A Perspective on B-BBEE
Threats, risks and concerns. For many SMEs, BEE is an emotional issue, grounded in political and economic restructuring. It is a long journey, and implementation is a long-term strategy, not something that you do just once and “shelve-it.” Many businesses consider BEE a threat to their livelihood, thinking that it is an obligation, a social force that obliges the business owner to giveaway part of its business to a previously disadvantaged group. This is hardly the case. BEE tries to address equality through using government spending as a driver of change and making sure that opportunities previously enjoyed by a minority are extended to the majority. The aim is for the business owner to turn BEE into a competitive advantage.
The framework for BEE is The Constitution, B-BBEE Act, BEE Scorecard, Code of Good Practice, Transformation Charters, and Sector Codes. Business should understand how drivers of empowerment work and what best suits the business.
If the business’ annual turnover is less than R5 million, the business is automatically BEE compliant to level 4 or possibly higher. If the turnover is above R5 million but below R35 million, the business is identified as a Qualifying Small Enterprise (QSE) and can elect to implement the entire QSE Scorecard, (all seven elements) with enhanced recognition. Alternatively, it can select any five of the seven pillars, where each pillar is weighed 20%. Business with annual turnovers above R35 million should implement the Generic Scorecard, or industry specific scorecards.
Empowerment touches every facet of business from the tenders the business wins, to the resources hired, or retrench, bought and sold. For BEE to be a successful transaction, certain key elements must be in place. We have identified ten distinguishing features;
- a positive cashflow
- a track record of profitability
- strong asset base
- no fronting
- BEE partner must add value
- a suitable BEE partner and the desire for both parties to work together
- work for change and transformation
- understanding the drivers of BEE
- a correct entry value for the BEE partner
- BEE structure to ensure sustainability and success
As a business owner, ask yourself,
- How does the current BEE structure fit in with my current business strategy?
- What does transformation mean to my business?
In today’s climate of change and transformation, it is important that the buyer and seller understand the concept of BEE and how it will affect and influence the business. If BEE is part of the negotiation, both parties need to make positive and healthy BEE choices based on sound business principles.
By establishing a realistic market value for the business, the chances of concluding a deal escalate greatly. If the business is valued at R5 million, do not except R5 million for a percentage of the business. A successful empowerment transaction must be in the interest of the business and for its continual growth. It should be done for strategic business reasons based on sound economic principals with all stakeholders profiting and benefiting from the business deal. Remember nobody cares how much ‘sweat equity’ you have put into the business.
In time to come, and if businesses are structured correctly, B-BBEE will attract a monetary value, which in turn adds worth to the business. Currently people ‘cannot see’ or ‘do not want to see’ how a positive BEE strategy will impact on and affect their business. B-BBEE, a tangible and human resource governed by a scorecard that is intentionally designed, and structured to achieve a specific task or set of tasks.
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