Updated: Generous BEE compliancy allowances for Small Business

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With the release of the final BEE Codes of Good practice=, the government has listened to small and medium business concerns about their difficulty in becoming compliantJohan Giliomee of NERA tells Smart Procurement. "Their biggest complaint has been that they do not always have the resources and money to become compliant and that a change in ownership and management will seriously affect their business.

Many SME's derive their competitive advantages from the fact that they are owner-managed and have a highly adaptive management style. Decisions are taken on the go and this allows them to react faster and be able to take advantages of opportunities."

"Very often these businesses are run by a key individual who make all the strategic decisions and the management style is of such a nature that is just no space for another shareholder, be it a black or white person. To them, the introduction of a new partner into the business is just not an option at all," he says.

Government has responded by making significant allowances for small businesses with a turnover below R35m per anum. These include the following:

• Enterprises with a turnover below R5m are exempted from complying with the scorecard. They are automatically classified as compliant BEE contributors.

• Placing less of an emphasis on Ownership and Management by making the points weightings an equal 25 points for all 7 elements on the scorecard.
• Allowing them to choose only the best four out of the seven elements which will then give them a total out of 100.
• Lowering the compliance targets in some areas such as Preferential Procurement.

Non-compliant businesses have welcomed these allowances which mean they can become BEE complaint by focusing on areas such as preferential procurement, skills development, enterprise development and socio-economic development. The broad-based scorecard allows them to make their contribution to economic empowerment by spending money or time in these areas while not having to give away or sell a part of the business.

Procurement Implications

A non-compliant business can, for example, now become fully compliant by doing the following:
• buy 40% of all procurement from good BEE companies (Level 4 BEE contributors)
• spend 2% of net profit on assisting a black business and
• spend 1% of net profit on a qualifying charity

The 40% target for Preferential Procurement has been lowered from the previous 50% which is regarded as a generous allowance. In many instances, a company may have two or three big suppliers that make up at least 40% of their total procurement. If these suppliers are at a good BEE level, then the verified company will gain the full 25 point available without having to look at their other suppliers.

While the debate will continue whether small business has been let off the BEE hook, business owners are no longer waiting to see which way BEE is going. Verification agencies are set to have busy year as small businesses are getting on with the job of becoming BEE compliant and being verified.

Article by Johan Giliomee (National Empowerment Rating Agency)

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