Business saving rate leaps – we meet five famously frugal entrepreneurs
Monday, March 26, 2012/
It’s not just customers that have turned frugal. Businesses are also saving more following the financial crisis with savings rates increasing from 10% of gross domestic product (GDP) to 14%, according to new data.
In a report published this month, the Reserve Bank of Australia (RBA) found a noticeable increase in the corporate savings rate (the retained earnings after tax and dividends) following the early 1990s recession and the recent financial crisis.
This saving was preceded by high levels of investment, funded mainly by debt in each case.
In both periods, businesses increased their saving to repay debts and reduce their gearing ratios reflecting trends towards increased household savings.
The RBA said the high level of business saving in recent years has meant that for a given level of investment, there has been less funding raised externally than in previous years.
This flow of external funding, from banks, bond markets and equity markets, has slowed since 2007-08.
Consistent with this, business debt has declined by almost 10 percentage points of GDP and gearing ratios have returned to around decade averages.
Paul Dowling, principal analyst at East & Partners, says the rise in business deposits is being driven by the smaller end of town.
The RBA figures are reflected by East & Partners’ own Deposit Funding and Debt Index Report, which shows small businesses continue to generate a higher and growing level of deposit-making into the system than they are borrowing.
The report found this was a result of continued aggressive deposit marketing by banks, tight access to credit for the sector and a very depressed appetite for borrowing.
Dowling says his study of businesses’ deposit to lending ratio has dramatically shifted over the past few years, with small business changing from aggressive borrowers before the financial crisis to now holding $2.43 in deposits for every dollar borrowed.
“Small business has been very fleet of foot in shoring up their balance sheets; it normally takes quite some time for business behaviour to flow through to the Reserve Bank,” he told SmartCompany.
Dowling says that although the conservatism is understandable because small business is often subject to influences outside its control, the flowthrough effects to the economy are quite dangerous.
Holding on to money when times are tough is not a new phenomenon and indeed some of Australia and the world’s most successful business people are notoriously frugal. Here are five famously frugal entrepreneurs:
1. Warren Buffet
The third wealthiest person in the world, master investor Warren Buffet is worth $47 billion but famously lives in the same home in Omaha, Nebraska that be purchased in 1958 for $31,500.
Buffet spends little on cars and clothes, prefers hamburgers and soft drink to vintage wine and bought his second wife’s wedding ring from Borsheim’s Fine Jewellery in Omaha, which is owned by his company Berkshire Hathaway.
Legend has it he even asked for the staff discount.
2. Ingvar Kamprad
Ikea founder Ingvar Kamprad freely admits he is “a bit tight”.
The billionaire, valued at around $23 billion, reportedly sacked his barber after finding another who would cut his hair for $13.
He always flies economy (on a low-cost airline, where possible), drives a 1993 Volvo and always does his food shopping in the afternoon, when the prices drop in the local market.
His house is furnished almost entirely with self-assembled Ikea furniture and he regularly eats in the chain’s cheap restaurants, famed for their budget serves of Swedish meatballs.
3. Len Ainsworth
Australia has its fair share of frugal entrepreneurs beginning with the founder of poker machine manufacturer Aristocrat Leisure, who has a personal fortune of $610 million.
“If frugal, frugal, frugal were the title of a song, I would be singing it,” the pokies tycoon once said.
His favourite penny-pinching trick?
Taking his lunch to work (in his gold Rolls Royce, of course).
4. Greg Poche
Poche sold his national freight business Star Track Express to Australian Air Express (a joint venture between Qantas and Australia Post) for $750 million in 2003, but reportedly remains as frugal as ever.
He liked to boast he owned just three sports shirts and two business shirts, drives an old Toyota sedan and has been known to drive across Sydney to save $10 on a bottle of wine.
5. Gerry Harvey
The title of Australia’s richest penny-pincher must be retail king Gerry Harvey, who is worth an estimated $900 million.
Stories of his never-ending drive to save a buck abound.
In the book Gerry Harvey: Business Secrets of Harvey Norman’s Retailing Mastermind, author and Eureka Report editor James Kirby tells how Harvey will spend two months deciding whether or not to buy a pair of shoes.
He also relates the story of how Harvey once admonished his wife for buying mandarins from the supermarket when they had a mandarin tree in the garden.
Harvey’s not above recycling paper clips or even knocking off pens. When addressing the Australian Securities Institute, Harvey grabbed a notepad from the podium and announced he was taking it back to work to cut costs.