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BEE Basics: The Hackers Guide for SME’s

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The area of BEE and the revised codes may seem complicated, but with the right tools you’ll be able to sound like you know your stuff in no time. Here is the hackers guide to cracking the language of BEE. Exempt Micro Enterprises (EMEs)

Businesses with a turnover of less than R10 million a year are automatically exempt from BEE requirements. They are automatically deemed to be a Level 4 Contributor if they are less than 50% black-owned or a Level 3 contributor if they are more than 50% black-owned. Start-up businesses are treated as EMEs for the first year following their establlishment, regardless of their expected total revenue. EMEs that wish to tender for government contracts of between R5 million and R35 million will, however need to use the QSE or generic scorecard.

Qualifying Small Enterprises (QSEs)

QSEs are organisations whose annual turnover is between R10 million and R50 million. (Read more…)The Department of Trade and Industry (DTI) has developed a BEE scorecard specifically for QSEs whereby each of the seven B-BBEE codes are weighted equally at 25 points. QSEs are then given the option of selecting any four of the seven codes on which to comply in order to achieve their requisite 100 points. This addresses one of the most common BEE worried that entrepreneurs have, namely the (incorrect) perception that you have to ‘give away’ shares in a company in which you’ve invested everything. It makes BEE more accessible and manageable for SMEs and because all codes are given equal weighting, it gives you maximum recognition for any investment your company might make. For instance, QSEs can earn a full 25 points for their investment in socio-economic development (commonly known as corporate social investment or CSI) projects, whereas larger companies that are scored using the Generic Scorecard can earn a maximum of five points for such activities.

Generic Enterprises

Generic Enterprises are those with an annual turnover in excess of R50 million. (Read more…)Their scorecard differs significantly from the QSE scorecard as they have to report on all seven codes in order to assess their BEE status, and codes are weighted differently according to their perceived importance in furthering B-BBEE in the country.

B-BBEE Revisions for SME’s

The revised B-BBEE codes came into effect in 2015 which mean that SMEs are required to rethink their strategies if they want to maintain favorable BEE ratings but no matter what your rating is, there are plenty of opportunities for any business that understands their market and can deliver exceptional product fit. Once you have made it onto the supplier databases by becoming code compliant, the journey does not end- a business needs to be able to communicate to that market what having a certified rating adds to the value proposition. (Read more…)

There are certain fundamental changes that every SME should be aware of:

  • The number of points required to achieve a better B-BBEE status has increased. The total score of the B-BBEE Codes of Good Practice across all elements have increased from 100 to 105 points.The revised codes have reduced the scorecard from seven to five elements and all companies need to comply with all five elements.
  • In the main points, the ownership points have been broadened to include designated groups.
  • Employment equity has been combined into one element with management and control, and preferential procurement has been combined with enterprise development into one element.
  • There are revised qualification points for B-BBEE recognition: Ownership now contributes 25 points (previously 20), Socio-Economic Development has been reduced to 20 points (previously 25), Supplier Enterprise Development now contributes 40 points (previously 15) and Management and Control contributes 15 points (previously 15)
  • Companies are also awarded five Ownership bonus points if 100% of black learners in the company’s learnership programmes are absorbed into employment with the business after undergoing training.
  • There are new priority elements – ownership, skills development and supplier development.
  • Large entities are now required to comply with all three priority elements while QSEs must comply with at least two of the three priority elements, one of which being the ownership priority element.
  • 100% black-owned enterprises qualify as level 1 and 50% and above black-owned qualify as level 2.
  • B-BBEE elements have been aligned with Employment Equity Act.

When entrepreneurs can get their heads around that BEE can deliver big benefits to their business, or that they can earn BEE points for investments that they are already making, it often brings about a shift in their negative perceptions of B-BBEE.

Instead of feeling resentful about ‘yet another hindrance that government has placed in the way of small business’, consider how you can wield the legislation to your advantage. There are many benefits you can get from a strong BEE status, in addition to the obvious one of putting your company in line to win tenders and contracts:

  • Becoming BEE compliant and making your business an attractive Enterprise Development (ED) investment can open up doors to immensely beneficial partnerships with big businesses. A number of savvy would-be start-ups have accessed capital, equipment, mentorship and business deals from large organisations looking to earn ESD points.
  • Similarly, the Preferential Procurement (PP) portion of the ESD code can enable a small business to join the procurement database of a range of large corporates, something that’s considerably more difficult to achieve without the leverage of BEE. An investment in skills development will provide your business with multiple long-term benefits while earning you BEE points, and involvement in community and social upliftment projects can boost your brand and build morale and loyalty among staff.
  • Programmes that fast-track the development of black employees into management positions can widen your network of business contacts and provide you with access to a broader market.

Supplier Development needs to be a sustainable process for both the SMEs well as for corporates. SME’s need to show that they have other abilities in their value proposition and small, black businesses need to realise that being black-owned alone is not a business case. The shift and integration of corporates will also take time and finding a suitable ESD partner to partner them through the process will help them change the way they do business.

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