QSEs should all be level 2s and how to get there.
Published by Your Business Magazine
A QSE (qualifying small enterprise) is one with an annual turnover of between R5 million and R35 million. The codes make it far easier for QSEs to comply with BEE, than a generic company that has to comply with all 7 elements. By contrast a QSE only needs to choose 4 of the 7 elements, namely ownership, management, employment equity, skills development, procurement, enterprise development and socio-economic development.
Each element of the QSE scorecard is worth 25 points.
It is very easy to therefore earn more than 75 points (level 3) and to even exceed 85 points (level 2), without too much effort. This will give the QSE huge advantages over generic companies that generally struggle to exceed 50 points.
How to get to level 2:
This does depend on various factors, but lets take 2 very general scenarios:
Scenario 1 – The company is white owned:
The logical areas to quickly earn points will be socio-economic development, enterprise development, and a choice of two of procurement, skills development or employment equity. The company should be able to earn 25 points on socio economic development (SED) by spending 1% of its annual profit before tax on SED activities – i.e. charitable contributions.
The company should also be able to earn 25 points on enterprise development (ED) by spending 2% of its annual profit before tax on ED activities. This is already 50 points. It needs only another 25 points on the remaining two elements to reach level 3. If it purchases from companies who can give a proper BEE scorecard it can earn those points on procurement. This usually occurs when the company has a few large suppliers.
Alternatively, the company can earn 10-20 points via employment equity. Many small companies do not spend enough on skills development, but may still be able to earn 5 -10 points on this aspect.
It summary, a (white owned) company’s scorecard can easily be:
Socio Economic Development 25
Enterprise Development 25
Employment equity 13
Procurement or skills development 13
Total 76 (level 3)
Scenario 2 – The company is black owned:
The logical areas to earn points are ownership (25 points for more than 25% black ownership. A black owned business is likely to have black directors and will earn another 25 points under the management scorecard.
It is also likely that the employment equity scorecard is higher, and the company may be able to earn 15-25 points on this element.
The fourth element could be procurement, enterprise development or socio economic development – which should achieve 25 points.
It summary, a (black owned) company’s scorecard can easily be:
Employment equity 20
Enterprise Development or socio Economic development 25
Total 95 (level 2)
Benefits of having a high score:
QSEs with high scores and eagerly sought after by generic company, as the high score will assist the generic company to increase its own procurement score. In addition the generic can earn an extra 3 points by purchasing from QSEs with high scores. Without doubt a high score will translate into more business.
It should be clear from the aforegoing that it is desirable to achieve a high score. It is also very easy to achieve scores well in excess of the tables above. It requires a bit of work, not too much cost, and certainly a bit of admn work, especially to be able to prove and document the areas where the QSE is claiming points. Without suitable documentation, ie. Dates, descriptions of spend, those points, especially skills development, enterprise development and socio economic development, the points will be disallowed and lost.
Finally, many large companies (generics) know how easy it is for a QSE to achieve level 2 or level 3. When they see a QSE without a scorecard, they naturally will assume that the QSE is dis-interested in complying to the QSEs detriment.
Work on getting a scorecard as fast as possible, and ensure that you have, or can achieve level 3 in 2008 and level 2, or even level 1 in 2009. Anything less and other QSEs – your competitors will overtake you.