and how to ensure your income as a small business owner, in an industry like massage, that's often a bit up and down often when people start they're not earning a lot anyway, and so I'd love to just pick your brains a little bit today around how income protection insurance specifically works.
[00:02:00] And so I guess if we can start the conversation with. How much does income protection actually work? If I'm a massage therapist and I've got a number of clients each week and then I get some income protection insurance, can I be assured that it's actually going to work for me?
[00:02:16] Drew Browne: Yeah, that's a great point.
[00:02:17] Well, the first question I would have to ask is, 'how much income do you have?' The second question is, 'how much do you want to insure?' So initially people might think that's a little bit silly but it's not so let's pause and work at through income protection insurance - and sometimes is called sickness and accident - why because they love confusing you, income protection insurance can only insure up to 75%. All of your income. The reason for that is, the insurance companies want to make sure that there is an incentive of to go back to work and earn the extra 25%.
[00:02:55] James Cook: Yeah, of course. Yeah, that's great. How does someone proves how much they've earnt, that's probably my next question.
[00:03:02] Drew Browne: And normally that's where the paperwork starts. So in practical terms, if you know, you could insure up to 75% of your earned income, at some point you have to prove how much you earn. Now, you can either prove it when you take a policy out, that's a really [00:03:20] good idea or you can prove it at the time when you're needing to make a claim and that can be hard.
[00:03:26] So for example, if you've gone on a skiing holiday with the family you fallen off the chairlift and you're broke your wrist and you're unable to work. If you haven't already proved your income to the insurance company, at the time of the claim you're going to have to do it. So I always say start up front and say, 'Insurance Company this is what my income is. T Now you casn do that through three ways.
[00:03:52] Number one. You can provide a computerized pay slip showing what your income is. But if you're a small business, might not happen. Next thing is you can provide a tax assessment notice showing what your income was; or if you're new to business and you're just starting out you can provide a set of documents that shows what you've earnt for the last three months and then we can annualise it.
[00:04:21] So the gold standard is, is be able to prove your income with documents from the tax department. The Not So Gold Standard is prove what you have worked on to date and then when you've got got it documented then you'll come and increase the quality of the policy. The price for one or the other is the same but it makes such a difference a claim time.
[00:04:43] James Cook: Okay, and what if you've got a difference between what you earn on your tax return and what your business actually turns over? So for example, if you are renting somewhere or maybe you've even got a staff member or two, I know they'll bring in some income as well. Even if you're not working, but that just adds a whole [00:05:00] heap of confusion to the whole thing.
[00:05:02] Drew Browne: Oh it sure does and that's where income protection for self-employed people is a bit of a Minefield. So you really have to say I'm prepared to do some learning. And I'm prepared to do some talking with an advisor like myself. Now I'm biased so handful of salt but in practical terms if you have an income stream that perhaps is kind of hard to prove or might not be exactly what it could be,
[00:05:30] you're still going to have your overhead expenses. You might have the cost of the rent. You might have the cost of your product. You definitely going to have advertising, your mobile phone. So sometimes there are fixed costs that all small businesses have. In fact, you got to stay open for business.
[00:05:49] So the idea is perhaps if income protection is not working for you consider something associated, but it's called fixed business overheads insurance
[00:06:01]James Cook: Right.
[00:06:02] Drew Browne: At times it can go
[00:06:03] hand in glove with income protection. And sometimes you think you know what I just need to fix my overheads for 12 months. So if something terrible has happened, you still have a business you can sell or move on but if you fallen off the ski lift and you need a good six to eight weeks at least the overheads are being reimbursed so an issurance company can actually give you 100% of your fixed overheads,
[00:06:32] James Cook: Right.
[00:06:33] Drew Browne: you gotta prove it. So at some point you have to let me talk with your Accountant and I say hey, 'what are the [00:06:40] fixed overheads for the last text year?', the accountant gives me that document and your home and hosed. So think of income protection for you the person and your earned income or fixed business overheads, which is really a great start put them together you have a hundred percent coverage. If you can't it's a start.
[00:07:03] James Cook: That's fantastic. I didn't even realize those were two different things. So that's really useful even for me to realize that because I know situation we have seen is where a therapist who was growing a business quite quite quickly.
[00:07:18] But was up to a place where they were running a nice little business themselves, but we're still not taking much actual personal income for it. They were plowing all that that money that was coming in back into growth
[00:07:28] to it's about
[00:07:29] their their place, you know, just growing literally. And then they had income protection insurance, but the income protection didn't pay out because when you looked on paper at her actual income in the pocketing come it was very little very little at all.
[00:07:46] Even though she had this quite good turnover and felt quite successful as a business owner and I know that really. Hurt like emotionally, it's like ah, come on. I'm doing this thing.
[00:07:57] Drew Browne: It's like a bit of a snack. Now. This
[00:07:58] James Cook: is terrible
[00:08:01] Drew Browne: and with those types of things that's really a problem at the setting up of the policy by attrition about do you prove the money now, or do you prove it later?
[00:08:11] There's a bit of work to do and maybe in that situation where someone's in high growth mode where they plowing back [00:08:20] more funds than they should into their. Maybe the affixed overheads would have been ideal. It may well be that the fixed overheads are a cost of the staff hmm to on the property the lease on the vehicle.
[00:08:36] At least if you can have those things sorted if something really bad happens it buys you 12 months sometimes 24 months window of opportunity to get a sort of.
[00:08:48] James Cook: Yeah, and that sounds really really useful because I I do it's not something we necessarily recommend, but I know a lot of the industry does do that when they first start up they don't have a lot of backing quite often.
[00:08:59] They don't get business loans. They just bootstrap their way. So as they're going they're building up what they need to and greater that entrepreneurial but I know it definitely could feel like a kick in the guts up to 12 months of working really hard and all that stuff. I was something happens
[00:09:14] Drew Browne: devastated and this is really an issue where you need to make sure that.
[00:09:17] The income protection insurance you get is what's called Personal Insurance not General Insurance. Now, I'm going to get some hate mail after this but let me get on my soapbox and help people realize the two differences between personal insurance and General Insurance. General Insurance is normally insurance for things for stuff for cars for overheads.
[00:09:46] It ensures stuff and Mobley each year. It has to be renewed. Hustle insurance. I have call it Professional Insurance. But I'm biased Personal Insurance ensures people [00:10:00] in their things and what they do and what they earn sometimes Personal Insurance can take a bit longer to get but that's because once you've got it, so I'm going to pay the premiums.
[00:10:11] They can't take it off you it can't be canceled. So beware there's two flavors of insurance that general for the stuff but. Also for the professional that's the area that we all need to be thinking about and learning a little bit more about that's really
[00:10:30] James Cook: interesting again. I didn't really know a lot of this stuff is and
[00:10:35] Drew Browne: this is why it's really important.
[00:10:37] How do we let people go into business where they look after customer they look after the commercial liabilities? Are they forget themselves and when the wheels fall off not if but when and we've all had a blown tire at the most inopportune time. Then we think I wish I had learned a little bit more about this earlier on the frustration I feel for people.
[00:11:07] So bad because that was also how I started my journey into what I'm doing
[00:11:14] James Cook: now. That's interesting. So share a little bit about that. You've obviously got a bit of a history in business. You're running something great now, but how did that sup?
[00:11:23] Drew Browne: I started my journey in. The legal profession at some period of time you could say my fast-growing career was overtaken by a faster growing tumor.
[00:11:35] And as a result, I lost my ability to speak [00:11:40] about making up for it. Now for two years. Wow. And as a result, I lost my career. I lost my contract in my employer said this looks like it could be a very scary thing if something doesn't go, right. And I lost my income. In fact more than that. I lost just about everything else except my mortgage.
[00:12:02] It was the time of Home fund mortgage when the mortgage rates were 18 percent when I started my life with a full head of hair and as you see now it's received and I think in part it's because I lost my income during a very expensive time, so I did not have income. Protection insurance. I didn't even have an accountant I could have sued for not telling me about eating income protection insurance.
[00:12:34] No one told me and I wasn't to know any other way. So I lost my legal career. I was often out sick for two years very sick, and I realized like to make some changes I needed to. Applied business mindset and I needed to start protecting and providing for my family and for my future and it was a long haul and it was a hard row.
[00:13:01] So I understand what it's like to lose your income to lose your health just about everything else. And for that reason I am passionate but more than that. I am so obsessed with helping people know what the options are. What they want maturities are and how to make [00:13:20] the best in sometimes we run out of cash.
[00:13:24] We run out of puff. We want out of what have you but there's always something we can do some point when life gets better. We cycled back in we can do even more. But I started and I lost big time.
[00:13:40] James Cook: Well, I love that story. I mean - what I
[00:13:42] Drew Browne: liked it because I left my love of it. What
[00:13:45] James Cook: I love of it is that it's a massive challenge losing your health like that, especially when you're in a high performance career.
[00:13:53] That's that's devastating and I guess what I love about it is the way you've been able to turn that around. And actually great gain some motivation from it to start a new career to be doing something new that's kind of helping people through the same or potentially working through the risk of that same thing happening, which is a great way to have that passion behind what you're doing and I'm sure that's led to a fair bit of the the drive and motivation.
[00:14:18] You've had over the years since to be able to grow the business to where
[00:14:21] Drew Browne: it is. It's all part of it, but the challenge is my business is selling a product. That hopefully people will never have to use.
[00:14:31] James Cook: Yeah, if it did actually that he's a really interesting conversation. A lot of insurance sales is probably about risk and about fear and mitigating fear and risk.
[00:14:44] How do you go about helping people to know that they need insurance without just like being Scare Tactics all the time. Is that something you have to deal with?
[00:14:54] Drew Browne: Absolutely, you look at I take the point that I'm too old not to talk about what's important [00:15:00] and what matters most I know what it's like to lose so much.
[00:15:05] So for that at some point your compassion for people and your love for their business and what they are doing in the world has to overcome your own limitations and at some point we have to say I'm about building capacity. Not about building comfort. Yeah that's being but at some point as we talk with our family and they wonder why do you do such a long hours?
[00:15:32] Why do you do work at prices that perhaps is not commercially sustainable for the period of time. It's because we're building we're building something for the longer term and that's really how we have to look so when I'm talking with my small business owners in their families, which is always a family behind.
[00:15:50] Small business. It's about stopping The Dominoes from falling. It's like having a family trust to secure assets. It's like having a will. It's like having a power of attorney all those things there. How about stopping The Dominoes falling so that your business continues regardless and your family continues regardless.
[00:16:16] Do you want to know a really scary fact that I wrestle with every day.
[00:16:22] James Cook: I'd love to hear.
[00:16:25] Drew Browne: 31 families every day lose their primary income. Learning parents they pass away. Wow, unexpectedly through accidental sickness. [00:16:40] That's 31 families tonight who will go to sleep - a parent and - an income stream and tomorrow is another 31 and then there's a thirty one after that.
[00:16:54] in my challenge is. I work with the people in every 31st client. Is the risk that I try to rap? I'm native safety around because there's a family behind that and there's lots of things that we don't talk about because we are the feel icky or because we haven't really thought about it all because we're in small business and just so flat out doing what we're doing and getting the best done and everything else.
[00:17:25] Don't get me started on the best statements. But at some point I think when you get a little bit older you wonder why you do what you do for how long you do it. And then you see the grandkids or your see the teenagers or you hear the grinding of the teenagers and you realize he that's the reason why I do and I think at some point our businesses will only grow to the extent of our personal growth with our self our clients feel it.
[00:17:58] They hear it from us. They understand what we talked about because so much of what we do with people is about connecting with people. And that's real life. That's real conversations. And that's the road. I've chosen to go down.
[00:18:14] James Cook: Wow, I love that and it's something where I can hear the heart you've got for those people that you're working with.
[00:18:19] [00:18:20] Drew Browne: Absolutely and
[00:18:20] James Cook: I love that statement that you use. It's like these are not necessarily comfortable conversations or comfortable things to think about but it's almost like the the care and attention you have for that person in the family overrides that discomfort and so you've got to be able to go well, Someone's got to have this hot conversation with them.
[00:18:37] If it is gonna call this going to be solved if it's going to be something we can work through it.
[00:18:43] Drew Browne: It's as practical as talking to your teenager about sex. You might not like the conversation, but if you don't have it, they're going to have consequences crawling around the floor and ain't gonna be cheap.
[00:18:54] So at some point it's about building capacity building the confidence.
[00:19:00] James Cook: Yeah, I love that. I'll say love, you know, I can hear that. You've got a real heart for the people that you work with, which is great. I also know that it's not everyone's experience of financial advice has to have that kind of experience.
[00:19:13] You may be representing the best financial advisors that are out there, but I'm sure the whole industry like any industry doesn't have everyone in it doing the same thing. And we've had the Royal commission recently. I know there's been a huge tighten up around restrictions and rules. With financial advisors and I guess coming back to the point you were making earlier a lot of.
[00:19:33] Mia muscles like a selves or our listeners might need some advice. I know what you're giving us today is very general. It's not it's not official advice. It's got to be something that we do want to tailor advice to individual people in that Financial advice is like that. So how can someone know that they're talking with a financial advisor?
[00:19:55] That's actually going to give them the right advice around things like insurance.
[00:19:58] Drew Browne: It's a good [00:20:00] point and I'm biased so a handful of salt with what I say, but I would start my conversation with this understand that there are people who are employed financial advisors. And then there are Small Business Financial Advisors.
[00:20:15] I'm down the road of the small business financial advisor. I'm in small business. I understand that small business and I love small business end end and I see the purpose in the passion and the change the small business makes in the world. Sometimes often better than that which the lumbering corporates who will actually follow so I think the first point I would look at is are you speaking with an employee?
[00:20:43] Who are you speaking with? The owner? The next thing is are you speaking with someone who has what's called an open product list. So here's a trick in my world. There's some fifteen different insurance companies. But some advises only work with two or three so when they're talking with you, they're talking about two or three when I'm talking with my clients.
[00:21:10] I'm talking about 15 the amount of data and information is quite different. So let's make a person if I was talking with a massage therapist today and they went to advisor number one the employee they could only get in. Income protection for two years. But if they're talking with me who has 15 different companies behind them, I can get them income protection till age [00:21:40] 65 the difference is staggering.
[00:21:45] So first of all employee or self-employed second a small product list or the open product list. And then the third point is talk with them hastens slowly don't rush into things and if you get the fee of dread or the fee of something or rather, yeah, push the pause button because these decisions once made.
[00:22:14] The ones that become the fabric of your small business and they wrap the protection around your family and you got to get them right and I think there's a lot to be said for intuition. Obviously the advisor has to be licensed Google them Google Drew Brown Dr. E. WB o WN e see where I am. See where I turn up see if I'm committed to educating the public about how they can have.
[00:22:39] Pizza advice so think about those types of things and start your conversations there.
[00:22:49] James Cook: It's good advice. What if someone is listening to this new thinking all Drew sounds like he knows what he's talking about. Can they get in touch with you? Do you work nationally?
[00:22:57] Drew Browne: Absolutely the beauty about being in 20 years in the business has is we work with rural Australians Australia-wide.
[00:23:07] We work with shift workers Oh my gosh, I have shift workers who call me at 3:00 in the morning. They have to make up thinking first because that's when they have [00:23:20] dinner. So a lot of my work with small business owners is actually fitting in to their life to their business hours not eating in to their key income-producing time.
[00:23:33] People don't have to come to my office. And in fact the last person who did got a parking ticket that didn't go down very well. So, hence, we understand that small business is actually online business. So you get the full service and I'm happy to come and see you face-to-face. But if you're in the pilgrim if you're in Tasmania, or if you are like my clients in the forces who every two years go to a different part of Australia.
[00:23:58] It's okay. We're either there or online great
[00:24:02] James Cook: and you saying we do you have a team
[00:24:06] Drew Browne: or absolutely I have a research team. I have our source compliance team. I have lots of levers you could say that I can draw upon that either keep an eye on what I'm doing or they will. Increase more insightly particular area, although just provide the back office services and support that I need so like making a movie sometimes you'll go and get a whole heap of people.
[00:24:33] You create the past you do the work you make the movie. If one goes back until the next movie is made it's a lot like that when you're working with remote professionals, like myself online.
[00:24:46] James Cook: Yeah, I love that. And so you've obviously built up a business in an area that is quite technical. You've got to have a high level of knowledge or and what you do to give that level of service that you've got for your.
[00:24:57] It's always wondering like that's [00:25:00] that must have taken a bit of time. It must have been a bit of a journey for you to build the business to where it is. Now.
[00:25:05] Drew Browne: What would
[00:25:06] James Cook: you say was the most challenging moment you have had in business so far
[00:25:13] Drew Browne: the most challenging moment in business.
[00:25:16] James Cook: Yeah. Well the most challenging thing you've had to overcome to get your business to where it is right now.
[00:25:25] Drew Browne: I think overcoming sadness and expectation.
[00:25:28] James Cook: Wow, that's interesting. Tell me more.
[00:25:31] Drew Browne: So sadness that I would like to think that all of my industry really wants to think about protecting and providing. I would really like to think. It's so many of the insurance companies are purely focused on the end result for the customer in on really like to think that lawyers and compliance officers really want to put the interest of the clients and their best interests first when you've worked in my industry.
[00:26:05] for the time you have. I get to meet people and see things at a very different level in sometimes what I see is not what makes me happy and dealing with how do I continue to bring my full self to work? My best self my insights my business Acumen regardless of that. And I think sometimes it's about saying in my world in my reach for my clients.
[00:26:35] There is safety. There is care. There is Insight in there is learning. [00:26:40] For me it has to be about helping people becoming better versions of who they are in in my business. We talked about helping people become better protectors or providers. It's a very human trait but it's the thing that really aligns us together to protect and to provide to protect our family to provide through our business.
[00:27:03] So so that's what I've drawn upon as an ability to pull me through when I see the sadness has in more corporate eyes parts of the world and when I see things that don't have to be because that's another 31 people. There were never reached by my brand in tomorrow. There's another 31 people who.
[00:27:29] Sally haven't yet been reached by my brain. So for me, it's about keep your family. Keep your clients. Keep your business closed and safe. Because life doesn't always work out the way we would expect.
[00:27:44] James Cook: Yeah, that's fascinating and I can hear to it's almost like you're working from the inside to change the actual industry itself as well by setting an example working through the way, you know, things should be worked through.
[00:27:56] And that's been as you mentioned earlier part of that is a personal growth Journey not just business skills, but actually being able to overcome those challenges internally as part of what leads to business success and Industry success
[00:28:09] Drew Browne: and I think that's what it is. I was very fortunate in 2017 to be recognized by the the Westpac businesses of Tomorrow Awards, and that [00:28:20] was because of a of a specialty Niche Insurance business that we start.
[00:28:24] That substantially just for people with very hard to ensure occupations or complex Health situations, and we did that because we found so many people. Good people good business owners didn't get the chance or didn't get the time because of the cost constraints or the legal constraints of my industry and they were left.
[00:28:52] And that wasn't right. So we created a new model and we've been looking after those people in that particular ways. And one of our challenges is how do you advertise a confidential service and sometimes those are things that we have to do with but it has to be a personal growth Journey. Anything else doesn't get you out of bed.
[00:29:16] In doesn't encourage you to get the best returns down where you really shouldn't have having a barbecue with your mates, but them get me started about
[00:29:25] James Cook: the past. I love that. I love the motivation. That's there.
[00:29:30] Drew Browne: What would
[00:29:30] James Cook: you say is next for you on your journey. Where do you see your business going in the future?
[00:29:35] Drew Browne: What's the point? My business is going down the road of. creating. Online courses and learnings. For small business people in their families. that they can access in their time and their ways with training videos with insights, [00:30:00] of course the book but skills that actually bolt into their intranet into their business systems.
[00:30:08] Because at some point we all get tired of having to reinvent just another wheel and put yet another wheel or another technology into our systems. I'm fortunate what I work with our key risks for All Families or businesses. So once you get your head around the key stuff like becomes better and. In a strange way, I think people become better.
[00:30:35] One of the things that we say is that secure people live bigger lives. And I've yet to find a small business owner who wakes up and thinks today. I'm going to be average. No, no. No, that's not what we do. It's all about living the bigger life. And not leaving a family behind.
[00:30:54] James Cook: Yeah, I love that and I certainly agree.
[00:30:57] It takes a fair amount of courage to step into small business ownership, especially if you're doing it from a place of actually having a big goal and wanting to make you and I guess what I see is a whole lot of people who do that have the courage they're very forward motivated and they tend to not think too much about the risks or or maybe they think and plan but insurance might not be something that is naturally going to be something that they'll consider.
[00:31:21] So I really appreciate you being able to share. Of the advice you've shared with us today some of the education around insurance and some of your story if people listening are interested in getting in touch with you. Where would we go to look for
[00:31:35] Drew Browne: that change three things? They can do number one go to my website sapience.com.au
[00:31:44] Not a you go have a look at what we do. We'll get our philosophy look at our system. The second thing is go to our blog there is a lot of information there and it's all hand crafted by our team to be relevant to what our customers are doing. And then the third step is make sure you get our occasional newsletter.
[00:32:06] We call it not a newsletter because it's not something that you don't read. It's something that you browse through and you think. That thing is good for me or that one's for my friend all this not this month, maybe next month. It covers everything that helps people either protect or provide. So three things sapience on combat.
[00:32:24] Are you see as their number to go look it up logs and number three get our newsletter. And if your social of course, we're on Facebook at sapience Financial one word. Let us know what you're thinking and what you need to talk about and we'll actually have in the show notes down below a checklist for massage therapists and other body workers on some of the things they should think about when they're looking at either.
[00:32:51] Business over here to insurance or income protection insurance and I'll link to cyber fun explainer videos where you can learn some stuff and have a giggle along the way as well.
[00:33:02] James Cook: That sounds fantastic. So we'll put all of that in the show notes. So if you want to visit Drew's website or download the checklist specifically for massage therapists.
[00:33:10] Thank you so much for putting that together. That's really really great. It's been an absolute pleasure to have you on the show today. Thanks for demystifying a bit of insurance and sharing some great [00:33:20] stories. You're amazing. Happy clients as you go. I really appreciate it. Thank you
[00:33:24] Drew Browne: James. Thank you for letting me share some of the good news about financial services and to all your people in your community.
[00:33:34] May they stay safe. May they learn some more stuff and may they lead bigger lives.
[00:33:42] James Cook: awesome. Thanks
Drew Browne Director of Sapience Financial and Investment Services was interviewed by best-selling Author, Speaker, and CFO The Cashflow Queen herself, Amanda Fisher in her podcast Seeing Through the Numbers.
In this interview, Drew talks about business fixed overheads expense insurance; a useful alternative cashflow protection strategy when needed to Income Protection, for business owners and key people.
00:00 - 32:22
Amanda Fisher: Welcome to episode seven of the Seeing Through The Numbers podcast. Today I'm talking with Drew Browne from Sapience Financial about insuring business expenses.
Drew is a straight-talking Financial Adviser who believes life is not about money. He's focused on helping small business owners and their families protect and provide for those they love and what they are responsible for. A big believer in protecting your purpose, Drew believes when people feel secure, they live bigger lives and lead better businesses. His company Sapience Financial & Investment is a certified BCorp, and in 2017 he received the Westpac Businesses of Tomorrow award. Welcome Drew, to the show.
Drew Browne: Hi Amanda, I am really happy to be here.
Amanda Fisher: Excellent, so tell me a little bit about yourself and Sapience. I'm going to ask too many questions all at once, and what's a certified BCorp?
Drew Browne: My business is called Sapience Financial & Investment, and the word sapience actually means wisdom from unusual places. I suppose if you go have a look at the old English meaning, there's a little bit of a wry smile in there. And it's really, I suppose, an extension of understanding that business smarts is not just charisma, it's actually applying your mind to what's needed. The word sapience actually means wisdom from unusual places, and our logo is actually a logo that was designed from a South African tribe, where they actually understood the importance of wisdom and what they would do is they hire out their elders to the local tribe, who would then hire out their own elders back to the other tribe and they would exchange wisdom.
Amanda Fisher: Wow, that's awesome!
Drew Browne: It is, as I suppose the idea is that wisdom actually counts and there's a commercial exchange for it. I suppose like lots of things, we always like to say, "It's always best to arrange experience rather than make the mistakes yourself and have to pay for it."
Amanda Fisher: True, true. Yes. Yeah, learning from other people's mistakes is always a cheaper option if we can do it.
Drew Browne: That is so true. And you asked what is a certified BCorp, a certified BCorp is actually a new international certification. And it's actually quite a large movement of businesses using business practices and principles for the benefit of the community around them. So a certified BCorp is an organization who has to apply for certification. They get judged on five key areas, and every two years we are monitored and we have to re-certify. And if you like, you could say, we compete with each other to be the best for the world, rather than best in the world.
Amanda Fisher: Wow, that's so cool. So wow, you're very different to most financial planning people that I've come across so, wow.
Drew Browne: Well that's good, because we believe that life is not about money, it's about so much more but when you apply a wisdom overlay, the reality is we live in a commercial world and there are commercial realities, and we all have to learn how to manage our cash flow.
Amanda Fisher: Very true, and that's a great lead into business expense insurance, which is something that ... I don't know, is it new or has it been around for a long time and no one knows about it? What's the story with that in terms of its history and where it's come from?
Drew Browne: Yeah, so it's a good point. Look, I started my career in financial services some 20 years ago, we won't count the years. And it arose out of a past career I had in law where I got sick. In fact, I got very sick, and I got so sick that I lost my contract with my employer. And I was off work for at least two years, and the problem was, I ran out of income. Now, when you run out of income and you no longer have a job, life is very difficult because
there are fixed expenses that have to be paid. That was a time when I had a mortgage in the old government home fund days, and that was when interest rates were 19%.
Amanda Fisher: Ouch, ouch, ouch!
Drew Browne: For those people who haven't yet been through a recession, good for you because there's one coming.
Amanda Fisher: Yes, thanks for the heads up on that one, but..
Drew Browne: It is, we've got about, we've got three or four years and we're sorted, so get it together now, but anyway ...
Amanda Fisher: And it's tough when interest rates are that high, and I know there were some horrendous loans floating around at one point. By the sound of it, you were at that point, the rates were just ridiculously through the roof. Even more so than the ... sort of the ordinary, if you like, mortgage rates, which were still jolly high at that point in time as well. And times were really, really-
Drew Browne: Absolutely.
Amanda Fisher: Without an income, wow. That would have been tough survival.
Drew Browne: And what you can say is, the mortgage I was paying was in this year, 2018, the rate was four to five times higher than what was average. So, my life in financial services started when I realized, "I know nothing about this." No one's taught me even the basics about how to manage cash flow because what happened all of a sudden was a sonic boom of comprehension that I had fixed family expenses, that regardless of what I wanted to do, I could not avoid. The mortgage was fixed. The council rates were still fixed. Things like electricity and water, more or less, fixed. All of a sudden I realized, regardless of what's happening, there is a base level of expense that is required to keep, I suppose life and limb together. So, from that understanding, as I commenced business years later, it was always very front of mind that businesses have fixed expenses. There is a base level of income that you need to have for a base level of expenses. That's just there, you have the rent on the premises, you have your insurance, you have your professional costs. These things are there whether you're open for business or not. And, with all that, this is where business expenses comes in. Now, business expenses is actually fixed business expenses. So, in the world of insurance, when we push away the risks away from our business and our family, we push them to an insurance company to hold on our behalf. Fixed business expenses are those expenses that we can't really fiddle, if you know what I mean. The rent is the rent, it is what it is. The wages are the wages, they are what they are.
Amanda Fisher: Okay, so that includes wages as well, because I talked about fixed expenses versus variable expenses in the previous episode, and around the fact that fixed expenses are those expenses that you're going to have to have. Like you say, whether you've got an income or not, and knowing what that is part of identifying really kind of what your basic break-even number is, just to have the door open, let alone the fact that you've got then your variable expenses that will be specific to what the product that you're selling or the services you're providing. So, these business expenses are the fixed ones, but ... So, okay so tell me a bit more about what's included. obviously the rent, you've mentioned wages, so yeah I haven't thought of wages as being fixed in there…
Drew Browne: Yeah, absolutely. And wages of your employees that aren't directly involved in generating a revenue, like your PA, like your admin team, like the people who make the widgets, whatever that is. These things, you could say are more contractual in nature, so if you go you could say your bank fees and charges are fixed regardless.
Amanda Fisher: Right.
Drew Browne: Your cleaning costs are normally fixed regardless. Electricity, gas, water, fixed normally regardless. The fees for your professional associations, interest payments on the business loans is fixed regardless. Leases of your office equipment, or the motor vehicles, or the forklift, fixed regardless. Loan repayments for capital expenses in business is fixed regardless. You can even have things like your payroll tax, hate that, printing and postage, your rates if you're in that situation where you own your premises and you're fighting with the council for the clean up. Contractual advertising, leasing fees. Believe it or not
Amanda Fisher: It covers a wide, wide range and a much broader range than I thought it could.
Drew Browne: Yeah.
Amanda Fisher: I kind of had in my mind, I guess, things like, yeah your rent but see, actually, when I think about it, salaries makes sense, so the wages, yes. But rent and perhaps your electricity, and some of those basic ones.
Drew Browne: Telephone, your comms, internet, your PABX system, your point of sale. Because when you think about it, most of these things are contractual.
Amanda Fisher: Yes, got you.
Drew Browne: So, if you can see that it's more contractual, more likely than not you have to think about, is this a fixed expense? Now there's some things which are quite straight forward, but there's somethings that are a little bit new, and that's where working with a financial advisor that understands small business is useful because we go to the financial underwriters and we say, "Give us a ruling."
Amanda Fisher: Right.
Drew Browne: "We have this type of machine for this reason and this is what it does and the light goes bing. Our attitude is this is a contractual expense, yadda yadda." And we go from there. Now with all these things, once you realize that there is a base level of cost, you've got to scratch your head and say, "Running a family and running a business, it involves the same consideration." How be it the expenses are different, it's the same thing.
Amanda Fisher: It is, isn't it? And what's going to be surprising, I think for most people, will be how much ... I guess the vast proportion of a lot of business expenses, if you talk about your overhead type expenses, they all fall into this contractual
Drew Browne: They do.
Amanda Fisher: ... kind of fixed expenses, the variable ones will relate to more the actual delivery of service and the sale of a product and the hard costs of that, which is your cost of sales and for me, I always talk about cost of sales in a service based industry as including wages, or the salaries of the people that are delivering it but again, you can't just sack someone if you've had some money problems.
Drew Browne: No.
Amanda Fisher: Because you've got ... So how long does business expense insurance last for? When would you claim on it? What are the events that would trigger a claim? How long would the insurance pay on for?
Drew Browne: Yeah, good one. There's three things that we would need to think about. So ostensibly, the first thing is, if you are a sole operator and you are 100% responsible for the income that pays the expenses, you're 100% responsible. But, for people that are in partnership, let's say they both do sales and they both bring in 50% of the revenue. In practical terms, you could say that they each are 50% liable for 50% of the expenses. So, the first thing is to realize who is the generator of the income that pays the expense? The second thing is, what are the trigger events? When you're looking at this insurance, this is what's called personal insurance, not general, the difference is quite straight forward. Personal insurance covers a person in something that happens to them, where general insurance might be glass breakage, which is things insurance. Business expenses insurance as I'm speaking of is a personal insurance product that will pay for 12 months if the person generating the income that pays expenses is either sick or injured, and can't work. If you are like my butcher who went on a double black diamond ski run, he actually had the good sense to call me the week before, just to make sure that his income protection would cover him if he had an accident, and of course it would. The good thing is that we also had business expenses in place because the reality is this, if you have income protection insurance in place, the law says the maximum you can insure is 75% of your income so let's make the numbers work. If you're earning 100k, the maximum you can insure that money for is 75%, which is 75k. Now pause here, normally people think, "Okay, I could skinny through, I could survive, I could recover on 75% of my income." But if you don't know what your fixed business expenses are, you're now having to pay those fixed costs from only three quarters of your previous income anyway, and that's where people come unstuck. So you'd need to have income protection that protects your ability to create the income and you have business expenses insurance which protects your ability to pay those expenses if you're sick or injured and can't work.
Amanda Fisher: Right, so this is in conjunction then with your personal sickness and accident?
Drew Browne: Now, this is the challenge. This is where you need to have a small business financial advisor who is across all of this, because now you're stepping into the murky world of some companies require you to have income protection and then as what's called a rider, they'll offer business expenses. But other companies, kind of better ones, say, "Hey, it's a separate issue. We'll give you separate insurance, separately for business expenses." The reality is, you need to find something that works as part of a strategy for what your business does, what your responsibilities are and that's where you'd work with an advisor like me.
Amanda Fisher: Right, okay so personal income protection insurance is always in my mind, and it does obviously, it covers my home bills. That covers the mortgage, the food costs, the whatever and yes, it's 75% so yeah, we'll be eating baked beans while I'm off sick but you know, hey, at least we'll pay the mortgage.
Drew Browne: Absolutely.
Amanda Fisher: But I'd never thought then about that fact that the business still has its expenses that need to be paid because the income that I have insured is what I take out of the business, and that's after I've paid all the business expenses.
Drew Browne: That's right.
Amanda Fisher: I guess, perfect example, my business is 100% reliant upon me in terms of the revenue so if something happened to me, then there would be no income coming through the business and yet, there would still be these fixed contractual requirements that would still need to be paid.
Drew Browne: Absolutely, and the idea behind business expenses insurance is that we need to make sure you still have a business to go back to when you get over your sickness or your injury.
Amanda Fisher: Right.
Drew Browne: If you look down that road, if there was no business to go back to, your chance of recovery might be a bit more delayed.
Amanda Fisher: Mm-hmm (affirmative), true.
Drew Browne: Because you'd certainly not be in a good mental health position. The importance of your fixed business expenses means that if you are one of the one in five statistics where something happens, you'll recover, you'll respond, and you'll rebound and there's a business there waiting for you. Locum costs are also covered by business expenses insurance, so if you're a solicitor and something goes wrong and you have a car accident, and you can't do what you need to do, you can bring in a locum and that's a fixed contractual cost.
Amanda Fisher: Ah, right, okay, so that's how particularly your solo business owners operate ... can continue the business on, is they're getting somebody in to manage the business. I guess if you've got the fixed overheads being covered by the insurance, then that helps to keep the doors open and have somebody step into your role in the business to keep it operational while you're dealing with it?
Drew Browne: Yeah, and the reality is, everyone's situation is very different. Obviously, our conversation today is very high level and so this is not advice for only one ear, but you need to look at what is your base number? What is the number you need in your family, what is the number you need in your business? It's really a great question to ask because before you can answer that, you've actually had to have thought through a number of cash flow issues.
Amanda Fisher: Yes, and part of that then is looking then at ... you've got your personal cash flow that would be covered by your income protection, you would potentially then have your business expenses covered by the business expense insurance, but then if something happened to you personally ... but then you'd also have general business insurance that would happen in the case of some calamity, like the fire, the glass break-in, some natural disaster or other disaster that might occur in your business premises that would stop you from doing business as well, but it is all about knowing what these numbers are and what the cash flow is and what the implications would be, which is coming back to everything I always talk about is, how does all this come back into the cash flow? Before we go on into that, I just wanted to ask you, when's the right time to be thinking about taking up business expense insurance? Is that at start up, when you're commercially viable when you're in a cash flow crisis? When's the right time to be thinking about this?
Drew Browne: Yeah, look, I think the best time to start thinking these things through is two-fold. At the point of start up, as part of your cash flow projections, put into those number sequences what the costs are to the business and simply realize that your fixed business insurance costs are just a fixed cost.
Amanda Fisher: They're part of those ... another contractual fixed cost and I guess part of that then is, is it expensive?
Drew Browne: No it's not, because it only lasts for 12 months, in practical terms, what my underwriters normally like to see is that there's been business activity for 12 months so we can verify the income. The best case scenario might be 18 months. I always say this is the one question you should ask your accountant four times a year. I always say make them work for their money, which is, "Hey, in the last quarter, what percentage of my revenue had to go to fixed business costs?" By normalizing that conversation, so you're looking at cases, a stable path, or no something odd happened, or you need to just normalize this conversation so start thinking about this before you start. Then, when you're at 12 months or 18 months of revenue and things are stable, that's when you'll be thinking about that, but especially for people who are funded in start-ups. So they may have a capital injection, they may take a loan, those people there, they need a greater level of cash flow management because if you have an injection of 300k from a venture capitalist or a family office, there are commercial expectations that they would have of you, that you are protecting the processes and the known risks that you are facing.
Amanda Fisher: Yeah, that's a good point. So is there some easy way of working out what those expenses are, how much they might add up to?
Drew Browne: We have a PDF document which lists the top most common fixed business expenses that people have. So I think there's 10 or a dozen items. Now, what we've done is put it into a single PDF with editable fields so people can simply download the document, type in what they believe are their costs and then at the end of the month, end of the quarter, tally how they are going. I always say, "Look, get it out of your head, get it on paper, get it into a dedicated document so you can say, 'This is part of my cash flow plan.'"
Amanda Fisher: That's perfect and I think having that where people can fill something in and look at it, I think it's great to be talking about it, obviously we are which is great, but for people to do more than just think about it, but put it down in black and white, start to see the numbers, it's a bit like when I help people to create their forward cash flow and they look at the numbers and see what they look like and suddenly the lights go on and it's, "Oh wow." Good or bad, "Oh wow," as to what's happening, but it's there, it's so much easier when you can see it and I think to see just how much those fixed costs are, thank you so much for sharing that PDF with us. It will be in the show notes below and so do check that out and fill it out, have a look at it, listeners, and see what your numbers are. Then potentially start looking at ... thinking about in the first place, what would be the impact if you're unable to work, and maybe then start looking at what needs to be done to make sure you've got those insured so that if something does happen to you, you've got those costs covered and you're not having your family or someone else trying to deal with that on top of just your normal household bills that would be paid out of your income protection insurance.
So thank you so much for all of that, Drew. That's just opened my eyes to a whole extra bit that I didn't know. I'm a little bit aware of it, but not to the depth that you've gone into here for our listeners, so thank you very much for that. Before we finish up, I have a few different questions for you.
Drew Browne: Shoot.
Amanda Fisher: If you were to recommend to our listeners one business book that has made an impact on you, what would it be and why?
Drew Browne: Oh gee, there are so many good ones, aren't there? I think my all-time favourite business book is one from 1997, it's a bit old school, and it's called Intelligent Leadership. It's by an Alistair Mant, it's an Australian book, and it's about business leaders and the idea of understanding complexity and then exercising judgment. I suppose you could say it's old school, it's not about how you look, or the charisma that you have or not, it's about your
proven ability to do the job and to exercise judgment under pressure that actually has a reasoning behind it. So that's my favourite one, Intelligent Leadership, Alistair Mant.
Amanda Fisher: Okay, excellent, and we'll make a note of that and have that in the show notes for our listeners as well. What's your favourite business app that you're using at the moment? Why and how do you use it?
Drew Browne: Ooh, favourite ... that's an even harder question than a book, isn't it? I think the one I use a lot and I say, "Where would I be without it?" Is the good old Google Sites, the Google website builder, and I use that for our internal intranet. So all our data goes in there, all our education, all our learning, our conferences, we put into our Google Sites and our onboarding procedures, everything goes in there and I can't see how a business can work without its own intranet, its own repository of data. At some point as well, look, we can access it remotely, staff can leave comments about what's working, what's not. I think if you are a learning organization, and if you're not, you're not going to be in business tomorrow, if you are a learning organization, you've got to have your own intranet, and I use Google Sites for that. Love it, could not exist without
Amanda Fisher: Okay, awesome, perfect. Just to finish up, what is the one piece of advice you'd give to our listeners to help them with their cash flow?
Drew Browne: My thinking is this. When people know better, they do better. I would say the one piece of advice is, work out what your base level is. Work out what is your cost to survive and then build upon that to the point where it's the cost to thrive.
Amanda Fisher: Exactly. What I'm always talking about is it's in the knowing of the numbers that you get the confidence and the clarity and the ability to make the decisions and take control of your business in terms of just knowing what's happening and being able to know when you need to plug a gap with some income because you're a bit short, or you need to know what your ... as you say, your baseline is. What's the minimum revenue you need to have every month just to keep the doors open? What's the miniumum money you need to have every month to keep the doors open and have some extra for profit, effectively? Some extra their for enjoying and doing other things and perhaps some discretionary costs that just aren't in the baseline, which is pretty much a bare minimum to keep the doors open, whatever the doors look like, in business. So yeah, great
Drew Browne: Look Amanda, I've always said that when people feel more secure, they will lead a bigger life. So many business operators, through not knowing their numbers, force themselves to live smaller lives because they're not quite sure what an outcome might be, or they haven't got their head around forecasting. They live their lives in a way that seems to be very different from the reason why they began their small business journey. So when you know better, you'll do better, and our economy and our community, and our families need stronger businesses so we build stronger communities, so we have stronger families, and it starts with knowing your numbers.
Amanda Fisher: Yeah, exactly. Thank you and thank you very much for being on our podcast today. I've really enjoyed talking to you. As I say, I've learnt a lot, I'm sure our listeners have learnt a lot. All the contacts and links and details will be in the show notes below, so do check those out. Thank you again, Drew, for being on the show.
Drew Browne: Amanda, it was great, thank you for sharing your wisdom with the community. I think this is a key issue that we can all put effort into and I think the result is so much better and so much bigger.