Wealth and Cash Flow Lessons From Donald Trump. Are You Ready To Be An Apprentice?

Wealth and Cash Flow Lessons from Donald Trump.
Are you Ready to Be an Apprentice?

For most people the name Donald Trump conjures up many images: The hair. The pout. The Tower. The casinos. And, of course, The Apprentice. He is certainly one of our society’s most recognizable personalities, and since the 1970s he has accumulated enormous wealth. But has that wealth made him financially independent? Not necessarily, at least not until recently. To see why, let’s take a brief look at how his financial investments and priorities have evolved over the years.

1970s to 1980s – The Asset Accumulation Years
In 1971 Donald Trump moved to Manhattan, where he quickly established a name for himself as a leading New York City real estate developer. At first, he focused on multi-unit residential complexes but then expanded into commercial properties, including hotels and office buildings. By the 1980s Trump’s assets from real estate holdings, development activities, and property sales had grown significantly. There were liabilities (mortgage debt) associated with these assets, but at first they didn’t appear to be excessive, and as a result Trump had substantial net worth, or wealth.

1990s – The “Bad Wealth” Years
By 1990 Donald Trump had broadened his investment interests to include football, airlines and casinos. It was the latter, in particular the Taj Mahal Casino in Atlantic City, that together with increasing debts on his other properties led to a serious debt problem. In fact, by the early ‘90s his personal debt had grown to $900 million and his business debt was nearly $3.5 billion.

The problem? Despite having substantial assets, the liabilities were excessive. To make matters worse, the assets weren’t generating sufficient cash flow to cover the debt payments. On paper, Trump might have still been a multi-millionaire, with total assets several million dollars more than total liabilities; so he had wealth. But negative cash flow meant he was far from financially independent. In fact, he was on the brink of personal bankruptcy. Hence, the “bad wealth” years.

Donald Trump’s various financial ventures
illustrate the difference between
bad wealth – which generates debt – and
good wealth – which generates cash flow.

2000s – The “Good Wealth” Years: Apprentice to the rescue
In 2003, NBC launched The Apprentice, a reality TV show hosted and produced by Trump. During the first season Trump was paid $50,000 per episode, or roughly $700,000 for the year. Now, given the show’s enormous success, he is reportedly paid $3 million per episode. Calling this venture a cash cow would be an understatement. It is a great example of “good wealth”: an asset (in this case a business) that generates substantial positive cash flow.

But “The Donald” knew how to take a good thing and make it better. Starting with his real estate activities and especially now with his media success, Trump has established and fully leveraged the branding of his name. And he’s done so with a particular focus on relatively low cost (and therefore low debt) ventures that generate multiple income streams. Some examples:

• Books and tours
• The Apprentice memorabilia and game items
• Speaking engagements, where he reportedly receives up to $1.5 million per presentation
• Allowing (for a fee) his name to be displayed on buildings owned by others

These specific types of activities are generally beyond our reach. But the financial principles they illustrate are simple and relevant to us all: Seek to develop a portfolio of assets that generate positive cash flow. And, by all means, don’t let your debts spiral out of control. Having been there himself, The Donald has an expression for people who let that happen: “You’re fired!”

Source for Donald Trump biographical information and financial data: Wikipedia