Oh goodness. Johnny Depp is in the news. For not good things. Again.
For some background, many affluent individuals hire a company, usually a management group, to take care of their taxes, bill payments, investments, and everything else financially related. Essentially they are a one-stop shop for their busy clientele, as they are expected to run their business and private life.
Typically the company retains a percentage of the client's gross annual income. In this case, the Management Group (TMG) led by two brothers, Joel and Robert Mandel retained 5% of Depp's annual earnings. Roughly $28 million over the last 17 years.
Depp has filed a lawsuit against TMG, seeking $25 million in damages for negligence and mismanagement. He claims that their tax filings for him are inaccurate amongst other complaints.
TMG claims that this lawsuit was filed in retaliation of them filing Depp's home for foreclosure. Which is happening, because Depp is allegedly not paying on the loan that the TMG had to secure for him after his initial loan through City National defaulted.
TMG had previously warned Depp that his lavish lifestyle was unsustainable. They revealed a breakdown of his $2 million per month expenditures. And shared conversations where they advised Depp to cut back on his spending, only to be met with a litany of profanity from the actor.
My Two Cents
Irregardless (yes that's a word) of your feelings about Depp's spending or if his trusted advisors could have prevented his financial meltdown- the issue lies in the fact that it is not wise for anyone to completely hand over their financial well-being to an outside entity or individual.
Let's put it this way: it would be like expecting your personal trainer to do pushups or burpees on your behalf. Or expecting to maintain a fit body, when you eat like crap five days out of the week. Or thinking that you can get all your workouts done in January, to last you the rest of the year.
It doesn't work. You have to be an active participant in your well-being. And the experts that you hire need to take the time to educate you on how to be financially savvy. As opposed to just doing the work for you.
What you can learn from this
I've worked with hundreds of small business owners. And have spoken to thousands of entrepreneurs. And many of them fall in to the trap of hiring a financial professional and expecting he or she to do all of the work for them.
It is your duty to be involved and seek out educational opportunities.
Like I tell all of my clients, "No one cares more about your money than you do. So it's your job to make it your business."
And to my financial professional colleagues, don't do all of the work for your client. Teach them how to fish and empower them with information to learn how to manage their money for themselves.
At the end of the day, 99% of financial professionals want to do right by their client. But, the relationship is a two-way street. And will only work if both parties are active.
As an entrepreneur, here are three things you can do to avoid Johnny Depp's financial disaster.
Weekly money dates and monthly reviews. Reconcile your books on a weekly basis. And request a monthly financial analysis meeting with your financial professional, to review your cash flow, expenses and (hopefully) profit
Establish checks and balances. Do not work with only one financial professional. The person who files your taxes should be different than your bookkeeper or accountant or personal financial advisor. Checks and balances protects everyone.
Stay educated. Seek out opportunities to learn how to do your books, run financial reports and become savvy with your money. A great place to start is our Financial Foundations program. You can check out the testimonials and get information about the program, here.
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