Enterprise Development and BEE – EconoBEE Newsletter Sept 2007
Enterprise Development – (ED).
Enterprise development is worth 25 points on the QSE scorecard with a target of 2% of net profit after tax and 15 points on the generic scorecard with a target of 3% of net profit after tax.
You may contribute to two types of enterprises:
Category A: Enterprises that are more than 50% black owned and are QSE’s or EME’s.
Category B: All other enterprises that are 50% black owned or 25% black owned and have a BEE level of 1-6.
If you contribute to a Category A enterprise then you may multiply your spend by 120%.
The codes therefore are emphasising that you contribute to small (less than R35 million turnover per annum) majority black owned companies. If your target is R1.2 million, then you can reach target by spending R1 million on a category A enterprise. Your strategy should be clear!
Types of enterprise development.
The codes allow you to contribute to ED in various ways: Grants, loans, discounts on products, investments in the ED project – see annexure 600 for a full list.
We have this week received confirmation from the dti of an area of spend that is almost too good to be true – early repayment of invoices.
Annexure 600 of the codes specifically encourages you to pay supplier invoices in less than 15 days and may claim a percentage based on the number of days less than 15 that you pay your supplier. So, if you pay him/her within 5 days of invoice then you have paid within 66.7% of the target ((15-5)/15) and can claim 66.7% of the invoiced value.
Let us say that you have a black supplier and you owe him R1 million for services or goods rendered, If you pay him COD, then you may claim the full value of his invoice as your ED spend. Yes, you may claim the full amount of R1 million! If the supplier has a turnover of less than R35 million per annum then you can multiply that amount by 120% to reach an ED claim of R1.2 million.
The codes are therefore encouraging you to:
1) Make use of a black owned supplier (if you don’t have one find one)
2) Pay the invoice early
The cost to a business is far less than any other ED initiative! If your target is R1.2 million, and you had to try to earn points anywhere else you would have to spend R1.2 million in loans, grants, products discounts etc.
What is the cost to the business when making an early payment?
Assume that the normal payment terms are 30 days. There is a cash flow disadvantage to the business of paying sooner, but it can be calculated based on the prevailing interest rate. Let us assume a business can borrow money at 20%. The cost of borrowing R1 million for a period of one month (being the shorter repayment period) is R16 666.67. In this way the business can earn its full ED points, instead of having to pay/contribute R1.2 million.
It’s too good to be true!
We recognise that in this case the codes are not only encouraging early repayment but encouraging businesses to support black owned businesses in order to ensure that they grow the economy and also create jobs. If you do not have a black owned supplier, this is a huge incentive to find one! Please note: This is not a loophole in the codes, but we can expect the dti to remove this option from the list of ED activities, or change the weightings, if it is getting abused, or once it succeeds!
How to set up your ED project?
It is not sufficient to make a payment, or early repayment to any black company. Some black owned companies may not want to be your ED project! The entire process also needs to be recorded correctly to aid in proving that ED has taken place.
There are various steps involved in setting up your ED project;
Identify the right company
Speak to them and offer to set them up as your ED project.
Obtain acceptance that they are your ED project. The beneficiary should be made aware of his obligations towards accepting your support.
Identify, in conjunction with your beneficiary, the areas where your contribution can assist and sign an agreement/document clearly stating the obligations and benefits expected.
Ensure that your contributions are provided as per your agreement
The ED beneficiary should acknowledge the benefits provided and utilise them in the intended manner.
Meet with the ED beneficiary on a regular basis and evaluate the success of the ED contributions.
At year-end the ED project should provide you with a comprehensive report of the status of the business, clearly showing how the business has thrived as a result of your intervention.
It is advisable to appoint an ED company, such as Dinoka Enterprise Development Agency to manage your ED activities and ensure the success of your projects. You need to make sure that you document the process properly to maximize points. Most of all you need to ensure that your ED spend is money well spent.
Dinoka Enterprise Development Agency is a professional Enterprise Development management company specialising in all forms of Enterprise Development. They will assist companies create successful businesses out of their ED initiatives by providing customised solutions for each enterprise. Contact Nhlanhla for more info – 0861 11 3094.
Successful BEE Seminar will be presented in Durban on 11th October
We have had another very successful full day seminar in Cape Town. The seminar took on a very practical approach with our delegates working very hard in preparing their scorecard. The practical approach enhanced their understanding of BEE. This in turn helped them answer their customer’s questionnaires and provide an acceptable BEE Scorecard. Most delegates were also able to produce a more detailed strategy to help them further the cause of BEE in their business.
In total we had 18 delegates. We had a nice range of companies attending from Fruit Juice manufacturers to a Children’s Hospital and even a Bank.
All the delegates learnt a lot and walked away feeling confident that they could comply with all B-BBEE related legislation. The detailed manual contained templates of almost every required document, some documents had even been personalised. The manual also contained a set of record keeping documents which was used practically in the seminar.
The tremendous success of the last seminar encouraged us to schedule the same course in Durban on the 11th of October and Johannesburg on 8th of November. More details are available from our website or by contacting us on 0861 11 3094.
Skills Development and Employment Equity
Letsatsi Resources – a partner to EconoBEE is available to assist companies with Skills Development and Employment Equity related tasks. Give Thapelo a call on 0861 11 3094 to get more information on how Letsatsi Resources can assist your company.