Month: June 2012

Entrepreneurship could cure SA’s growing youth unemployment crisis

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Youth unemployment in South Africa has reached boiling point and has spurred on heated political debates and mass protests ending in violence. Governments around the world have tried to react to the mass youth protests and the swelling problem by implementing labour market policies, such as subsidised wages, tax incentives and encouraging school-work transition through apprenticeships and training programs. However, the unemployment figures have continued to soar and have not shown signs of slowing down.

According to Nimo Naidoo of the Sanlam/Business Partners Entrepreneur of the Year® competition, the rising levels of youth unemployment can be effectively curbed through the promotion of entrepreneurship as a viable career choice for South Africa’s youth. However, it requires a committed change in South Africa’s public perception and culture.

She says that the UN estimated last year that 74.8 million young people, between the ages 15 and 24, remained unemployed worldwide, while 6.4 million youths dropped out of the labour force globally. According to an International Labour Organisation (ILO) report, the youth of today are three times more likely be unemployed in comparison to adults, while 1 in 5 young working people live on R8/day.

Naidoo says that recent statistics, released by the latest Labour Force Survey, paints a dire picture for South Africa’s youth. “Youth unemployment has increased by 9.9% since last quarter and is now standing at a staggering 42%. Government has tried to absorb the high unemployment numbers through various state programs and have been actively promoting entrepreneurship in the hopes of reaching their goal of 5 million jobs created by 2020. However, according to Adcorp, a large discrepancy exists in the formal employment market. 800 000 vacancies are available in the private sector, yet 600 000 university graduates remain unemployed.”

“The 2011 South African GEM report, released last week, has also revealed a significant decline in entrepreneurial levels among South Africa’s youth. Entrepreneurship levels of people aged between 18 and 34 have declined significantly by 16% between 2010 and 2011. Evidence, from the recent released GEM report, shows that young entrepreneurs in South Africa chose self-employment out of necessity rather than being motivated by attractive opportunities.”

Naidoo says that these statistics are very worrying and show signs of an unhealthy entrepreneurial culture in South Africa. “The manner in which a country supports and recognises their entrepreneurs determines the culture of entrepreneurship and ultimately moulds the future of the economy. A positive entrepreneurial culture is not something that can be simply put in place. It begins at the roots of society and needs to be carefully nurtured.

Naidoo believes that the roots to South Africa’s entrepreneurial problem can be linked to South Africa’s educational structures. “Both South Africa’s formal and informal educational structures do not prepare the youth to become skilled entrepreneurs. Not only has the structure ill-equipped the youth to become entrepreneurs, but it has created a culture where young South African’s dream of becoming employee’s rather than employers.”

He says that not all individuals posses the qualities to become an entrepreneur and therefore these qualities and talents need to be developed accordingly. “Youth should be exposed to entrepreneurship via the South African education system, as well as leaders and managers of businesses where they work.”

As the business world continues to rapidly evolve an increasing amount of young entrepreneurs, such as Facebook’s Marc Zuckerberg, are emerging as successful entrepreneurs and outright market leaders in their respective industries. Sanlam and Business Partners, the competition’s co-sponsors, would like to recognise the ability and deserved success of South Africa’s young entrepreneurs by encouraging them to enter the 2012 Sanlam/Business Partners Entrepreneur of the Year® competition, which boasts an array of advantages for both finalists and winners.

Q&A with Mmabatho Mokiti

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Youth Month is celebrated annually throughout the month of June. Not only does this month coincide with the historically significant Youth Day, but represents the government’s commitment to confronting youth unemployment in South Africa. In order to counteract the increasing levels of youth unemployment, it is crucial to communicate and promote entrepreneurship as an attractive employment opportunity to South Africa’s youth.

Mmabatho Mokiti is an inspirational South African entrepreneur who is the proud founder of Mathemaniacs, a private tutoring company, and was also the runner up in the 2011 SME Toolkit South Africa Young Entrepreneurs Business Plan competition.

Nazeem Martin, Managing Director of the competition’s co-sponsor Business Partners Limited, described the finalists as role models to the rest of South Africa’s youth. “Their innovation, tenacity and dedication to chasing their dreams can serve as a true inspiration to all aspiring entrepreneurs.”

You were the runner up in the 2011 Young Entrepreneurs Business Plan Competition, why did you enter the competition?

I entered the competition because my business needed a “kick start”. My business was already running, but I didn’t have a business plan. I felt this would be a challenge and that it could also be very rewarding.

The prizes were very attractive and could assist me in taking my business to the next level. Prizes such as mentoring added a lot of value to my business.

Could you please provide a brief description of the business you created the business plan for?

Mathemaniacs is a two year old private mathematics, science and accounting tutoring company aimed at bringing ‘the FUN’ into studying maths, science and accounting. Most learners have developed a negative attitude towards these subjects. We therefore aim to eliminate the negative connotations around these topics by giving the learners private one-on-one lessons in their place of safety, where they feel most comfortable.

We bring ‘the FUN’ out of these subjects by using innovative teaching methods and applying Maths and Science to real life experiences, thus making the work easier for the learners to understand and remember. We attempt to make learning enjoyable, which then builds the learners’ confidence as a result of improved school results. Our target market consists of school, university and adult students.

We also organise workshops and camps for larger groups, where we again, strive to make learning Maths and Science an enjoyable experience.

We have also started to develop a statistics department, where we help postgraduates with their data analysis for their theses, by helping them to build a regression model and measure the impact of a project.

Have you always aspired to become an entrepreneur?

From a young age I have always wanted to be an entrepreneur. I grew up around my grandfather, who was an entrepreneur, and watched him do what he loved, while making money. This experience motivated me to pursue the same thing.

At that time I didn’t know what type of business I wanted to start, but when I finished studying I decided to make use of my passion for mathematics, science, education and youth development to form a business. I had just finished university and was sure that I didn’t want to work in a nine-to-five job. I decided to use my last R500, which I had earned from a student job as a tutor, and bought my first textbooks. I printed a couple of flyers and asked my cousin to help me distribute them at a school parking lot.

A week later a parent called me desperately in need of lessons for her child. Soon after my lessons started the child’s marks began to improve. Soon after, my business started to expand as my clientele began to grow via the positive word of mouth generated from my first student.

How important do you believe a strong business plan and pitch is in the success of a business?

A strong business plan is crucial to the success of a business. Firstly, a business plan is a good indicator of your proposal’s feasibility. Secondly, a business plan helps an entrepreneur structure their business, by implementing processes and objectives.

Most times aspiring entrepreneurs think that they only need a business plan in order to apply for funding, but a business plan establishes basic business guidelines. A concrete plan allows you to assess your environment and establish if a need and a niche in the market exists, hence determining whether your business will be a success or not.

What are the biggest challenges you have experienced as an entrepreneur?

The biggest challenge has been convincing students to leave their current tutoring company to join Mathemaniacs. I also struggled to convince parents that enlisting with Mathemaniacs would improve their children’s marks while, teaching them to enjoy the subject matter.

If you could provide advice to other young aspiring entrepreneurs, what would it be?

If you dream of becoming an entrepreneur, go for it! Everyone may not believe in your idea in the beginning, but you need to remain fully committed. You should believe so strongly in your business that you end up convincing others to do the same. Being an entrepreneur is much like being a sales person, because at the end of the day, you need to convince others to believe in your idea. Nothing makes a business more successful than passion.

Cash flow FAQ

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How can entrepreneurs effectively manage and plan their cash flow close to financial year end?

Cash flow is often glibly used as a general term even when you have not done the basics right. The basics are to manage all your current assets and liabilities with a tight reign.

This simply means that your stock level should be managed to remain within industry norms based on your seasonal turnover levels. In the down season, which is often after Christmas and New Year, when factories are slow to open up and consumers have less money to spend, you need not have the same high level of stock than when it is peak season. Negotiate for returning slow moving items in exchange for faster moving stock with the suppliers of your stock. Keep the keys of your store yourself and put a limit on stock shrinkage. Keep proper stock records and verify it regularly with physical stock.

Lesson 1 is to manage your stock levels down to acceptable levels for the season you are in. This will free up working capital (cash).

You should always manage your debtors (those clients of yours that buy from you on terms). There should be tightly managed limits for each debtor and you should stop supplies if that limit is reached. There should also be definite credit terms for each debtor and should they not pay within the agreed term, then supplies should be stopped. Communication with the debtor should also take place all the time whether they reach the due date or start to test their credit limit. The client want to clearly know where they stand with you and any action should not be a surprise to them as they know that you are friendly, but also tough when it comes to the terms and conditions of supplies on credit. Early settlement discounts to encourage debtors/clients to pay you earlier should also be considered. Always keep proper records of communication with your debtor/client, even if it was a telephone call you need to make a file note and always have a proper age analysis per client. This is normally computer generated and should be a help to manage your outstanding debtors.

Lesson 2 is to tightly manage your debtors both from the side of how much credit you provide them and also from the side of by when they need to pay for supplies on credit.

You should also tightly manage your bank account and not allow it to exceed the limits set by the bank. Should you run into trouble it is better to communicate with your relationship manager or bank manager before you reach your credit limit. That means you need to have proper cash flow projections with clear knowledge when your debtors will pay you and when you need to pay your creditors. It will also entail planning the payment of your costs such as rent, salaries and wages and the like that it forms part of your cash flow planning. It is important to keep your cash book (bank account in your books) up to date so that you can use actual numbers when planning your cash flow, especially towards month end and when it is your down season.

Lesson 3 is to play open cards with your banker and to prove to him/her that you are tightly managing your cash flow in good and bad times.

You also need to tightly manage your creditors. Stick to your credit limits. Pay them on time. Renegotiate your terms and limits once you have built a track record with your suppliers/creditors. Ask them if they would consider supplying you with consignment stock for especially the high value items. They benefit as they use less storage and they have more area than normal to display their products at different premises. For you it is also beneficial as you only have to pay for the stock when it is sold. An arrangement must just be made to keep record of consignment stock. Always keep file notes of all conversations and agreements with your suppliers. Also keep an age analysis per supplier and also make sure that you reconcile monthly with your supplier statements and follow up on all reconciling items.

Lesson 4 is to play open cards with your suppliers and to remain within their limits and terms.