Seven Financial Mistakes Made by The Beatles

Can't Buy Me ... Love?

The Beatles were innovators in so many areas that it's easy to forget not everything they touched turned to gold. Even The Beatles made their share of mistakes, and none were greater than their initial foray into entrepreneurship known as Apple Corps.

While the company's current incarnation successfully oversees the band's vast business concerns, Apple Corps was on far shakier ground when it launched 45 years ago this month. Apple Corps' early endeavors in film, electronics, publishing and its fashion wing, the Apple Boutique, reportedly lost around 200,000 British pounds (around $4.8 million in today's U.S. dollars) in just seven months, as the band allowed the anything-goes ethos of the '60s to replace solid financial judgment.

Here are some of the crucial mistakes The Beatles made, and -- with assistance from Jason Romano, a Los Angeles-area CFP professional and principal at Moss Adams Wealth Advisors -- advice on how other artists, creative types and the rest of us mere mortals can avoid their mistakes.

Extravagance and Overspending

As The Beatles built their business, rock 'n' roll excess became the rule. From padded expense accounts and staffers flying first class to artists receiving free groceries, housing and even cars, frivolous expenditures abounded. The office was furnished with expensive antiques, and around 600 British pounds (around $14,600 today) was spent on alcohol every month -- with an almost equal amount also spent on food. And this is before we account for whatever mysterious amount from the company coffers was spent on "substances."

All of this waste could have been prevented if only someone had placed the business on a budget.

Lesson: Whether you're wealthy or just working your way toward it, Romano says a budget is essential for allocating your funds -- especially if you're as inherently bad at managing money as The Beatles were at the time.

"Lots of people think that a budget is something a young family is focused on," says Romano. "But the reality is that even if you've got millions of dollars, a budget is still critical. This allows you to figure out exactly how much you can spend on big-ticket items, whether (on) toys, like planes, boats and cars, or real estate. A budget helps you figure out how much you should be spending."

Hiring Inexperienced Friends and Family

There's a lot to be said about The Beatles' hiring practices, but they can be summed up with one revealing fact -- the band had a "mystic" on its payroll.

While it's not unusual for famous musicians or actors to hire people they've known for a long time -- as anyone who watched HBO's "Entourage" can attest to -- there's a difference between hiring a friend with no business experience as a gofer and hiring him to actually run a business.

When Apple Corps launched, the band's late manager's personal assistant was made the company's general manager. The boutique was run by George Harrison's sister-in-law and a childhood friend of John Lennon's who'd previously run a supermarket, and the record company's "head of talent" was the brother of Paul McCartney's girlfriend. On top of all this, a mystic was not only employed by the company, but allowed input into major company decisions that would sometimes be determined by a reading of his "I Ching" coin tosses. The bottom line was that too many of Apple Corps' hires were vastly underqualified for their jobs, and the result was financial ruin.

Lesson: When determining hires, it's essential not to let friendship and nepotism overtake simple common sense. If you're ever in the fortunate position of being able to hire friends and family, give them jobs they're qualified for -- and jobs that genuinely need doing.

Making Bad Investments

When Apple Corps' formation was announced, Lennon and McCartney spoke of wanting to help creative people make their dreams come true without the corporate interference.

Despite their noble intent, the band never considered that some of these dreams might be ludicrous and unfeasible. As plugged into the zeitgeist as they were -- heck, they helped create it -- their cultural intuition failed when it came to choosing viable projects for investment. They basically handed money to anyone who asked.

As a result, Apple Corps' office was often jammed with everyone who ever had an idea, from the creation of an "artificial sun" to an early version of audio books that didn't make sense for the time. George Harrison famously commented that the company heard pitches from "every freak in the world."

Lesson: The band's carelessness in vetting potential investments offers a lesson in understanding what you're investing in, including its value to the market and its potential for success.

"We frequently see firms making recommendations where the underlying investments are so complex that the adviser couldn't even understand what's going on within it," says Romano. "If you can't talk about it, explain it and understand exactly what it costs and who's managing things -- and I'm not talking about on a really detailed level, but on a big-picture level -- then you shouldn't put your money into it."

No Business Leadership

Would you consider it a valuable use of company time for an employee to roll joints at her desk? The Beatles did, apparently, but that was hardly the worst of the abuses. The Apple Corps' office was more hangout/handout than workplace, and "employees" did more chanting, drugs and making international calls on The Beatles' dime (back in the days when this was a costlier expense) than actual work. This waste was enabled by a complete lack of oversight and even made worse by The Beatles themselves, who would occasionally stop in, sit at a desk, and make believe they were in charge before remembering they were The Beatles, and therefore had many more important and entertaining things to do than to sit in an office.

Lesson: When someone with no business experience establishes a business, it's essential to have someone in place who'll take the duty of running the business seriously without needing to feed their ego in the process. "That ego issue becomes very challenging (in entertainment), but if you have an executive that believes in the people they've hired and promotes the idea of delegation, then you'll have a successful organization."

If you have no business experience, use extreme caution before opening your own company. "You've got to have somebody with experience to guide you," Romano says.

Letting People Steal From You

Out of all the failures of Apple Corps, this was the most glaring. Many companies face the theft of paper clips and notepads, but Apple Corps was scammed out of houses and cars, including three cars that simply vanished and a house that was purchased without reason or explanation.

Money was stolen and swindled, and so was merchandise.

Clothing from the boutique went missing regularly, taken by customers and employees alike; promotional records wound up in staffers' homes; and office items including rugs, televisions, cameras, alcohol, cash and even the lead on the roof went missing so frequently that Lennon reportedly said "18 or 20 thousand (British) pounds" worth of value waltzed out the door weekly.

Lesson: If you have your own company, Romano says it's essential for a company to have "multiple layers of compliance" in order to ensure a tight ship and minimize this sort of double-dealing and theft.

"There has to be a culture of safety," he says. "If one person's in charge of compliance and accountability throughout the organization, then you're basically entrusting that one person to oversee everything. There has to be more than one person. If there isn't, that unfortunately tempts people and causes people to do the wrong thing."

Not Making Contracts

The Beatles did most of their business on faith -- which, given the untrustworthy nature of so many of the people involved, cost them dearly.

Lesson: If you're going to operate on a handshake basis, Romano (who, he emphasizes here, is not a lawyer -- seek one out for direct legal advice) says that while deals often start this way, it's more likely (and safer) to be between people who have a history. "I'm old school this way, but I tend to think that if you're interested in doing business with somebody on whatever level, the relationship has to precede any type of contract," he says.

That said, it's essential to get the particulars of a deal in writing before it can move forward in order to leave nothing to chance should inevitable complications arise. "In this day and age, it's much more critical to have everything in writing, so no one can say, 'Well, what did we mean?' or, 'What did we intend?' or, 'How are we supposed to account for these dollars?'"

Romano strongly recommends having a representative with a thorough knowledge of contracts and your industry to ensure the paperwork is on the up-and-up, and to make sure the deal you're signing is fair. "It goes back to having someone in your corner who is looking out for your best interests," he says.

Literally Giving Away the Business

When the Apple Boutique failed, rather than selling off the merchandise, the band decided to give it all away, deepening their already treacherous money pit. By "gifting" their goods, it also left them with an added tax bill.

Lesson: While you're unlikely to find yourself in too specifically similar a situation, this incident raises interesting questions concerning gift giving. Assuming you can afford to buy your mom that big house she always wanted -- should you?

"There are multiple things people need to consider," says Romano. "First, affordability: Can you afford to buy Mom and Dad a $2 million house? And can Mom and Dad even afford to maintain a $2 million home? If you buy that initial asset but don't consider the ongoing expenses, that's a problem."

Romano also says people sometimes fail to consider issues of gift taxes, which can be costly down the line. "You have to keep track of the exemption amount regarding the value of gifts you make in your lifetime," he says. "If you're buying Mom and Dad a million-dollar house, then you just reduced your exemption -- the amount you can gift in your lifetime tax-free. If you don't account for the fact that it's a million-dollar gift, then you're making a very big mistake that can cost you later."