The cost of BEE compliance
Original publish date – Mon, 05 Jul 2010 09:35:54 +0000, Keith
Many people ask us what the cost is of becoming B-BBEE compliant. It is a bit like asking “How much does giving your children a good education cost?.” Most people will agree that a good education is an investment in your children’s future and not a cost at all.
We can identify various types of costs in becoming BEE compliant. Costs depend on the size of business, the type of business and the level of compliance required.
These are direct costs and indirect costs:
1) The cost of a consultant
2) The cost of obtaining your verified certificate
3) Direct costs in earning points
4) The cost in time and effort in carrying out the activities needed to earn points
The cost of getting BEE compliance wrong
1) The cost of a consultant:
A business needs to learn about BEE, in order to implement BEE properly. This could be a little as a R1200 training course, to multiple seminars. On-going consulting, for the first couple of years is usually a good idea, and can cost from R1500 per month to R5000 for a large business.
2) The cost of obtaining your verified certificate:
Verification agencies charge based on the annual turnover of the company and expected time and difficulty of performing the verification, including taking into account the number of employees and branches. Verification costs start at R6000 going to R50000 for large companies and much more for giant corporations. This is an annual expense.
3) Direct cost in earning points:
Some elements – enterprise development and socio-economic development have specific targets, based on spend compared to net profit after tax. A small business (QSE) needs to spend 2% of net profit after tax in order to earn 25 enterprise development points, and 1% of net profit after tax in order to earn 25 socio-economic development points. If a company makes R1million net profit after tax, it will need to spend R30000 to earn 50 points on enterprise development and scico-economic development. If it spends less it will earn points pro-rata, Skills development requires the same small company to spend 2% of its total payroll on training.
4) The cost in time and effort in carrying out the activities needed to earn points:
There are costs in producing a strategy and collecting documents to be verified. Procurement has no financial target but requires a company to collect BEE scorecards from its suppliers and to calculate its procurement spend with each supplier. This is a time consuming task for large companies but could be quick, easy and no cost for small businesses that have one large supplier with a good BEE score.
Some costs, like assisting enterprise development beneficiaries can be offset against direct costs (see (3) above).
5) The cost of getting BEE compliance wrong
BEE, like your child’s education should be an investment and achieve its goals. A good BEE strategy and implementation should achieve more sales and profits for the business and a higher equity value for the shareholders. If it does not, then at best you have wasted lots of money, and at worst the business itself is at risk of failing.
Getting it wrong could imply that the business has not reached the level of compliance required by customers, or that the level is lower than the opposition that will get more business to the detriment of your business. It could imply that the overall strategy was wrong, and costs the shareholders money or equity that does not give the required return on investment. For example if the shareholders sell equity to a black partner, but do not earn the maximum points, or price the deal to low.
The above all depends on the size of the business and the importance attached to BEE by the company shareholders and directors. A business with an annual turnover of less than R5 million needs only to produce a document stating this. If produced by an accountant, consultant or verification agency this is about R750 – once-off expense, though many business people have learned how to write up the required documents – effectively at no cost.